FADM Assignment Part2 (Section1 Group13)

DM number Name
DM21125 Debakalpa Ghosh
DM21131 Janani S
DM21152 Rajat Garg
DM21171 Shreya Das
DM21181 Vimal Agrawal

Note:
All Monetary values in Rupees Crores.

Source of data:
Annual Reports of Maruti Suzuki, Tata Motors and Mahindra and Mahindra from
2013-14 to 2017-18.

Objective:

I) To compute profit ratios of Maruti Suzuki and compare it with the

chosen competitors- Tata Motors and Mahindra & Mahindra as well as
industry average (average of the two companies excluding Maruti
Suzuki) over the last five years ending on 31.03.2018.
Profit ratios that we chose to calculate are:
i. Net Profit Margin = (Net Income/Net Sales) *100
ii. Operating Profit Margin = EBIT/Net Sales) *100
iii. Return on Assets = (Net Income/Total Assets) *100
iv. Return on Capital = (EBIT/ (Total assets -Current Liability))
*100
v. Return on Equity = (Net Income/ (Total Assets-Total Liability))
*100
Net Sales – Total Revenue from Operations
Industry Average – Average of the two competitor companies (as
suggested in Course Outline)
Comparison and Analysis:

1. Net Profit Margin:

Table 1
Net Profit Margin 2013-14 2014-15 2015-16 2016-17 2017-18
Maruti Suzuki 6.37 7.43 7.92 9.50 9.42
Mahindra and Mahindra 18.03 15.02 7.84 8.40 8.81
Tata Motors 0.89 -11.99 0.50 -5.05 -1.74
Industry Average 9.46 1.52 4.17 1.67 3.54

Graph 1

2. Operating Profit Margin:

Table 2
Operating Profit Margin 2013-14 2014-15 2015-16 2016-17 2017-18
Maruti Suzuki 8.77 9.74 11.32 12.87 13.42
Mahindra and Mahindra 27.34 22.65 10.47 9.85 11.46
Tata Motors -2.72 -10.06 0.32 -4.93 -1.59
Industry Average 12.31 6.29 5.40 2.46 4.94
 Operating Profit Ratio
30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00 2013-14 2014-15 2015-16 2016-17 2017-18

-10.00
-15.00

Maruti Suzuki Mahindra and Mahindra

Tata Motors Industry Average

Graph 2

Maruti shows a relatively steady growth in profit (PAT) throughout with no

significant fluctuations. Tata Motors shows very sharp fluctuations and mostly
towards the loss parameter. Mahindra & Mahindra is also suffering reduced profit
ratios much in the same trend as Tata Motors but not the same magnitude.
The slight fall in the net profit margin for Maruti Suzuki can be traced to increased
insurance cost. Operating income has been steadily increasing (reaching nearly
8% in the year 2018-19) and that reflects majorly in Graph 2.

According to market analysts, it is attributed mostly to the loss that Tata seems to
be absorbing from the lukewarm sales of Jaguar. Even though the slowdown in
automobile industry should impact all the above firms equally, it is consumer
mentality of shifting towards more environment friendly options that is hurting
Jaguar sales which seem to be majority diesel-based cars unlike Maruti’s petrol
based one.
Interestingly Mahindra & Mahindra’s pattern seems to be due to it trying to make
its way into the Electric Vehicle market. It has chosen to sense future market
demands of environmentally conscious potential consumers and is being touted
as the top player in EV field. Even though the profit figures do not seem
encouraging yet, the knowledge that it has chosen to take a far-sighted approach
would enhance its profit figures in the longer run.
 3. Return on Assets:

Table 3
Return On Assets 2013-14 2014-15 2015-16 2016-17 2017-18
Maruti Suzuki 9.11 11.06 11.66 14.39 13.01
Mahindra and Mahindra 2.80 2.37 8.70 10.06 9.19
Tata Motors 0.67 -9.49 0.45 -4.24 -1.75
Industry Average 1.74 -3.56 4.57 2.91 3.72

