Letter of Authorization
“The report is submitted as partial fulfillment of the requirement of MBA Program of JKPS GURGOAN, which has been authorized by Prof. SANJAY RASTOGI.”
ACKNOWLEDGEMENT
I am grateful to Maruti Suzuki India Limited for providing me the opportunity to undertake Summer Internship Program at their organization. The SIP has been of great learning to me and has allowed me to understand various things from a practical point of view.
I would like to express sincere gratitude towards Mr. Lalit Khilani, Deputy Manager Finance and various Departmental heads, because without their help, guidance and encouragement this report would not have been possible.
I would also like to thank my college mentor Prof. SANJAY RASTOGI for his continuous support and guidance. Without him, the project would not have been a success.
My gratitude and appreciation extends to all my friends who have been directly or indirectly being associated with the project for their support and encouragement.
Finally, I owe my deepest and most invaluable debt to my family as I would have never come this far without their unconditional love and support.
(MOHAMMAD ISLAM)
Table of content
ACKNOWLEDGEMENT 2
CHAPTER 1: Introduction 5
Purpose of the project 5
Limitations of the Study: 6
Methodology: 7
CHAPTER 2: Analysis 8
SWOT Analysis 8
Industry 17
About the Company: 21
Chapter 3: Project Description 27
About the project 27
Types of benchmarking 27
Trend analysis of Maruti Suzuki India Ltd. from FY06 to FY08 32
Trend analysis of Tata Motors Ltd. from FY06 to FY08 43
Trend analysis of Mahindra and Mahindra Ltd from FY06 to FY08 52
Inter firm Analysis 61
Economic Value Added 67
Calculation of EVA 69
CFROI 72
Recommendation 74
Conclusion: 75
References: 76
ABSTRACT
A leader in the automobile sector with more than 50 % market share, Maruti Suzuki India Limited was looking for ways to reduce its costs. With the number of players increasing and the existing players aggressively coming up with new products the company needed to benchmark itself with the other players in the market to look for ways to retain its market share in the increasingly competitive market. The sharp increase in prices of inputs and the economic slowdown has made it imperative for the companies to look for avenues for growth and ways to reduce the various costs associated with the manufacturing of the products. For this it is important to understand the financial structure of the competitors.
Hence Benchmarking of Maruti Suzuki with respect to that of Tata Motors Pvt. Ltd and Mahindra and Mahindra Pvt. Ltd was undertaken.
For the above purpose the financial statements of all the companies were analyzed and then reconciled as per the policies and procedures adopted at Maruti Suzuki. The next step involved calculation of the various ratios to understand the short term liquidity, long term solvency, long term profitability and cost associated with manufacturing of the products of different companies. Both inter and intra firm analysis was undertaken and then comparison of Maruti Suzuki with respect to the financial statements of other companies was done. . The analysis would help to understand:
Ø The financial soundness of the companies
Ø The policies and accounting methods undertaken by them
Ø The costs of various heads like manufacturing, selling and distribution
Ø The reason for increase in the costs and comparison of the same with respect to its competitors-whether the increasing in costs are due to huge imports undertaken by the company, or is it due to increase in the input price of various parts
Ø The position of the product of the company with that of its competitors
CHAPTER 1: Introduction
Purpose of the project
The project involves benchmarking Maruti Suzuki India Limited with respect to Tata Motors Pvt. Ltd and Mahindra and Mahindra Pvt. Ltd. The project involves study of the financial statements of the above mentioned companies and then reconciliation of the accounts of the other companies as per the books of accounts of Maruti. It aims at inter firm and intra firm comparison to help Maruti Suzuki to look for avenues to reduce costs and look for avenues to increase its market share.
Primary Objective:
The main objective of the project is to help Maruti Suzuki to analyze itself with respect to its competitors so as to help the company to produce cars in an effective, efficient and efficacious manner. The project also would help the company to look for avenues to increase its market share by understanding the product and the promotional strategies undertaken by its competitors.
Sub-Objective:
Ø Finding out the various ratios to understand the financial soundness of the companies with respect to the short term liquidity position, long term profitability, long term solvency, interest coverage and the various cost ratios.
