108719486 financial analysis of ashok leyland
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INTRODUCTION
Indian automobile Industry
Commercial Vehicle industry has grown in line with the expectation at the rate
of 123 on a year on year basis for 2010-11 We expect an overall growth of
around 10 in 20011-12 which is much lower than in 2010-2011 This
slowdown in growth is mainly due to high base in spite of a strong focus by
the government towards core sectors like infrastructure and improving
competitiveness of private business With the opening up of trade under the
GATTi rules will help to push the demand of the industry
India economy is growing at a fast rate of 85 in 2010-11 with major growth
coming from the industry and service sector like most other developed
economies It seems that the Indian economy which was earlier a rural
centric agricultural driven economy is turning into an urban-centric industry
and service based economy
Structural reforms started in 90rsquos including private participation and
privatization in order to address to India infrastructural development The
Golden Quadrilateral Project and the other highways and road construction
programs being implemented by National Highway Authority of India have
had a significant and positive impact in transport and commercial vehicle
industry The focus area of the government will continue to remain on road up
gradation
The Medium amp Heavy Commercial Vehicles Sector
Commercial Vehicles (CV) broadly fall into two categories-- light commercial
vehicle segment (LCVii) and medium amp heavy commercial vehicle segment
(MampHCViii) HCVs are used for long distance transportation of people
agriculture produce capital equipment and some industrial raw materials
Growth in this sector is dependent on the general economic trend
1
development of infrastructure projects transport economics availability of
freight replacement period of vehicles availability of credit and favorable
government policies Since the industry competes with the railways for
several categories of cargo railway performance is an important determinant
of commercial vehicle sales Historically demand in the Rs 27000 cr MampHCV
industry has been cyclical 3-4 years of growth followed by 2-3 years of
stagnant sales and recession with around 6 CAGR over the last decade1
INTRODUCTION
Finance is regarded as the life blood of a business enterprise In themodern
oriented economy finance is one of the basic foundations of all kinds of
economics activities Finance statements are prepared primarily for decision-
making They play a dominant role in setting the frame work and managerial
conclusion and can be drawn from these statements However the
information provided in the financial statement is of immense use in decision-
making through analysis and interpretation of financial statements As said
earlier finance is said to be life blood of any business Every business under
taking needs finance for its smooth working It has to raise funds from the
cheapest and risky source to utilize this in most effective
manner So every company will be interested in knowing its financial
performance The project entitled ldquoFinancial performance Analysis of
Ashok Leyland Industry Ltdrdquo throw light on over all financial performance of
the company
The Ashok Leyland is an Public Limited Company Founded in 1948it is an
automobile industry and the company is one of Indias leading manufacturers
of commercial vehicles such as trucks and buses as well as emergency and
military vehicles the company is based in Chennai India its also
makes spare parts and engines for industrial and marine applications11500
1
2
employees are working in this company it sells about 60000 vehicles and
about 7000 engines annuallyIt is the second largest commercial
vehicle company in India in the medium and heavy commercial vehicle
segment with a market share of 28 With passenger transportation options
ranging from 19 seaters to 80 seaters Ashok Leyland is a market leader in
the bus segment The company claims to carry over 60 million passengers a
day more people than the entire Indian rail network The company
concentrates on the 16 ton to 25 ton range of trucks Entire truck
range starting from 75 tons to 49 tons
HISTORY
The origin of Ashok Leyland can be traced to the urge for self-reliance felt by
independence of India Pandit Jawaharlal Nehru Indiarsquos first Prime Minister
persuaded Mr Raghunandan Saran an industrialist to enter automotive
manufacture The company began in 1948 as Ashok Motors toassemble
Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland Early
products included the Leyland Comet bus which was a passenger body built
on a truck chassis sold in large numbers to many
operators it built a reputation for reliability and ruggedness This was mainly
due to the product design legacy carried over from British Leyland The 5
00000 vehicle they have put on the road have considerably eased the
additional pressure placed on the road transportation in independent India
The company long term plan to become a global player by benchmarking
global standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programmed
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks
3
GOALS
The companyrsquos plans is to acquire smaller car manufacturers in Chinaand in
other developing countries Ashok Leyland bought a majority stake inthe Czech
based- Avia Called Avia Ashok Leyland Motors sro this will
give Ashok Leyland a channel into the competitive European market According
to the company the joint venture sold 518 LCVs in Europe despite tough
economic conditions The company will expand its product offers into
construction equipment The company says negotiation is progressing on land
acquisition and the production plans are in place Aside from the full expansion
planned for the company Ashok Leyland is alsopaying close attention to the
environment They are one of the companies showing the strongest
commitment to environmental protection utilizinge co
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to
uncover ways to make their vehicles more fuel efficient and reduce emissions
CURRENT STATUS
The company has also maintained its profitable track record for 60years The
annual turnover of the company was USD 14 billion in 2011-12Selling
54431 medium and heavy vehicles in 2011-12 Ashok Leyland is Indiarsquos
largest exporter of medium and heavy duty trucks Ashok Leyland has also
entered into some significant partnerships seizing growth opportunities
offered by diversification and globalization ndash with Continental Corporation for
automotive infotronics with Alteams in Finland for high pressure die casting
and recently with John Deere for construction equipment PARENT Hinduja
group Ennore Foundaries Limited Automotive Coaches and Components
Limited Gulf-Aashly Motors Limited Ashley Holdings Limited
4
Following the independence of India Pandit Jawaharlal Nehru Indiarsquos first
Prime Minister persuaded Mr Raghunandan Saran an industrialist to enter
automotive manufacture The company began in 1948 as Ashok Motors to
assemble Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland
Today the company is the flagship of the Hinduja Group a British-based and
Indian originated transnational conglomerate
Early products included the Leyland Comet bus which was a passenger body
built on a truck chassis sold in large numbers to many operators including
Hyderabad Road Transport Ahmedabad Municipality Travancore State
Transport Bombay State Transport and Delhi Road Transport Authority By
1963 the Comet was operated by every State Transport Undertaking in India
and over 8000 were in service The Comet was soon joined in production by
a version of the Leyland Tiger
In 1968 production of the Leyland Titan ceased in Britain but was restarted
by Ashok Leyland in India The Titan PD3 chassis was modified and a five
speed heavy duty constant-mesh gearbox utilized together with the Ashok
Leyland version of the O680 engine The Ashok Leyland Titan was very
successful and continued in production for many years
Over the years Ashok Leyland vehicles have built a reputation for reliability
and ruggedness This was mainly due to the product design legacy carried
over from British Leyland
Ashok Leyland had collaboration with the Japanese company Hino Motors from whom the technology for the H-series engines was bought Many indigenous versions of H-series engine were developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India These engines proved to be extremely popular with the customers primarily for their excellent
5
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
development of infrastructure projects transport economics availability of
freight replacement period of vehicles availability of credit and favorable
government policies Since the industry competes with the railways for
several categories of cargo railway performance is an important determinant
of commercial vehicle sales Historically demand in the Rs 27000 cr MampHCV
industry has been cyclical 3-4 years of growth followed by 2-3 years of
stagnant sales and recession with around 6 CAGR over the last decade1
INTRODUCTION
Finance is regarded as the life blood of a business enterprise In themodern
oriented economy finance is one of the basic foundations of all kinds of
economics activities Finance statements are prepared primarily for decision-
making They play a dominant role in setting the frame work and managerial
conclusion and can be drawn from these statements However the
information provided in the financial statement is of immense use in decision-
making through analysis and interpretation of financial statements As said
earlier finance is said to be life blood of any business Every business under
taking needs finance for its smooth working It has to raise funds from the
cheapest and risky source to utilize this in most effective
manner So every company will be interested in knowing its financial
performance The project entitled ldquoFinancial performance Analysis of
Ashok Leyland Industry Ltdrdquo throw light on over all financial performance of
the company
The Ashok Leyland is an Public Limited Company Founded in 1948it is an
automobile industry and the company is one of Indias leading manufacturers
of commercial vehicles such as trucks and buses as well as emergency and
military vehicles the company is based in Chennai India its also
makes spare parts and engines for industrial and marine applications11500
1
2
employees are working in this company it sells about 60000 vehicles and
about 7000 engines annuallyIt is the second largest commercial
vehicle company in India in the medium and heavy commercial vehicle
segment with a market share of 28 With passenger transportation options
ranging from 19 seaters to 80 seaters Ashok Leyland is a market leader in
the bus segment The company claims to carry over 60 million passengers a
day more people than the entire Indian rail network The company
concentrates on the 16 ton to 25 ton range of trucks Entire truck
range starting from 75 tons to 49 tons
HISTORY
The origin of Ashok Leyland can be traced to the urge for self-reliance felt by
independence of India Pandit Jawaharlal Nehru Indiarsquos first Prime Minister
persuaded Mr Raghunandan Saran an industrialist to enter automotive
manufacture The company began in 1948 as Ashok Motors toassemble
Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland Early
products included the Leyland Comet bus which was a passenger body built
on a truck chassis sold in large numbers to many
operators it built a reputation for reliability and ruggedness This was mainly
due to the product design legacy carried over from British Leyland The 5
00000 vehicle they have put on the road have considerably eased the
additional pressure placed on the road transportation in independent India
The company long term plan to become a global player by benchmarking
global standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programmed
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks
3
GOALS
The companyrsquos plans is to acquire smaller car manufacturers in Chinaand in
other developing countries Ashok Leyland bought a majority stake inthe Czech
based- Avia Called Avia Ashok Leyland Motors sro this will
give Ashok Leyland a channel into the competitive European market According
to the company the joint venture sold 518 LCVs in Europe despite tough
economic conditions The company will expand its product offers into
construction equipment The company says negotiation is progressing on land
acquisition and the production plans are in place Aside from the full expansion
planned for the company Ashok Leyland is alsopaying close attention to the
environment They are one of the companies showing the strongest
commitment to environmental protection utilizinge co
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to
uncover ways to make their vehicles more fuel efficient and reduce emissions
CURRENT STATUS
The company has also maintained its profitable track record for 60years The
annual turnover of the company was USD 14 billion in 2011-12Selling
54431 medium and heavy vehicles in 2011-12 Ashok Leyland is Indiarsquos
largest exporter of medium and heavy duty trucks Ashok Leyland has also
entered into some significant partnerships seizing growth opportunities
offered by diversification and globalization ndash with Continental Corporation for
automotive infotronics with Alteams in Finland for high pressure die casting
and recently with John Deere for construction equipment PARENT Hinduja
group Ennore Foundaries Limited Automotive Coaches and Components
Limited Gulf-Aashly Motors Limited Ashley Holdings Limited
4
Following the independence of India Pandit Jawaharlal Nehru Indiarsquos first
Prime Minister persuaded Mr Raghunandan Saran an industrialist to enter
automotive manufacture The company began in 1948 as Ashok Motors to
assemble Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland
Today the company is the flagship of the Hinduja Group a British-based and
Indian originated transnational conglomerate
Early products included the Leyland Comet bus which was a passenger body
built on a truck chassis sold in large numbers to many operators including
Hyderabad Road Transport Ahmedabad Municipality Travancore State
Transport Bombay State Transport and Delhi Road Transport Authority By
1963 the Comet was operated by every State Transport Undertaking in India
and over 8000 were in service The Comet was soon joined in production by
a version of the Leyland Tiger
In 1968 production of the Leyland Titan ceased in Britain but was restarted
by Ashok Leyland in India The Titan PD3 chassis was modified and a five
speed heavy duty constant-mesh gearbox utilized together with the Ashok
Leyland version of the O680 engine The Ashok Leyland Titan was very
successful and continued in production for many years
Over the years Ashok Leyland vehicles have built a reputation for reliability
and ruggedness This was mainly due to the product design legacy carried
over from British Leyland
Ashok Leyland had collaboration with the Japanese company Hino Motors from whom the technology for the H-series engines was bought Many indigenous versions of H-series engine were developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India These engines proved to be extremely popular with the customers primarily for their excellent
5
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
employees are working in this company it sells about 60000 vehicles and
about 7000 engines annuallyIt is the second largest commercial
vehicle company in India in the medium and heavy commercial vehicle
segment with a market share of 28 With passenger transportation options
ranging from 19 seaters to 80 seaters Ashok Leyland is a market leader in
the bus segment The company claims to carry over 60 million passengers a
day more people than the entire Indian rail network The company
concentrates on the 16 ton to 25 ton range of trucks Entire truck
range starting from 75 tons to 49 tons
HISTORY
The origin of Ashok Leyland can be traced to the urge for self-reliance felt by
independence of India Pandit Jawaharlal Nehru Indiarsquos first Prime Minister
persuaded Mr Raghunandan Saran an industrialist to enter automotive
manufacture The company began in 1948 as Ashok Motors toassemble
Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland Early
products included the Leyland Comet bus which was a passenger body built
on a truck chassis sold in large numbers to many
operators it built a reputation for reliability and ruggedness This was mainly
due to the product design legacy carried over from British Leyland The 5
00000 vehicle they have put on the road have considerably eased the
additional pressure placed on the road transportation in independent India
The company long term plan to become a global player by benchmarking
global standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programmed
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks
3
GOALS
The companyrsquos plans is to acquire smaller car manufacturers in Chinaand in
other developing countries Ashok Leyland bought a majority stake inthe Czech
based- Avia Called Avia Ashok Leyland Motors sro this will
give Ashok Leyland a channel into the competitive European market According
to the company the joint venture sold 518 LCVs in Europe despite tough
economic conditions The company will expand its product offers into
construction equipment The company says negotiation is progressing on land
acquisition and the production plans are in place Aside from the full expansion
planned for the company Ashok Leyland is alsopaying close attention to the
environment They are one of the companies showing the strongest
commitment to environmental protection utilizinge co
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to
uncover ways to make their vehicles more fuel efficient and reduce emissions
CURRENT STATUS
The company has also maintained its profitable track record for 60years The
annual turnover of the company was USD 14 billion in 2011-12Selling
54431 medium and heavy vehicles in 2011-12 Ashok Leyland is Indiarsquos
largest exporter of medium and heavy duty trucks Ashok Leyland has also
entered into some significant partnerships seizing growth opportunities
offered by diversification and globalization ndash with Continental Corporation for
automotive infotronics with Alteams in Finland for high pressure die casting
and recently with John Deere for construction equipment PARENT Hinduja
group Ennore Foundaries Limited Automotive Coaches and Components
Limited Gulf-Aashly Motors Limited Ashley Holdings Limited
4
Following the independence of India Pandit Jawaharlal Nehru Indiarsquos first
Prime Minister persuaded Mr Raghunandan Saran an industrialist to enter
automotive manufacture The company began in 1948 as Ashok Motors to
assemble Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland
Today the company is the flagship of the Hinduja Group a British-based and
Indian originated transnational conglomerate
Early products included the Leyland Comet bus which was a passenger body
built on a truck chassis sold in large numbers to many operators including
Hyderabad Road Transport Ahmedabad Municipality Travancore State
Transport Bombay State Transport and Delhi Road Transport Authority By
1963 the Comet was operated by every State Transport Undertaking in India
and over 8000 were in service The Comet was soon joined in production by
a version of the Leyland Tiger
In 1968 production of the Leyland Titan ceased in Britain but was restarted
by Ashok Leyland in India The Titan PD3 chassis was modified and a five
speed heavy duty constant-mesh gearbox utilized together with the Ashok
Leyland version of the O680 engine The Ashok Leyland Titan was very
successful and continued in production for many years
Over the years Ashok Leyland vehicles have built a reputation for reliability
and ruggedness This was mainly due to the product design legacy carried
over from British Leyland
Ashok Leyland had collaboration with the Japanese company Hino Motors from whom the technology for the H-series engines was bought Many indigenous versions of H-series engine were developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India These engines proved to be extremely popular with the customers primarily for their excellent
5
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
GOALS
The companyrsquos plans is to acquire smaller car manufacturers in Chinaand in
other developing countries Ashok Leyland bought a majority stake inthe Czech
based- Avia Called Avia Ashok Leyland Motors sro this will
give Ashok Leyland a channel into the competitive European market According
to the company the joint venture sold 518 LCVs in Europe despite tough
economic conditions The company will expand its product offers into
construction equipment The company says negotiation is progressing on land
acquisition and the production plans are in place Aside from the full expansion
planned for the company Ashok Leyland is alsopaying close attention to the
environment They are one of the companies showing the strongest
commitment to environmental protection utilizinge co
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to
uncover ways to make their vehicles more fuel efficient and reduce emissions
CURRENT STATUS
The company has also maintained its profitable track record for 60years The
annual turnover of the company was USD 14 billion in 2011-12Selling
54431 medium and heavy vehicles in 2011-12 Ashok Leyland is Indiarsquos
largest exporter of medium and heavy duty trucks Ashok Leyland has also
entered into some significant partnerships seizing growth opportunities
offered by diversification and globalization ndash with Continental Corporation for
automotive infotronics with Alteams in Finland for high pressure die casting
and recently with John Deere for construction equipment PARENT Hinduja
group Ennore Foundaries Limited Automotive Coaches and Components
Limited Gulf-Aashly Motors Limited Ashley Holdings Limited
4
Following the independence of India Pandit Jawaharlal Nehru Indiarsquos first
Prime Minister persuaded Mr Raghunandan Saran an industrialist to enter
automotive manufacture The company began in 1948 as Ashok Motors to
assemble Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland
Today the company is the flagship of the Hinduja Group a British-based and
Indian originated transnational conglomerate
Early products included the Leyland Comet bus which was a passenger body
built on a truck chassis sold in large numbers to many operators including
Hyderabad Road Transport Ahmedabad Municipality Travancore State
Transport Bombay State Transport and Delhi Road Transport Authority By
1963 the Comet was operated by every State Transport Undertaking in India
and over 8000 were in service The Comet was soon joined in production by
a version of the Leyland Tiger
In 1968 production of the Leyland Titan ceased in Britain but was restarted
by Ashok Leyland in India The Titan PD3 chassis was modified and a five
speed heavy duty constant-mesh gearbox utilized together with the Ashok
Leyland version of the O680 engine The Ashok Leyland Titan was very
successful and continued in production for many years
Over the years Ashok Leyland vehicles have built a reputation for reliability
and ruggedness This was mainly due to the product design legacy carried
over from British Leyland
Ashok Leyland had collaboration with the Japanese company Hino Motors from whom the technology for the H-series engines was bought Many indigenous versions of H-series engine were developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India These engines proved to be extremely popular with the customers primarily for their excellent
5
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Following the independence of India Pandit Jawaharlal Nehru Indiarsquos first