Graph 3

RoA is a measure of how effectively a business uses its assets. The graph for
Maruti here again shows relative consistency compared with the other two, here
and we can draw inferences based on the kind of business segments they are
known to be involved in. Both Tata Motors and M&M are involved in
manufacture and sale of tractors, light commercial vehicles (LCVs) and, only for
M&M, three-wheelers. Maruti deals predominantly in passenger vehicle
manufacture. This keeps its assets dedicated to that sector alone and allows it to
maintain the smooth Return on Asset.
 4. Return on Equity:
Table 4
Return on Equity 2013-14 2014-15 2015-16 2016-17 2017-18
Maruti Suzuki 13.27 15.66 16.93 20.29 18.49
Mahindra and Mahindra 17.42 14.67 14.59 15.41 14.38
Tata Motors 1.74 -31.89 1.05 -11.92 -5.13
Industry Average 9.58 -8.61 7.82 1.75 4.62

Graph 4

Return on Equity Ratio conveys the ability of a firm to generate profit based on
its need of capital, i.e., an increasing RoE suggests that the firm can attain more
profit levels without needing as much added capital which is a positive
implication.

Graph 4 shows that in a stable general trend, Maruti has suffered a slightly
decreased RoE. Tata Motors has, in fact, increased its RoE showing a
qualitatively positive trend but quantitatively is still lags as compared to its
competitors.
 5. Return on Capital:
Table 5
Return On Capital 2013-14 2014-15 2015-16 2016-17 2017-18
Maruti Suzuki 17.07 19.69 23.42 26.33 25.05
Mahindra and Mahindra 5.96 5.95 16.45 15.53 16.63
Tata Motors -3.32 -13.44 0.43 -6.56 -2.71
Industry Average 1.32 -3.75 8.44 4.48 6.96

Return On Capital ratio

30.00
25.00
20.00
15.00
10.00
5.00
0.00
-5.00 2013-14 2014-15 2015-16 2016-17 2017-18
-10.00
-15.00
-20.00

Maruti Suzuki Mahindra and Mahindra

Tata Motors Industry Average

Graph 5

Return on Capital implies how efficiently a firm utilises its capital. Maintaining
a good RoC is important for any firm as it has effects on the credit rating. Maruti
has maintained impressive figures ranging from above17% to 25% throughout
our period of analysis which keeps investor faith in it strong and the effect of can
be seen in CRISIL providing Maruti Suzuki a credit rating of AAA/Stable.
Mahindra and Mahindra has a trend similar to Tata Motor’s but it has stayed
positive throughout, reaching as high as 16.63%, whereas Tata Motors has mostly
negative returns on Capital resulting in an AA/Negative rating by CRISIL.

RoE and RoC differ only in their source of capital.

 II) Find out the trend in sales, profit, asset growth over the last five years
and compare with two chosen competitors.

Table 6
Assets 2014-15 2015-16 2016-17 2017-18
Maruti 9.87 16.82 30.10 16.43
Tata Motors 0.42 4.97 11.66 1.15
M&M 10.76 3.82 8.04 20.54

Assets

35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
2014-15 2015-16 2016-17 2017-18

Maruti Tata Motors M&M

Graph 6

All three firms show an increase total asset over time, with Mahindra and
Mahindra showing a continuous positive change every year since 2013-14.
However, both Maruti and Tata Motors have shown a decreasing trend since
2015-16. Comparing this with the RoA suggests that even though M&M has
increased its assets, that hasn’t translated efficiently enough and therefor RoA has
even decelerated in its upward trend. Tata Motors even with decreased additional
assets has shown much better RoA performance, which talks about better use of
assets. Maruti has shown that decelerated growth in total assets has shown similar
trend in its RoA.
 Table 7
Sales 2014-15 2015-16 2016-17 2017-18
Maruti 14.35 15.56 33.80 6.12
Tata Motors 4.68 18.02 5.26 21.43
M&M 12.48 629.70 16.58 4.99

Sales
700.00

600.00

500.00

400.00

300.00

200.00

100.00

0.00
2014-15 2015-16 2016-17 2017-18
Maruti Tata Motors M&M

Graph 7

Maruti Suzuki and Tata Motors show consistent trend. But this graph turns out
slightly more difficult to analyze for figures of Mahindra and Mahindra for the
year 2015-16 as it changed its unit of measurement from in Rupees Lakhs to in
Rupees Crores. Post adjusting for conversion this shows that the Net Sales rose
from 553606 Lakh to 40396.66 Crores. That is a change in sales by nearly
630% which seems hard to explain through the available data.