Ø Calculate the Economic Value Added
Ø Calculate the Cash Flow return on Investment
Limitations of the Study:
The limitations of the project are with respect to:
a. Availability of data: Some confidential information with respect to data are not available to the trainees. Also the internal audit report is not shared with the trainees and hence it can affect the interpretations of various results.
b. Time constraint: The second limitation is with respect to the availability of time. The entire balance sheet of Maruti Suzuki India Limited and Mahindra and Mahindra Limited is very difficult to be analyzed in 6 weeks.
c. Authenticity of data available from various sources: The various data available of different companies in internet, journals and books are not authenticated by the respective companies and hence it may affect the analysis and the interpretation.
Methodology:
The following would be the steps followed with respect to the data available from secondary sources:
1. Understanding Process:
a. Reading annual reports and understanding the accounting policies followed by the companies.
b. Conciliation of accounts (profit and loss and balance sheet) of Mahindra and Mahindra and Tata Motors Pvt. Ltd with that of Maruti Suzuki India Limited.
c. Economic Industry Company analysis
2. Statistical Analysis:
a. Calculation of various ratios - Profitability ratio, Liquidity ratio, Solvency ratio, Working Capital ratio
b. Dou point analysis
c. Economic Value Added (EVA)
d. Cash Flow Return On Investment
e. Trend analysis of Maruti Suzuki India Limited, Mahindra and Mahindra Limited, Tata Motors Pvt Ltd both intra-firm and inter firm.
3. Discussion/Consultation with mentor
4. Conclusion & Suggestions
CHAPTER 2: Analysis
SWOT Analysis
The SWOT analysis of the automotive sector is cited below:
Strengths
Growth drivers for the Indian automotive industry
There are several factors, which are expected to contribute to the growth in the automotive industry. These are as follows:
Increasing Demand for Vehicles
This has been a result of the growth in income levels and easy availability of financing options. Greater consumer awareness and closer linkages with the global auto trends, for example, shorter life cycles of vehicles due to faster replacement, have led companies to introduce contemporary products in the Indian market. The CAGR of 14.1 per cent achieved by the domestic automotive industry between 2001-02 and 2006-07 makes India one of the fastest growing markets in the world.
Stable Economic Policies Adopted by Successive Governments
The Indian Government has ensured continuity in reforms and policies in the country, which has contributed to the overall economic growth, including the growth of the automotive sector. In addition, the government has taken specific policy initiatives, such as lower excise duties on smaller cars, etc to boost local demand. Implementation of VAT has positioned India globally, as one of the leading low cost manufacturing sources. India is expected to emerge as the manufacturing hub for small cars. It has already been recognized as a low cost source for components. Vehicles are also expected to gain much from the global trend in to low cost countries.
Availability of Low Cost Skilled Manpower
The cost of quality manpower in India is one of the lowest in the world. In terms of availability, India produces 400,000 Engineering graduates every year and it is estimated that on an average roughly 7 million skilled workers enter the workforce every year.
High Quality Standards
The ‘Made in India’ brand is rapidly getting associated with quality. Already, nine Indian component manufacturers have won the Deming Award for quality and most of the leading component manufacturers are QS and ISO certified.
Proximity to Key Markets
Proximity to other growing Asian economies and emerging markets like Africa gives India a strong advantage over other competing nations. Besides the freight cost of shipments from India to Europe is cheaper as compared to freight costs of other competing countries like Thailand.
Growth Forecasts as per Automotive Mission Plan
The size of the Indian automotive industry is expected to grow at a rate of 13 per cent per annum over the next decade to reach around US$ 120-159 billion by 2016. In volume terms, the market is expected to reach 31.96 million units by 2015. The total investments required to support the growth are estimated at around US$ 35-40 billion. Two wheelers are expected to lead the growth, with estimated sales of 27.8 million units by 2016. Sales of passenger vehicles are expected to grow from the current 1.58 million vehicles to 2.65 million vehicles by 2015.
(Source: Automotive Mission Plan)
Weakness:
Indian Component Suppliers:
In the Indian automotive sector, the Indian component suppliers lack know-how in certain specific areas. Additionally, component suppliers are small in size and they are a fragmented lot.