Prime Minister persuaded Mr Raghunandan Saran an industrialist to enter
automotive manufacture The company began in 1948 as Ashok Motors to
assemble Austin cars The company was renamed and started manufacturing
commercial vehicles in 1955 with equity participation by British Leyland
Today the company is the flagship of the Hinduja Group a British-based and
Indian originated transnational conglomerate
Early products included the Leyland Comet bus which was a passenger body
built on a truck chassis sold in large numbers to many operators including
Hyderabad Road Transport Ahmedabad Municipality Travancore State
Transport Bombay State Transport and Delhi Road Transport Authority By
1963 the Comet was operated by every State Transport Undertaking in India
and over 8000 were in service The Comet was soon joined in production by
a version of the Leyland Tiger
In 1968 production of the Leyland Titan ceased in Britain but was restarted
by Ashok Leyland in India The Titan PD3 chassis was modified and a five
speed heavy duty constant-mesh gearbox utilized together with the Ashok
Leyland version of the O680 engine The Ashok Leyland Titan was very
successful and continued in production for many years
Over the years Ashok Leyland vehicles have built a reputation for reliability
and ruggedness This was mainly due to the product design legacy carried
over from British Leyland
Ashok Leyland had collaboration with the Japanese company Hino Motors from whom the technology for the H-series engines was bought Many indigenous versions of H-series engine were developed with 4 and 6 cylinder and also conforming to BS2 and BS3 emission norms in India These engines proved to be extremely popular with the customers primarily for their excellent
5
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
fuel efficiency Most current models of Ashok Leyland come with H-series engines
An Ashok Leyland bus run by theChennai Metropolitan Transport Corporation
In 1987 the overseas holding by Land Rover Leyland International Holdings
Limited (LRLIH) was taken over by a joint venture between the Hinduja
Group the Non-Resident Indian transnational group and IVECO Fiat SpA
part of the Fiat Group and Europes leading truck manufacturer Ashok
Leylandrsquos long-term plan to become a global player by benchmarking global
standards of technology and quality was soon firmed up Access to
international technology and a US$200 million investment programme
created a state-of-the-art manufacturing base to roll out international class
products This resulted in Ashok Leyland launching the Cargo range of
trucks based on European Ford Cargo trucks These vehicles used Iveco
engines and for the first time had factory-fitted cabs Though the Cargo trucks
are no longer in production and the use of Iveco engine was discontinued the
cab continues to be used on the ecomet range of trucks
In the journey towards global standards of quality Ashok Leyland reached a
major milestone in 1993 when it became the first in Indias automobile history
to win the ISO 9002 certification The more comprehensive ISO
9001 certification came in 1994 QS 9000 in 1998 and ISO 14001certification
for all vehicle manufacturing units in 2002 In 2006 Ashok Leyland became
the first automobile company in India to receive the TS16949 Corporate
CertificationEditorrsquos note This is part of a series of articles peeking into clean
6
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
car industries and car manufacturers of China India South Korea and
Germany
Among many other goals Ashok Leyland aims to expand its operations to
penetrate into overseas markets Included in the companyrsquos plans is to
acquire smaller car manufacturers in China and in other developing countries
In October 2006 Ashok Leyland bought a majority stake in the Czech
based- Avia Called Avia Ashok Leyland Motors sro this will give Ashok
Leyland a channel into the competitive European market According to the
company in 2008 the joint venture sold 518 LCVs in Europe despite tough
economic conditions Furthermore the company will expand its product offers
into construction equipment following a joint venture with John Deere Newly
formed in June 2009 the John Deere partnership is a 5050 split between the
companies The company says negotiation is progressing on land acquisition
and the production plans are in place The venture is scheduled to start
rolling out wheel loaders and backhoe loaders in October 2010 Aside from
the full expansion planned for the company Ashok Leyland is also paying
close attention to the environment In fact they are one of the companies
showing the strongest commitment to environmental protection utilizing eco-
friendly processes in their various plants Even as they thrust into different
directions Ashok Leyland maintains an RampD group that aims to uncover
ways to make their vehicles more fuel efficient and reduce emissions
In fact even before laws were placed on car emissions Ashok Leyland was
already producing low-emission vehicles Back in 1997 they have already
released buses with quiet engines and low pollutant emission based on the
CNG technology In 2002 it developed the first hybrid electric vehicle Ashok
Leyland has also launched a mobile emission clinic that operates on
highways and at entry points to New Delhi The clinic checks vehicles for
7
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
emission levels recommends remedies and offers tips on maintenance and
care This work will help generate valuable data and garner insight that will
guide further development
When it comes to the development of environmentally friendly technologies
Ashok Leyland has developed Hythane engines In association with the
Australian company Eden Energy Ashok Leyland successfully developed a
6-cylinder 6-liter 92 kW BS-4 engine which uses Hythane (H-CNG) which is
a blend of natural gas and around 20 of hydrogen Hydrogen helps improve
the efficiency of the engine but the CNG aspect makes sure that emissions
are at a controlled level A 4-cylinder 4-litre 63 KW engine is also being
developed for H-CNG blend in a joint RampD program with MNRE (Ministry of
New and Renewable Energy) and Indian Oil Corporation
The H-CNG concept is now in full swing with more than 5500 of the
technologyrsquos vehicles running around Delhi The company is also already
discussing the wide-scale use of Hythane engines with the Indian
government Hythane engines may be expected in the near future but these
may not be brought to the United States as yet Ashok Leylandrsquos partnership
with Nissan is also focusing on vehicle power train and technology
development listed under three joint ventures With impressive investment
the joint ventures will focus on producing trucks with diesel engines that meet
Euro 3 and Euro 4 emission standards
In the coming years Ashok Leyland also has some hybrid trucks and buses
in store for its market The buses and trucks are set to feature a new
electronic shift-by-wire transmission technology as well as electronic-
controlled engine management for greater fuel efficiency Ashok Leyland
focuses on improving fuel efficiency without affecting automotive power and
8
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
the vehicles will have a 5 improvement on fuel efficiency Ashok Leyland is
also developing electric batteries and bio-fuel modes
Ashok Leyland Ltdrsquos March quarter results were expected to be impressive
as its monthly vehicle output reports had indicated a 138 jump in volumes
But what impressed was its net profit growth of 317 to Rs223 crore over
the year-ago period even as sales rose by 139 Ashok Leylandrsquos operating
profit margin rose to 13 compared with 105 Higher volume growth a
better product mix due to higher sales of multi-axle vehicles and tractor
trailers and cost reduction were key reasons for margin expansion its
estimate for volume growth in 2011 is conservative at 15 compared with
over 30 in FY2010
Around 1200 buses under the Jawaharlal Nehru National Urban Renewal
Mission scheme are yet to be delivered of the 5098 ordered Besides it has
orders on hand from state transport undertakings for another 2000 buses
The firm is investing to increase its capacity with Rs1200 crore proposed for
expansion plans over the next two years mainly to increase output of
engines and new generation cabs Besides it plans to invest Rs800 crore in
joint ventures Analysts believe that its Uttarakhand plant is expected to
deliver 22000-25000 vehicles in fiscal 2011 in its first full year of operation
The company has also steadily gained market share from 21-22 in the first
quarter of 2010 to 28-29 in the fourth quarter One concern is that it is not
yet a strong player in the eastern market Besides the southern market
traditionally its stronghold has grown by only 15 in volume terms in 2010
The rest of India (mainly north and west) grew by 40 during the year
An Ashok Leyland-Nissan joint venture produced light commercial vehicles
(LCVs) from the formers Hosur facility near Bangalore as well as from
Renault-Nissans car plant near Chennai
9
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Current status
Inter-city luxury bus
Ashok Leyland is the second technology leader in the commercial vehicles
sector of India The history of the company has been punctuated by a number
of technological innovations which have since become industry norms It was
the first to introduce multi-axled trucks full air brakes and a host of
innovations like the rear engine and articulated buses in India In 1997 the
company launched the countryrsquos first CNG bus and in 2002 developed the
first Hybrid Electric Vehicle
The company has also maintained its profitable track record for 60 years The
annual turnover of the company was USD 14 billion in 2011-12 Selling
54431 medium and heavy vehicles in 2008-09 Ashok Leyland is Indias
largest exporter of medium and heavy duty trucks It is also one of the largest
private sector employers in India - with about 12000 employees working in 6
factories and offices spread over the length and breadth of India
The company has increased its rated capacity to 105000 vehicles per
annum Also further investment plans including putting up two new plants -
one in Uttarakhand in North India and a bus body building unit in middle-east
Asia are fast afoot It already has a sizable presence in African countries like
Nigeria Ghana Egypt and South Africa
10
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Ashok Leyland has also entered into some significant partnerships seizing
growth opportunities offered by diversification and globalization ndash with
Continental Corporation for automotive infotronics with Alteams in Finland for
high pressure die casting and recently with John Deere for construction
equipment
As part of this global strategy the company acquired Czech Republic-
based Avias truck business The newly acquired company has been named
Avia Ashok Leyland Motors sro This gives Ashok Leyland a foothold in the
highly competitive European truck market
In 2010 Ashok Leyland acquired a 26 stake in the British bus manufacturer
Optare a company based on the premises of a former British Leyland
subsidiary CHRoe In December 2011 Ashok Leyland increased its stake in
Optare to 751
The Hinduja Group also bought out IVECOs indirect stake in Ashok Leyland
in 2007 The promoter shareholding now stands at 51 Leyland has a state
of the art research and development center at Vellivoyal Chavadi which is
located near Chennai
Nissan Ashok Leyland
In 2007 the company announced a joint venture with Japanese auto giant
Nissan (Renault Nissan Group) which will share a common manufacturing
facility in Chennai India The shareholding structures of the three joint
venture companies are
Ashok Leyland Nissan Vehicles Pvt Ltd the vehicle manufacturing
company will be owned 51 by Ashok Leyland and 49 by Nissan
11