Multi-national Component Suppliers:
Indian automobile manufacturers import a number of parts from multi-national component suppliers. Owing to the fluctuation in the currency rates, the manufacturers have registered huge loss in procurement of parts from these suppliers.
Opportunities:
Road development:
The ongoing road development program for improving connectivity between cities, villages and ports through a network of highways, and interconnecting roads along with the 5846 Km of the Golden Quadrilateral road network connecting the four metros. This would benefit the automobile industry as improved connectivity would increase the demand for the vehicles.
Car penetration in India:
As compared to the developed countries, the car penetration in India is low at 7 cars per 1000 persons. The outlook for passenger car sales remains positive due to growth in urbanization, expansion of cities and launch of new models.
Increase in disposable income:
According to a recent survey by a global consulting firm, the average annual real household disposable income in India is set to grow at a compounded annual growth rate (CAGR) of 5.3% from Rs 113000 in 2005 to RS 319000 in 2025. This growth in disposable income is likely to further fuel the demand of passenger vehicles in coming years.
Growing consumer culture:
The rapid growth in cellular phone and cable and satellite television penetration in India in recent years is fuelling the desire of a better lifestyle. These would acts as an enabler for the automobile industry and help to cater to the new sectors of the economy.
International Business:
The automobile companies are expanding their product portfolio and increasing launching new products to cater to the needs of both the domestic and the international market. This has resulted in changing of policies of the companies and plans of making India as a hub for exports. The companies are increasingly targeting new and untapped foreign countries.
Threats
Global Competition:
India is increasingly becoming a preferred destination for the global automotive players. The global automotive manufactures present in India are enhancing their production capacities and many new global players are entering the country in anticipation of burgeoning automotive demand. To counter the threat of growing global competition, the companies are planning to bridge the quality gap between its products and foreign offerings while maintaining its low cost product development/sourcing advantage.
Fuel Prices:
The international crude prices moved as high in the range of US$ 70 to 144 per barrel but stabilized in the range 0f US$ 50 to 60 per barrel. Hardening of fuel prices could adversely affect impact domestic automotive sales.
Input Costs:
Prices of commodity items particularly steel, non-ferrous metals, rubber and engineering plastics etc witnessed an upward movement, which was offset by the cost reduction initiatives pursued by the various automobile companies. The increase in the prices of raw material has lead to a sharp decline in the profit of the automobile companies.
Interest rates hardening and other inflationary trends:
The hardening of interest rates and liquidity crunch in the system to crunch the inflation which ones touched the double digit mark had an adverse impact on the automobile industry. The growth in sales may be adversely impacted by increase in consumer interest rates and further deterioration in the liquidity position. However with the economy showing signs of improvement the Reserve Bank has taken several measures to reduce the liquidity crunch in the economy.
Growing Consumer awareness:
Growing awareness amongst consumers is driving up expectations from automobile companies in terms of providing world class features and technology for which adequate price realization is not always possible.
Growth in Mass Transit System:
The domestic passenger vehicle demand could be impacted by the growth in road and rail based mass transit system. Several initiatives have been taken with regard to the same. The Delhi Government has started the Bus Rapid Transit (BRT) corridor project on the same lines.
Economic factors:
The Indian economy, after exhibiting strong growth during the second quarter of 2008-09, has experienced moderation since, in the wake of the global economic slowdown. Industrial growth decelerated sharply during April-November 2008-09 encompassing continued slowdown in all the constituent sectors. The slowdown occurred in the use-based categories, viz., the basic, capital and intermediate goods, while the growth in consumer goods accelerated. The services sector too, which has been the prime growth engine over the years was hit by the economic slowdown in India mainly in transport and communication, automobile, trade, hotels and restaurants sub-sectors.. The Indian passenger vehicle market which has grown at a CAGR of 14.8 % over the last six years to reach 1.5 million units in the year 2007-08 was too hit by the slowdown in the economy. It registered a single digit growth and performed its worst in the 2nd and 3rd quarter of FY 2008-09 registering a single digit growth.