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Nissan Ashok Leyland Powertrain Pvt Ltd the powertrain
manufacturing company will be owned 51 by Nissan and 49 by Ashok
Leyland
Nissan Ashok Leyland Technologies Pvt Ltd the technology
development company will be owned 5050 by the two partners
Dr V Sumantran Executive Vice Chairman of Hinduja Automotive Limited
and a Director on the Board of Ashok Leyland is the Chairman of the
Powertrain company and he is on the Boards of the other two JV companies
The venture once it takes off will be one of the largest investments made in
automotive field in the country
iBUS
Ashok Leyland announced iBUS in the beginning of 2008 as part of the
future for the countrys increasingly traffic-clogged major cities Its Rs 60-lakh
iBus a feature-filled low-floor concept bus for the metros revealed during the
Auto Expo 2008 in India a vehicle for a first production run of pilot models
should be ready by the end of this year The start of full production is
scheduled for 2009 Developed by a team of young engineers the low-
floored iBus will have the first of its kind features including anti-lock braking
system electronic engine management and passenger infotainment The
executive class has an airline like ambience with wide LCD screens reading
lights audio speakers and for the first time Internet on the move A GPS
system enables vehicle tracking and display of dynamic route information on
LCD screens which can also support infotainment packages including live
data and news The bus will probably be equipped with an engine from the
new Neptune family which Ashok Leyland also introduced at this exhibition
12
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
which are ready for the BS4Euro 4 emission regulations and can be
upgraded to Euro 5
U-Truck
Ashok Leyland announced sale of vehicles on the new U-Truck platform from
November2010 with the rolling out of the first set of 10 models of tippers and
tractor trailers in the 16 ndash 49-tonne segmentFurther another 15 models are
set to enter the market in the next 12 months
Dost
DOST is a 125 ton light commercial vehicle (LCV) that is the first product to
be launched by the Indian-Japanese commercial vehicle joint venture Ashok
Leyland Nissan Vehicles Dost is powered by a 55 hp high-torque 3-cylinder
turbo-charged Common Rail Diesel engine and has a payload capacity of
125 Tonnes It is available in both BS3 and BS4 versions The LCV is being
produced in Ashok Leylands plant in Tamil Nadus Hosur The LCV is
available in three versions with the top-end version featuring air-conditioning
power steering dual-colour of a beige-gray trim and fabric seats With the
launch of Dost Ashok Leyland has now entered the Light Commercial Vehicle
segment in India
13
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Ashok Leyland Defence Systems
An Indian road-mobile launcher with a ballistic missile
Ashok Leyland Defence Systems (ALDS) is a newly floated company by the
Hinduja Group Ashok Leyland the flagship company of Hinduja group holds
26 percent in the newly-formed Ashok Leyland Defence Systems (ALDS)
The newly floated company has a mandate to design and develop defence
logistics and tactical vehicles defence communication and other
systems]Ashok Leyland is the largest supplier of logistics vehicles to the
Indian Army It has supplied over 60000 of its Stallion vehicles which form
the Armys logistics backbone
Facilities
The company has seven manufacturing locations in India
Ennore and Hosur Tamil nadu (Hosur - 1 Hosur - 2 CPPS)
Alwar Rajasthan
Bhandara Maharashtra
Pantnagar Uttarakhand
Ashok Leylands Technical Centre at Vellivoyalchavadi (VVC) in the
outskirts of Chennai is a state-of-the-art product development facility that
apart from modern test tracks and component test labs also houses
Indias one and only Six Poster testing equipment
14
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
The company had an Engine Research and Development facility in
Hosur which was shifted to VVC Chennai
The company has signed an agreement with Ras Al Khaimah
Investment Authority (RAKIA) in UAE for setting up a bus body building
unit in the Middle East
15
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
REVIEW OF LITERATURE AND PROBLEM STATEMENT
Ahlgrim DArcy and Gorvett 1999 ldquoParameterizing Interest Rate Modelsrdquo
Casualty
Actuarial Society Forum Summer 1-50
1048766 Uses simulation to develop future scenarios for various applications
Wilkiersquos Provides a review of historical interest rate movements from
1953-1999 summarizes the key elements of several interest rate models
and describes how to select parameters of the models to fit historical
movements
bull Ait-Sahalia 1999 ldquoDo Interest Rates Really Follow Continuous-Time
Markov Diffusionsrdquo
University of Chicago Working Paper
1048766 Examines whether interest rates follow diffusion process (continuous
time Markov process) given that only discrete-time interest rates are
available Based on the extended period 1857 to 1995 this work finds
that neither short-term interest rates nor long-term interest rates follow
Markov processes but the slope of the yield curve is a univariate
Markov process and a diffusion process
bull Casualty Actuarial Society Financial Analysis Committee (CASFAC) 1989
ldquoA Study of the Effects of AssetLiability Mismatch on PropertyCasualty
Insurance Companiesrdquo Valuation Issues 1-52
1048766 Discusses the potential impact of an asset-liability mismatch for
property-liability insurers By ldquomismatchrdquo this article means that
anticipated cash flows from existing assets and liabilities will not
16
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
precisely offset each other Several mismatch scenarios are evaluated
and it is found that both potential risk and reward are greater the
greater the mismatch
bull Chan Karolyi Longstaff and Schwartz 1992 ldquoAn Empirical Comparison of
Alternative Models of the Short-Term Interest Rate Journal of Finance 47
1209-1227
1048766 CKLS estimate the parameters of a class of term structure models
using the generalized method of moments technique and the time series
of monthly interest rate data from 1964-1989 They find that the volatility
of interest rates is extremely sensitive to the level of the rate
bull Fama 1984 ldquoThe Information in the Term Structurerdquo Journal of Financial
Economics 13 509-528
1048766 Examines the ability of forward rates to forecast future spot rates
Based on data for 1974 and subsequent he finds evidence that very
short-term (one-month) forward rates can forecast spot rates one month
ahead Data prior to 1974 indicate that this predictive power extends five
months into the future
PROBLEM STATEMENT
In last research It was found that some parameter related to interest model
risk and rewards are not studied but concern research will be helpful to find
out these parameters
17
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
OBJECTIVES OF THE STUDY
The main objectives of the analysis of financial statements will be
1 To Study the earning capacity of the firm
2 To gauge the financial position and financial performance of the firm
3 To determine the long term liquidity of the funds as well as solvency
4 To determine the debt capacity of the firm
18
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
RESEARCH METHODOLOGY
Research Methodology is a way to systematically solve the research
problem It may be understood as a science of study how research is done
systematically This research on working capital will be referred to as
exploratory research in which problems and findings are generated from the
calculations
RESEARCH DESIGN
Research design provides the give that holds the research project together A
research design is used to structure the research to slow how all of the major
parts of the research project research design is some statement or
specification of procedure for collecting and analysing the information
required for the solution of some specific problem It provides a scientific
frame work for conducting some research investigation
SOURCES OF DATA
DATA COLLECTION
1 PRIMARY DATA
2 SECONDARY DATA
1 PRIMARY DATA- The primary data refers to the data which is collected
directly It is collected by observations interviews etc it is generally more
accurate It is costly in the terms of time One needs to be very careful while
collecting this form of data Here primary data is collected from the
employees of Seagullarotech The data related to financial statements and
processes is collected from finance department Some production data is
collected from various departments
19
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
2SECONDARY DATA - Secondary data refers to the data which is already
collected by somebody It is generally collected from websites magazines
journals etc here data is collected from annual report of company for
financial analysis
COLLECTION OF DATA
The data will be collected through secondary data
TOOLS OF ANALYSIS
Collected data will be analysed a basis of mean amp on the help of tables
20
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
DATA ANALYSIS AND INTERPRETATION
In recent years the Governmentrsquos thrust on infrastructure and Supreme
Courtrsquos ban on overloading of trucks have been the growth impetus for the
commercial vehicle industry In 2006-07 the MampHCV segment clocked sales
of 294266 vehicles a strong growth of 34 year on year The export market
contributed 22 to these numbers We can see the trend from the table and
graph
MampHCVs production Trends (no of vehicles)
20
06-07
20
07-08
20
08-09
200
9-10
20
10-11
20
11-12
9
6752
12
0502
16
6123
214
807
219
295
29
4266
Table 1
21
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 1
The medium amp heavy commercial vehicle sector has two different segments
One is passenger vehicle segment and other is goods carrier segment
Goods Carrier Segment
In goods carrier segment the market share of has increased by 1 from the
year 2004-05 to 2005-06
22
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 2
Graph 3
Passenger Car Segment
In passenger carrier segment the market share has increased by 53 from
the financial year 2004-05 to 2005-06
Graph 4
23
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 5
Passenger Carrier Segment and Goods Carrier Segment
In May 2007 MampHCV passenger carrier segment registered strong 40
growth in sales YOY However the MampHCV goods carrier segment registered
a sharp 142 decline This segment is very sensitive to interest rates as
more than 95 vehicles are financed Interest rates have almost doubled to
13-14 from 75-8 last year There are continuing concerns on input cost
increases due to commodity price movements together with cost increases
due to improvements in product designs and up gradation to meet emission
norms
In the near future competition in this sector is likely to intensify with the entry
of more multinationals Development of new infrastructure projects coupled
with movement of construction material in the upcoming mega SEZs
enforcement of rated payload regime and with stricter emission norms will
keep the growth in demand intact The potential of demand for replacements
is high as well with over 35 of existing fleet over 10 years old
24
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Ashok Leyland
Ashok Leyland (ALL) a flagship company of the Hinduja group is Indias
second-largest commercial vehicle manufacturer with 26 market share in
MampHCVs The company also manufactures vehicles for defense amp special
applications and engines for industrial use gen-set marine requirements and
automobile spare parts It also makes double-decker buses in India The
major part of the revenues comes from the MampHCV segment The company
is systematically de-risking from the domestic trucks industry through
aggressive exports defense supplies engines and castings have helped to
build a robust business with a more than five decade unbroken dividend
record However its labor force has been a cause for concern as
management tries to negotiate higher productivity levels to reduce the costs-
sales ratio
The Present
ALL has a total market share of 279 in the MampHCV segment For FY07
ALL reported robust volume growth of 35 YoY to 83101 vehicles Sales
rose 37 YoY in FY07 and profits grew 35 YoY Exports grew by 235
over 05-06 sales with a sale of 6025 vehicles Ashok Leyland was late in
implementing vehicle price increases as industry leader Tata Motors shied
away from hiking prices As a result Ashok Leyland in spite of gaining
market share in domestic MampHCVs by 08 in FY07 saw its margins reduce
The ambitious CAPEX program of Rs 5 bn over the next four years the
largest ever by Ashok Leyland has come at a time of weak demand and
rising interest rates and this might affect the profitability next year
The Future
With a strong GDP numbers for next few quarters and NHAI road
development programs commercial vehicles sector in India is poised for
strong growth in the years to come Along with this Supreme Court order on
25
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
overloading of trucks will also fuel demand for loading commercial vehicles in
the country even though rising interest cost would impact sales volume in the
short term To take advantage of the market growth ALL is setting up two
manufacturing units at a cost of Rs 250 crore One will make engines for
heavy commercial vehicles and the other Gearboxes It is also introducing a
VRS to cut down the work force at its plant at Ennore in Tamil Nadu from
5000 to 4250 The company is also planning to make the H-series engines
at the Ennore plant with a total planned capacity of 40000 engines at a cost
of Rs150 cr and the commercial production will start by 2007 ALL is
expanding its CV facilities and is setting up a new facility in Uttaranchal to
avail tax benefits
Increased competition from the entry of foreign truck majors like Man
Navistar and Isuzu may impact its market share and demand high investment
in technology On long-term basis ALL is implementing de-risking strategies
whereby one-third of its sales would accrue from non-cyclical businesses
these include defense exports and auto engine and spare parts This
success of this strategy would stabilize the companyrsquos top line
Future prospects of Commercial vehicle Industry
Indian market
The growing requirements of next-generation customers and stricter emission
legislations will necessitate the introduction of sophisticated vehicular
products with India-specific solutions In the developed economies a demand
growth in this segment is mainly influenced by replacement rather than fresh
demand As a result major multinationals are more likely to concentrate on
the growth coming out of the developing economies Competition is likely to
intensify in the coming year
The demand outlook for 2007-08 is mixed While an increase in interest rates
could stunt demand increased infrastructure investments by the Government
26
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
could encourage growth In view of this Indiarsquos CV industry is likely to report
moderate growth during the current year
Export market
Since Indian CV manufacturers have set ambitious export targets they are
likely to enter unexplored territories ndashbeyond the traditional SAARC Middle
East and African markets ndash over the next few years
Going forward ALL plans to achieve stable growth by significantly ramping
up its non-cyclical businesses (spare parts exports and defense supplies)
and increasing their share in total revenues to 35 per cent from a level of 27
per cent in 2006iv In order to boost exports it plans to enter new markets in
Africa Middle East Turkey CIS and ASEAN region and further strengthen
its defense portfolio Africa and the Middle East markets are expected to be
the major drivers of its exports The company has planned investments of
more than US$ 120 million in 2007 and 2008 to expand its existing production
capacity for vehicles from 77000 units to 100000 unitsv
Goals strategies and future plans
Ashok Leyland has drawn up aggressive plans to increase annual capacity
and sales to over 180000 vehicles (medium and heavy duty vehicles) in
four five years as mentioned earlier The Company is optimistic of a wider
export presence through organic and inorganic growth it is developing new
models to address growing customer requirements in the existing market and
new territories
With the Indian transportation model maturing towards developed market
practices ndash hub and spoke transport model ndash the up-to-35-tonne GVW
segment grew at a 55 CAGR between 2001-02 and 2006-07 In line with
this the Company is exploring options to enter the LCV segment
27
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Following the withdrawal of IVECO2 as an equity partner in the holding
company Ashok Leyland is pursuing a policy of self reliance The Company
has initiated extensive technical developments in the areas of vehicle
engine transmission and cabin among others A Future Vehicle
Development Program for modular vehicle development has been launched
After upgrading its H-series engine platform (with the help of a European
engine consultancy organization) to meet the Bharat Stage (BS) III regulation
the Company is now upgrading the platform to meet Euro 4 (BS IV) emission
requirements It has also commenced the independent development of a new
engine platform to meet future requirements The Company is in the process
of employing advanced simulation techniques in product development to
adapt rapidly to changing market requirements It also expects to treble its
existing base of 450 engineers in its technical centre over the next three to
four years
The Company is also gearing up to offer cost-effective passenger transport
solutions in the rapidly changing mass passenger transportation market
Concurrent to these initiatives the Company is reinforcing its existing allied
businesses with a view to de-risking its dependence on the CV business in
the unexpected event of a demand downturn in the latter It is also evaluating
new business segments and opportunities
Factors influencing the Commercial Vehicle Industry Demand
There are various factors which have given impetus to the demand of
commercial vehicle in India These factors are mentioned below
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
2
28
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Legislation on age of vehicle
Emphasis on Mass transportation
Retail financing
Environmental and safety norms
Privatization of state transport undertakings tax levisrsquo and
implementation of WTO
Shareholding pattern
Graph 6
Recent announcements by the company
The Company proposes to publish the Audited Results for the financial
year 2007-08 within a period of 3 months from the end of the last
quarter of the financial year
Mr N Sundararajan Executive Director amp Company Secretary will
cease to be the Secretary of the Company as at the end of February
05 2008 due to his retirement from the services of the Company The
Board of Directors has appointed Mr A R Chandrasekharan Executive
Director as Secretary of the Company Compliance Officer of the
Company with effect from February 06 2008
29
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Net Sales of Rs 1800082 lacs for quarter ending on 31-DEC-2007
against Rs 1777591 lacs for the quarter ending on 31-DEC-2006 Net
Profit (Loss) of Rs 120217 lacs for the quarter ending on 31-DEC-
2007 against Rs 105257 lacs for the quarter ending on 31-DEC-2006
Hinduja Groups Ashok Leyland and Nissan Sign Agreement for LCV
Partnership
Mr Subir Raha Director has ceased to be an Independent Director
consequent to his becoming connected with their associate company
however he continues to be a non-executive Director on companys
Board
The Board Committee at the meeting held on August 20 2007 have
allotted 1470000 shares of Re1- each on conversion of 1000 Foreign
Currency Convertible Notes Taking into account the above allotment
the total issued and paid-up capital of the Company as on August 20
2007 is Rs1330338317 consisting of 1330338317 equity shares of
Re1 each
Ashok Leyland brings Shriram Transport Finance as strategic partner in
Ashley Transport Services
30
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Porter five force model
Threat of new entrants
Bargaining power of Bargaining power of
Suppliers buyers
Threat of substitute
Product or services
Graph 7
31
Potential entrantsPotential entrants
Buyers BuyersSuppliersSuppliers
SubstitutesSubstitutes
Industry competitors
Rivalry among existing firms
Industry competitors
Rivalry among existing firms
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Industry Analysis Bases on Porterrsquos Five Forces Model
1 Industry Rivalry
In the traditional economic model competition among rival firms drives profits
to zero But competition is not perfect
bull Industry Concentration
The Concentration Ratio (CR) indicates the percent of market share held by a
company A high concentration ratio indicates that a high concentration of
market share is held by the largest firms - the industry is concentrated With
only a few firms holding a large market share the market is less competitive
(closer to a monopoly)
A low concentration ratio indicates that the industry is characterized by many
rivals none of which has a significant market share These fragmented
markets are said to be competitive If rivalry among firms in an industry is low
the industry is considered to be disciplined
In case of heavy motor vehicles in India Tata Motors Ltd and Ashok Leyland
dominate the market and other firms have a very small percentage So the
industry is highly concentrated
bull High Fixed Costs
When total costs are mostly fixed costs the firm must produce capacity to
attain the lowest unit costs Since the firm must sell this large quantity of
product high levels of production lead to a fight for market share and results
in increased rivalry The industry is typically capital intensive and thus
involves high fixed costs
bull Slow Market Growth
In growing market firms can improve their economies Market growth has
been impressive in the last few years (about 8 to 15) and it will grow further
as government has started to pay more attention to road and infrastructure
development
32
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
bull Low Switching Costs
Free switching between products makes it difficult for the companies to
capture customers In this industry switching cost is low as customers can
make a choice between Tata motorsrsquo products and Ashok Leylandrsquos products
For those people who are high on brand loyalty and switching between
products is rare
bull Diversity of rivals
Industry becomes unstable as the diversification increases In this case the
diversity of rivals is moderate as most offer products which are close to
standard versions and the competitors are also mostly similar in strength
Threat of substitutes
A productrsquos price elasticity is affected by the presence of substitutes as its
demand is affected by the change in the substitutersquos prices The new
technologies available also affect the demand of the product In case of
Ashok Leylandrsquos products the threat of substitutes is high The competition is
intense as several players have products in the categories given by Ashok
Leyland Price performance comparison favors heavily towards Ashok
Leyland in most product categories Also the high availability and quality of
services offered by Ashok Leyland gives the customer a better trade-off
3 Buyer Power
It specifies the impact of customers on the product When buyer power is
strong the buyer is the one who sets the price in the market In the case of
Ashok Leyland the sales volumes have shown increasing trend over past so
many years The customers are more or less concentrated in cities where big
projects are going on or which are industrial hubs of India The industry is
also concentrated in these regions mostly
33
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
4 Supplier Power
Suppliers can influence the industry by deciding on the price at which the raw
materials can be sold This is done in order to capture profits from the market
Steel is a major input in this industry and so steel prices have a sharp and
immediate impact on the product price Substitute inputs are restricted to non
critical or additional components like electronic gadgets and interior design
components The industry being capital intensive switching costs of suppliers
is high other than steel as raw material which is highly price sensitive and the
firm may easily move towards a supplier with lower cost Presence of
substitute inputs is also high
5 Barriers to Entry Threat of Entry
These are the characteristics that inhibit the entrance of new rivals into the
market and in turn protect the profits of the existing firms Based on the
present profit levels in the market one can expect the entrance of new firms
into the market or not The entrance is however also affected by the start-up
costs
bull Government policies
Governments restrict competition through granting of monopolies and through
regulation The industry in India is witnessing average competition with little
government imposed restrictions
bull Patents and Proprietary knowledge
Competitively advantageous ideas and knowledge are treated as private
property when patented This prevents others from using the knowledge and
thus creating a barrier to entry Patents and other such IP related issues are
not very significant in the industry
bull Asset specificity
It gives the extent to which the assets can be utilized to produce a different
product Firstly the firm holding such an asset they will resist the efforts of
34
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
other firms Secondly the entrants are reluctant to invest if a firm uses
specialized technology Asset specificity in the segment is low as the
production processes are generally standardized
bull Economies of scale
The Minimum Efficient Scale (MES) is the point at which unit costs are
minimized The greater the difference between the MES and the entry unit
cost greater is the barrier Economies of scale are becoming increasingly
important as competition is driving the profit margins to lower levels Also
being a capital intensive industry economies of scale have important
consequences
Corporate Governance Analysis
The study of corporate governance helps to find out where the power of Firm
lays ie with management or stockholders
1 The company philosophy
The Board of Directors and the Management of Ashok Leyland commit
themselves to
bull strive towards enhancement of shareholder value through
- Sound business decisions
- Prudent financial management and
- High standards of ethics throughout the organization
bull ensure transparency and professionalism in all decisions and
transactions of the Company
bull achieve excellence in Corporate Governance by
- Conforming to and exceeding wherever possible the prevalent mandatory
guidelines on Corporate Governance
- Regularly reviewing the Board processes and the management systems for
further improvement
35
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
The Company has adopted a Code of Conduct for members of the Board and
Senior Management All Directors have affirmed in writing their adherence to
the above Code
2 Board of director
12 directors- have 3 inside director (Mr R J Shahaney as Chairman Mr R
Seshasayee as Managing Director and Mr S R Krishnaswamy representing
LIC as shareholder and rest of all are non executive director As per
Corporate Finance by Aswath Damodaran
ldquoTo judge independence board should not have more than 2 insider
directorsrdquo
Board analysis
Board Size 12 directors
Board Independence low has 3 inside directors
Accountability to Stockholders Only 2 non executive director
have equity shares (less no)
Quality of directors During 2006 7 board meeting
happened
Average presence was always
more than 75
Active board
Table 2
36
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Societal constraint
As a part of corporate social responsibility Ashok Leyland believes in the
welfare of society at large Their initiative for social engineering comprises the
manufacturing of eco-friendly vehicles imparting comprehensive training to
drivers and addressing their health concerns pioneering the research and
development of alternative fuels and enriching the communityrsquos social health
in several ways which have far-reaching benefits for companyrsquos
stakeholders
The company is involved in the construction and renovation of community
halls government schools drilling public bore wells erecting bus shelters
and putting up street lights around its manufacturing units The company has
conducted over hundred medical blood donation and HIV awareness camps
to benefit people residing in the neighboring areas
Career guidance for high school students skill development for unemployed
youth and vocational training for women of self help groups around the
companyrsquos manufacturing units have been organized with the help of
specialists in the respective fields Ashok Leyland imparts computer training
to economically deprived students in Hosur at the Companyrsquos Management
Development Centre The selected students are put through a carefully
designed 4-module session and certified on successful completion of the
course A batch of 25 students is selected every month and the program aims
to cover 300 students every year
Ratio analysis i General agreement on tariffs and tradewwwwtoorgenglishtratop_egatthtm
ii A vehicle whose loading capacity is less than 7 tonne weight
iii A vehicle whose loading capacity is more than 7 tonne weight
iv Ashok _Leyland_Limited[1]pdf
v Annual report of Ashok Leyland for 2006-07
37
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Ratios are well-known and most widely used tools for financial analysis A
ratio gives the mathematical relationship between one variable and another
Though computation of a ratio involves only a simple arithmetic operation but
its interpretation is a difficult exercise The analysis of a ratio can disclose
relationships as well as basis of comparison that reveal conditions and trends
that cannot be detected by going through the individual components of ratio
The usefulness of ratios ultimately depends on their intelligent and skillful
interpretation
Ratios are used by different people for various purposes Ratio analysis
mainly helps in valuing the firm in quantitative terms Two groups of people
who are interested in them are creditors and shareholders creditors are
further divided into short term creditors and long term creditors
Short term creditors hold obligations that will soon mature and they are
concerned with the firmrsquos ability to pay its bills promptly The short run the
amount of liquid asset determines the ability to clear off current liabilities
These people are interested in liquidity Long term investors hold bonds or
mortgage against the firm and are interested in current payments of interest
and eventual repayment of principal The firm must be sufficiently liquid in the
short term and adequate profits for the long term These persons examine
liquidity and profitability
There are several other ratios like earnings ratio leverage ratio and dividend
ratio which fall under the category of ownership ratios and help to analyze the
financial health of a company
Liquidity ratio
38
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Liquidity ratios attempt to measure a companys ability to pay off its short-
term debt obligations There are two ratios current ratio and quick ratio which
directly measure liquidity of a firm
Current ratio
The current ratio is the ratio of current assets (cash inventory accounts
receivable) to its current liabilities (obligations coming due within the next
period)
A current ratio below 1 indicates that the firm has more cash obligations
coming due in the next year than assets it can expect to turn to cash That
would be an indication of liquidity risk
Although traditional analysis suggests that firms maintain a current ratio of 2
or greater there is a trade off here between minimizing liquidity risk and tying
up more and more cash in net working capital It can be reasonably argued
that a very high current ratio is indicative of an unhealthy firm which is having
problems in reducing its inventory In recent years firms have worked at
reducing their current ratios and managing their working capital better
If we compare current ratio of Ashok Leyland with industry average we find
that liquidity position of the company is better than the industry average
which is good signal for short term and long term investors
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 176 144 161 137 129
INDUSTRY
AVERAGE 113 106 118 124 120
39
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Table 3
Graph 8
Quick ratio
The quick ratio or acid test ratio is a variant of the current ratio It
distinguishes current assets that can be converted quickly into cash (cash
marketable securities) from those that cannot (inventory accounts
receivable) The quick ratio is a more stringent measure of liquidity because
inventories which are least liquid of current assets are excluded from the
ratio
Though there is no standard with which the ratio can be compared normally
ratios are compared with industry figures in the absence of predetermined
standards If we compare Ashok Leylandrsquos quick ratio with industry average
we find that liquidity position of the company was very good from 2003 to
2005 but after that it has come below industry standard which may be matter
of concern for the company
40
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
As inventories are not taken into account in quick ratio so this decrease in
quick ratio shows that company is having more inventory than the healthy
standard and that is affecting its liquidity position It means Ashok Leyland
needs to improve on its inventory management system and supply chain
management
YEAR 2003 2004 2005 2006 2007
QUICK RATIO 122 094 119 079 073
INDUSTRY
AVERAGE 076 069 086 082 080
Table 4
Graph 9
Inventory turnover ratio
The inventory turnover or stock turnover measures how fast the inventory is
moving through the firm and generating sales Inventory turnover can be
defined as cost of goods sold divided by average inventory Higher is the
ratio greater is the efficiency of inventory management
41
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
In case of inventory management ratio industry average is greater than
Ashok Leylandrsquos ratio which shows that the company is not managing its
inventory efficiently The company should take some measures to improve its
inventory management system
YEAR 2003 2004 2005 2006 2007
ASHOK LEYLAND 825 843 924 716 829
INDUSTRY
AVERAGE 1288 1222 1264 1066 1184
Table 5
Graph 10
Debt equity ratio
Debt equity ratio indicates the relative contribution of creditors and owners It
is defined as debt divided by equity Depending on the types of business and
the patterns of cash flows the components in debt to equity ratio will vary
Normally the debt component includes all liabilities including current The
42
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
equity component consists of net worth and preference capital It includes
only the preference shares not redeemable in one year Lower the debt
equity ratio the higher the degree of protection felt by lenders
In the starting debt equity ratio of Ashok Leyland was higher than the
industry average but in the year 2007 it was less than the industry average
which is a sign of good financial health of the company
YEAR 2003 2004 2005 2006 2007
TOTAL DEBTEQUITY
RATIO 076 048 077 049 034
INDUSTRY RATIO 052 061 063 046 046
Table 6
Graph 11
43
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Profitability ratio
These ratios measure the efficiency of the firmrsquos activities and its ability to
generate profits Various ratios are discussed below
Gross profit margin
The gross profit margin ratio (GPM) is defined as gross profit divided by net
sales This ratio shows the profits relative to sales after the direct production
costs are deducted It may be used as an indicator of the efficiency of the
production operation and the relation between production costs and selling
price
Gross profit margin of Ashok Leyland has been better than the industry
average It means that the company is able to generate adequate profit on
each unit of sales
YEAR 2003 2004 2005 2006 2007
GROSS PROFIT
MARGIN 811 863 706 773 727
INDUSTRY
AVERAGE 857 835 692 583 636
Table 7
44
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 12
Net profit margin ratio
The net profit margin ratio is defined as net profit divided by net sales This
ratio shows the earning left for shareholders (both equity and preference) as
a percentage of net sales It measures the overall efficiency of production
administration selling financing pricing and tax management This is the
available tool to identify the sources of business efficiencyinefficiency
Net profit margin ratio of Ashok Leyland has been almost at par with the
industry average so we can say that business efficiency of the company is
same as the industry
YEAR 2003 2004 2005 2006 2007
NET PROFIT
MARGIN 427 551 629 605 594
INDUSTRY
AVERAGE 45 47 54 88 53
Table 8
45
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 13
Asset turnover ratio
Asset turnover ratio is defined as sales divided by average assets It
highlights the amount of assets that the firm used to generate its total sales
The ability to generate a large volume of sales on a small asset base is an
important part of the firmrsquos profit picture Idle or improperly used assets
increase the firmrsquos need for costly financing and the expenses for
maintenance and upkeep By achieving a high asset turnover a firm reduces
costs and increases the eventual profit to its owners
Asset turnover ratio of the Ashok Leyland is pretty decent and it has shown a
significant improvement over the period of time It means company is
generating more and more assets on year on year basis
46
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
YEAR 2003 2004 2005 2006 2007
ASSET
TURNOVER
RATIO 15 22 21 25 28
Table 9
Graph 14
Earnings per share ratio (EPS)
Shareholders are concerned with the earnings of the firm in two ways One is
availability of funds to pay their dividends and the other to expand their
interest in the firm with retained earnings These earnings are expressed on
per share basis which is in short called EPS It is calculated by dividing the
net income by the number of shares outstanding
EPS for Ashok Leyland was not too below than the industry average from
2003-2004 but after 2005 it felt down sharply It has far below than the
industry average It means that the company has issued new shares due to
47
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
which no of outstanding shares have increased significantly which has led to
sharp decline in the EPS of the company
YEAR 2003 2004 2005 2006 2007
EPS 1071 1665 194 24 305
INDUSTRY
AVERAGE 1352 1921 1884 1803 2284
Table 10
Graph 15
Dividend per share
The dividend and earnings ratios reflect the annual return to shareholders
Dividends are a decision made by directors on the basis of the proportion of
profits they want to distribute and the capital needed to be retained in the
business to fund expansion plans
Dividend per share of Ashok Leyland was above industry average from 2003
to 2004 But after 2004 it has reduced significantly as the company has
48
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
issued new shares which has led to increase in the no of shares and
subsequently the dividend per share has decreased
YEAR 2003 2004 2005 2006 2007
DIVIDEND PER
SHARE 5 75 1 12 15
INDUSTRY
AVERAGE 42 63 58 61 152
Table 11
Graph 16
Return on equity (ROE)
The return on equity (ROE) is an important profit indicator to the
shareholders It is defined as net income divided by average equity
49
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Return on equity has increased significantly from 2003 to 2007 It shows that
Ashok Leyland is giving good return over the capital employed by the
shareholders The return on equity measures the profitability of equity funds
invested in firm It is regarded as a very important measure because it
reflects the productivity of capital employed in the firm
YEAR 2003 2004 2005 2006 2007
ASHOK
LEYLAND 1703 2637 2661 2815 2886
Table 12
Graph 17
Comparative Analysis
This analysis is done to find out whether the company ratios are in limits or
not here the companyrsquos ratios are compared across industry or with certain
50
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
set standards Hence this analysis will give a useful picture about the
companyrsquos performance with compared to the industry
This analysis is done by comparing financial statement taking individual item
of different financial statement and reporting the changes which is occurred
over the time period Primarily this shows the trend which reveals the
direction velocity and the amplitude of trend3
Different Types of Comparative Analysis are
Cross Sectional Analysis
To assess whether the financial ratios are within the limits they are
compared with the industry averages or with a good player in normal
business conditions if an organized industry is absent This is called cross-
sectional analysis in which industry averages or standard playersrsquo averages
are used as benchmarks
Time Series Analysis
Year to Year Change
This analysis is of Year to Year change in different financial ratios of
company This shows how the financial ratios are changing year over year
and what trend they are following This analysis is also done along the
ldquoFinancial Ratio Analysisrdquo in earlier part where I have compared companyrsquos
ratios trend to the industry trend
Index Analysis
When comparison of financial statements covering more than three years is
undertaken the year to year method may become too cumbersome The best
way to understand such longer term trend comparisons is by means of index
numbers The computation of a series of index numbers require the choice of
a base year that will for all items have an index amount of 100 Since such a
3
51
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
base year represents a frame of reference for all comparisons it is advisable
to choose a year that is as typical or normal as possible in a business
conditions sense An important use of this method is that one can see how all
the variables of a particular statement are changing over a longer period of
time For example the index number trend series for Ashok Leyland over last
five years given below in the table reflects the overall picture at a glance
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF FUNDFIXED
ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS LOANS amp
ADVANCES
INVENTORIES 100 12351 11206 15888 11859
52
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
LESS CURRENT LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS (M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
Table 13
DuPont Analysis
Return on Assets
53
+Average Net Current Asset
Average Net Current Asset
dividedivide
X
Average Fixed Asset
Average Fixed Asset
Total ExpenseTotal ExpenseNet SalesNet Sales
Net Sales
Net Sales
Net Sales
Net Sales
Net Profit
Net Profit
Average Asset
Average Asset
Net Profit Average Asset Turnover
Return on Average Asset
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 18
DuPont Analysis
The Du Pont Company of the US developed a system of financial analysis
which has got good recognition and acceptance Du Pont analysis divides a
particular ratio into components and studies the effect of each and every
component of the ratio
Sales amp Net Profit
Sales are means of business that company has done over the period
whereas net profit is the sales subtracted from all expenses which leads to
sales Here in the graph we can see that sales of the company have
increased over the period of time and that has led to increase in the net profit
It shows that the company has good management ability to perform the
functions of the company By having a look at the pattern of the graph we
can easily say that the company has performed consistently and can make a
prediction that the company will perform in the same way
54
dividedividedivide
timestimes
Net Sales
Average Equity
Average Assets
Average Assets
Net Sales
Net Profit
Return on Equity
Net Profit Margin
Average Asset Turnover
Equity Multiplier
Return on Equity
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Graph 19
Return over Asset
The return over assets (ROA) of a firm measures its operating efficiency in
generating profits from its assets prior to the effects of financing From the
graph below we can see that ROA of the company has increased consistently
over the years It means Ashok Leyland is utilizing its assets in an efficient
manner and over the period of time it has improved on its asset utilization
efficiency
Return over Equity
The return on equity (ROE) examines profitability from the perspective of the
equity investors by relating profits to the equity investors (net profit after taxes
and interest expenses) to the book value of the equity investment
Since ROE is based on earnings after interest payments it is affected by the
financing mix the firm uses to fund its projects ROE of Ashok Leyland has
55
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
increased over the period of time It means that the company is giving good
returns to its equity investors
Graph 20
56
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
SWOT Analysis of Ashok Leyland
Strengths
Innovation through engineering
Strong RampD department
Customization of vehicles according to the need of customers
Team of skilled and dedicated workers
Industry leadership in setting the quality standards
Weakness
Distribution network is not very good
Doesnrsquot have presence in light commercial vehicle segment
Falling dollar is affecting companyrsquos export targets
Opportunities
Industrial growth
Road Infrastructure Development
SHIFT from rail to road
Restriction on overloading
Retail financing
Privatization of state transport undertakings tax levis and
implementation of WTO
Threats
Rising input cost
Rising Oil Prices
Competition both from international and domestic manufacturers
Rising interest rates have reduced the demand for commercial vehicle
57
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
CONCLUSIONS AND RECOMMENDATIONS
The company has performed at par with the industry standards as financial
health of the company is very good There is a lot of growth potential in the
commercial vehicle segment because of heavy focus on industrial growth
infrastructure development restriction on overloading retail financing and
emphasis on mass transportation Ashok Leyland has always been a leader
in terms of technology and pioneering initiatives So the company has a lot of
scopes to grow The company can grow in both ways organically and
inorganically that depends on the discretion of the company management
and shareholders
CONCLUSIONS AND RECOMMENDATIONS
The study is carried out to assess the impact of Industrial Parks with special
reference to SIPCOT on the industrial and economic growth of Tamil
Nadu Disproportionate Stratified Random Sampling technique was used
Eighty industrial units have been covered with the questionnaire The
researcher cc~ntacted majority of the respondents in person The data were
subjected to an appropriate statistical analysis naniely Mean Standard
deviation Percentage analysis Factor analysis t test F test ANOVA and
MANOVA Later the results of this study were further interpreted with the
help of formulated hypotheses and discussed in detail The researcher
extensively reviewed the earlier studies and formulated the following
objectives and are presented below
1 To analyse the impact of Industrial Parks in attracting new industries in
Tamil Nadu
2 To examine the impact of Industrial Parks in creating employment
opportunities directly and indirectly in Tamil Nadu
58
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
3 To study the impact of Industrial Parks in the growth of ancillary
Industries in Tamil Nadu
4 To evaluate the impact of Industrial Parks in stimulating the latent
Entrepreneurial talents in Tamil Nadu
5 To assess the Impact of industrial Parks in raising the general economic
Development of Tamil Nadu
6 To evaluate the impact of Industrial Parks in the industrialization
of backward areas and in minimizing the regional imbalances in
Tamil Nadu
7 T o offer ccncrete suggestions for the growth and development of
Industrial Parks in Tamil Nadu
Recommendation
I Infrastructure Government assistance and Services have no significant
influences s i t h the types of organisations
2 Employment pattern differs significantly with the types of organisations
3 There is no significant difference among the types of organisations in the
indirect employment opportunities in the ancillary and vendor industries
4 Employmznt of women of different cadres differs with the t r p e of
organisations
5 There is no significant influence among the mes of organisations in the
case of locally employed people of various cadres
59
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
6 Spread effect vanes in terms of the distance from the Industrial Parks
FINDINGS
Based on the analysis the following findings were arrived at
I Industrial Parks have been developed in the industrially most backward
districts and in the backward regions of the other districts
2 Seventeen lndustrial Parks have been developed in 12-districts Of this
7-industrial Parks have been established during 1973-84 while 10-
Industrial Park have been developed during 1991 -1998
3 Total area acqulred for all Industrial Parks works out to 20779 acres Of
this the extent of Industrial Parks located at Perundurai Sripemmpudur
and Gangaikondan occupy more than 2000 acres The extent of
lndustr~al Parks located at Ranipet Hosur Cuddalore Gummidipoondi
Tuticorin Rurgur and Imngattukottai is between 1000 to 2000 acres
The extent is below 500 acres in Industrial Parks located at
Manamadural Pudukottai and Nilakottai attributed to lack of demand in
these areas
4 Scrutiny reveals the cost per acre of plots is above Rs10 lakhs in
Industrial Parks located at Gummidipoondi Cuddalore Irunganukottai
Sripemmpudur Oragadam and Sin~seri In Industrial Parks located at
Ranipet Hosur EPIP-Gumnudipoondi Tuticorin Perundurai
60
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
Gangaikondan hilakonai Bargur and Cheyyar the plot cost is between
Rs5 lakhs to Rs10 lakhs In Manamadurai and Pudukottai Industrial
Parks the plot cost per acre is only Rs25000 and Rs50000
respectively This is attributed to the poor demand for plots in these
areas
5 The area sold is 100 per cent at Ranipet (Phase - I and Phase - 11) and
Cuddalore (Phase - I ) It is 99 per cent at Hosur (Phase - I) and 98 per cent
Hosm (Phase - 11) The demand for industrial Plots is very poor in Nilakottai
Cheyyar Bargur and EPIP - Gummidipoondi lndusmal Parks
6 Th decline in sanction and disbursement of term loan from the years
1999-2000 is attributed to the transfer of lending portfolio from SIPCOT to
TIlC by the Government of Tamil Nadu
7 Ready availability of plots with all facilities and labour have significantly
and favowably influenced the entrepreneurs This is followed by the factor
of nearness to city 1 town Availability of raw materials exerts only lesser
influence as they can be easily and cheaply transported 6 om the place of
availability
8 In the choice of plots by the entrepreneurs the availability of power
Govemment incentives proactive policies of the Govemment exert greater
influence Agencies of the Government of India have obtained the lowest
mean value
9 The campaigns of SIPCOT has the highest mean value of 379
Atmosnhere of good industrial relations comes second closely followed by
61
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
press reports and advertisements This signifies that the importance of
SIPCOTs campaigns and good industrial relations in the choice of plots
10 Infrastructure Government assistance and Services have no signifcant
influence with the types of organisations l i 1100 industrial units are
located in SIPCOT Indusmal Parks During the study period ie 1998 to
2002 250 - industrial units have come up in
the Industrial Parks Among 80-sample units 19-units were started in the
study period This clearly indicates that SIPCOTs Industrial Parks have
atkacted substantial number of industrial units in Tamil Nadu
12 14100 direct employment opportunities were created by the 80 sample
industrial units Totally in the 1100 units 92200 people were employed at the
end of the study period 13350 indirect employment opporhmities were
created by the 80- sample units
13 The nuniber of managers increased from 581 to 766 under public limited
companies 104 to 137 under private limited companies and then 24 to 26
under partnership and proprietary concerns Thus it is apparent that new
industries have improved employment opportunities for managerial cadre
14 The n ~ ~ m b e r of supervisors in the public limited companies
increased from 1596 in 1998 to 1780 in 2002 In private limited companies
from 261 to 366 and in Partnership and proprietary concems the number
has increased from 52 to 57 Thus there is an addition of 184 supervisors in
public limited companies 75 in private limited companies and only 5 in
partnership and proprietary concems Thus the increase in employment of
supenisoly category is impressive
62
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
15 When the number of skilled labourers directly employed in the public
limited companies is taken into account it is found that it has increased from
3906 in 1998 to 5283 in 2002 followed by private limited companies from
509 to 630 and in partnership and proprietary concern from 106 to 137 It
may be thus noted that number of skilled labourers has registered a gradual
increase 16 Analysis of employment of local people in the three types of
organisations indicates that except skilled labour there is significant
difference in the case of local people employed in different cadres in the threc
types of organisations
7 Eighty per cent of the respondents of the sample units have informed
that Industrial Parks have played a significant role in making them
entrepreneurs This clearly shows that Industrial Parks have stimulated the
latent entrepreneurial talents of entrepreneurs in Tamil Nadu
17 Total exports doubled during 1998-2002 from Rs 151 crores to Rs345
crores In other words units are able to export finished 7roducts at the rate
of Rs1 crore per day
18 The total contribution to Govenunent of India comes to Rs354184
crores This works out to per day contribution of nearly Rs10 crores It is
noteworthy that 98 per cent of contribution comes from public limited
companies
19 Majority of the Industrial Parks of SIPCOT are situated at the backward
areas of Tamil Nadu 1050 industrial units have been located in the
Industrial Parks situated in backward areas and t h ~ s minimises the
regional imbalances in Tamil Nadn 20 Thc total foreign equity brought in
during the year 1998 was Rs59276 crores which has increased to
Rs61211 crores in the year 1999 Due to industrial recession the foreign
63
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
equity brought in has declined to Rs2070 crores in the year 2000
Subsequently it has registered a marginal increase of Rs21129 crores in
the year 2001 but it again declined to Rs3003 crores in the year 2002
Totally the value of foreign equity brought in works out to Rs 1467 crores
64
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
PER SHARE
RATIOS
(RS) ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
ADJUSTED
E P S 1071 1665 194 24 305 1352 1912 1884 1803 2283
DIVIDEND
PER
SHARE 5 75 1 12 15 416 633 583 606 1516
OPERATING
PROFIT
PER
SHARE 2752 3321 356 442 518 3317 4839 3644 2897 3901
NET
OPERATING
INCOME
PER
SHARE 23245 29076 359 4388 5559 2757 44863 40724 38523 48274
FREE
RESERVES
PER
SHARE 605 6928 809 1001 1279 5288 7486 5837 9364 10226
Appendix
65
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
PROFITABILITY
RATIOS ()
ASHOK LEYLAND INDUSTRY AVERAGE
YEAR
200
3
200
4
200
5
200
6
200
7
200
3
200
4
200
5
200
6
200
7
OPERATIN
G
MARGIN
118
4
114
2 991
100
8 932 12
112
8 954 842
84
6
GROSS
PROFIT
MARGIN 811 863 706 773 727 857 835 691 582
63
6
NET
PROFIT
MARGIN 427 551 629 605 594 449 468 541 88
53
2
RETURN
ON LONG
TERM
FUNDS
165
4
229
6
217
6
263
2
255
1
310
6
265
9
253
6
210
5
25
6
LEVERAGE
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
LONG TERM
DEBT
EQUITY 076 048 038 024 025 048 054 05 027 026
TOTAL 076 048 077 049 034 052 061 063 046 046
66
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
DEBTEQUIT
Y
OWNERS
FUND AS
OF TOTAL
SOURCE 5655 6728 5649 6674 745 6693 6376 6123 6798 6848
FIXED
ASSETS
TURNOVER
RATIO 154 187 218 256 286 221 229 286 295 338
LIQUIDITY
RATIO ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
CURRENT
RATIO 176 144 161 137 129 113 105 118 123 119
QUICK
RATIO 122 094 119 079 073 076 069 086 082 079
INVENTORY
TURNOVER
RATIO 825 843 924 716 829 1288 1222 1264 1066 1184
COMPONENT
RATIOS ASHOK LEYLAND INDUSTRY AVERAGE
YEAR 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007
MATERIAL COST
COMPONENT(
EARNINGS) 6169 719 7267 7832 7569 6586 695 7316 7625 7455
EXPORTS AS
PERCENT OF
759 875 1277 881 894 764 58 806 937 901
67
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
TOTAL SALES
IMPORT COMP IN
RAW MAT
CONSUMED 514 291 29 26 335 466 297 273 317 294
LONG TERM
ASSETS TOTAL
ASSETS 043 04 034 039 042 051 047 038 042 043
68
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
INDEX ANALYSIS
YEAR 2003 2004 2005 2006 2007
SHARE CAPITAL 100 10000 10000 10272 10837
RESERVE TOTAL 100 11098 11244 12301 13657
TOTAL SHAREHOLDER
FUNDS(A+B) 100 10962 11104 12094 13413
SECURED LOANS 100 6151 8490 7009 19504
UNSECURED LOANS 100 8862 32690 8222 5524
TOTAL DEBT (D+E) 100 6956 17641 7859 9255
TOTAL LIABLITIES(C+F) 100 9248 13207 10274 12046
APPLICATION OF
FUNDFIXED ASSET
GROSS BLOCK 100 10351 10675 10680 12253
LESSACCUMULATED
DEPRECIATION 100 11003 11075 10783 10987
NET BLOCK (H-I) 100 9693 10217 10553 13856
CAPITAL WORK IN
PROGRESS 100 12399 18404 16607 16794
INVESTMENTS 100 9304 15633 16064 6005
CURRENT ASSETS
LOANS amp ADVANCES
INVENTORIES 100 12351 11206 15888 11859
SUNDRY DEBTORS 100 7828 11310 9250 12322
CASH AND BANK
BALANCES 100 14644 24515 7567 7214
LOANS AND ADVANCES 100 11905 14758 9068 22125
TOTAL CURENT ASSETS 100 10919 14739 10348 12084
69
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
LESS CURRENT
LIABLITIES amp
PROVISIONS(S+T)
CURRENT LIABLITIES 100 13840 14092 11932 14401
PROVISIONS 100 15117 13592 12794 3984
NET CURRENT ASSETS
(M-R) 100 8437 15711 8309 11432
TOTAL ASSETS (J+K+L+U) 100 9205 12949 10350 11892
70
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
References
1 Lanka Ashok Leyland Ashok Leyland
httpwwwashokleylandcomgroupcompaniessubjsp
name=companiesampcid=2 Retrieved 2008-09-28 Established in 1982
this is a joint venture between Ashok Leyland and the Government of
Sri Lanka Equity holding of Ashok Leyland Ltd in the joint venture is
28
2 SME Times News Bureau | 30 Apr 2010
3 Leyland John Deere complete JV formalities
4 Rs 60 lakh iBus from Ashok Leyland
71
- Current status
- Nissan Ashok Leyland
-
- iBUS
- U-Truck
- Dost
- Ashok Leyland Defence Systems
-
- Facilities
-
- References
-
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