Acknowledgement

A successful project is a combined effort of the teacher for guidance and inspiration
and the project team.

We wish to extend our sincere gratitude to Dr. Hamendra Kumar Porwal, for
imparting in depth knowledge of Finance and providing us an opportunity to do a
project work on ‘Capital Structure of the Indian Automobile Industry’. The support
thus, helped us to develop a meaningful report.

Also, we would like to convey our thanks to all the people who have been an integral
part during the entire course of project completion and have extended a helping
hand for the same.

2
Contents
Sl. No Topic

1 Overview of the Indian Automobile Industry

2 Scope of the Study

3 What is meant by Capital Structure?

4 Factors affecting Capital Structure?

Analysis
5 Maruti Suzuki

6 Tata Motors

7 Mahindra & Mahindra

8 Hero Honda

9 Bajaj Auto

10 Conclusion

11 Bibliography

3
“
Domestic car sales up 24.4% in March
PTI     April 8, 2011

Mahindra sales up 22% in Jan

PTI     February 1, 2011

Maruti sells 1mn cars in 10 months

PTI     January 27, 2011

Bajaj Auto net up 40% to Rs 667 cr

PTI     January 19, 2011

Tata Motors net jumps 102-fold ”

Mail Today Bureau      November 10, 2010

The Indian automobile industry is riding high, like never before. They say that history has an
eerie habit of repeating itself. As far as the automobile industry is concerned, the monumental
returns and the off-the-charts growth rates reported in India recently bear testimony to this adage.
The events that unfolded in Detroit years ago seem to be repeating themselves today, in India. For
the automobile industry, future in India seems like an evergreen pasture!

Overview of the Indian Automobile Industry

Starting its journey from the day when the first car rolled on the streets of Mumbai in 1898, the
Indian automobile industry has demonstrated a phenomenal growth to this day. Today, the Indian
automobile industry presents a galaxy of varieties and models meeting all possible expectations and
globally established industry standards. Some of the leading names echoing in the Indian automobile
industry include Maruti Suzuki, Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hero Honda
and Hindustan Motors in addition to a number of others.

During the early stages of its development, Indian automobile industry heavily depended on foreign
technologies. However, over the years, the manufacturers in India have started using their own
technology evolved in the native soil. The thriving market place in the country has attracted a
number of automobile manufacturers including some of the reputed global leaders to set their foot
in the soil looking forward to enhance their profile and prospects to new heights. Following a
temporary setback on account of the global economic recession, the Indian automobile market has
once again picked up a remarkable momentum witnessing a buoyant sale for the first time in its
history in the month of September 2009.

4
After the economic downturn and difficult market conditions in the automotive sector globally in
2008-09, during the year, economies across the world (with a few exceptions) showed signs of
recovery and growth. The Indian economy bounced back quickly and strongly growing at 7.2% in
2009-10. The automotive sector in India started the year steadily, gathered momentum in different
segments in the second half of the year and ended the year with a record growth and performance.

The automobile sector of India is the seventh largest in the world. In a year, the country
manufactures about 2.6 million cars making up an identifiable chunk in the world’s annual
production of about 73 million cars in a year. The country is the largest manufacturer of motorcycles
and the fifth largest producer of commercial vehicles. Industry experts have visualized an
unbelievably huge increase in these figures over the immediate future. The figures published by the
Asia Economic Institute indicate that the Indian automobile sector is set to emerge as the global
leader by 2012. In the year 2009, India rose to be the fourth largest exporter of automobiles
following Japan, South Korea and Thailand. Experts state that in the year 2050, India will top the car
volumes of all the nations of the world with about 611 million cars running on its roads.

Scope of this study

Through this project we are attempting to study the capital structure of 5 of the highly profitable
Indian automotive companies. They are:

 Maruti Suzuki India Limited

 Tata Motors Limited
 Mahindra & Mahindra Limited
 Hero Honda Limited
 Bajaj Auto Limited

We have analysed data including the long term and short term debts, debt-equity ratio, earnings per
share, profit before tax etc. We have also graphically represented the data. For the study data for
the last 5 years have been used (2006 – 2010). Data was gathered from the balance sheets, annual
reports, chairman’s report, profit & loss account etc. of the respective companies.

The scope of the study is limited to automobiles falling under the category of Two-wheelers (Bajaj
Auto, Hero Honda), Three-wheelers (Bajaj Auto, M&M), Cars (Tata Motors, Maruti Suzuki, and
M&M) and Commercial Vehicles (excluding Tractors) (Tata Motors, M&M).

5
What does Capital Structure mean?

A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity.
The capital structure is how a firm finances its overall operations and growth by using different
sources of funds.

For example, a firm that sells Rs. 20 billion in equity and Rs. 80 billion in debt is said to be 20%
equity-financed and 80% debt-financed.

Debt comes in the form of bond issues or long-term notes payable, while equity is classified as
common stock, preferred stock or retained earnings. Short-term debt such as working capital
requirements is also considered to be part of the capital structure.

Factors Determining Capital Structure

 Trading on Equity- The word “equity” denotes the ownership of the company. Trading on
equity means taking advantage of equity share capital to borrowed funds on reasonable
basis. It refers to additional profits that equity shareholders earn because of issuance of
debentures and preference shares. It is based on the thought that if the rate of dividend on
preference capital and the rate of interest on borrowed capital is lower than the general rate
of company’s earnings, equity shareholders are at advantage which means a company
should go for a judicious blend of preference shares, equity shares as well as debentures.
Trading on equity becomes more important when expectations of shareholders are high.

 Degree of control- In a company, it is the directors who are so called elected representatives
of equity shareholders. These members have got maximum voting rights in a concern as
compared to the preference shareholders and debenture holders. Preference shareholders
have reasonably less voting rights while debenture holders have no voting rights. If the
company’s management policies are such that they want to retain their voting rights in their
hands, the capital structure consists of debenture holders and loans rather than equity
shares.

 Flexibility of financial plan- In an enterprise, the capital structure should be such that there
is both contractions as well as relaxation in plans. Debentures and loans can be refunded
back as the time requires. While equity capital cannot be refunded at any point which
provides rigidity to plans. Therefore, in order to make the capital structure possible, the
company should go for issue of debentures and other loans.

6
 Choice of investors- The company’s policy generally is to have different categories of
investors for securities. Therefore, a capital structure should give enough choice to all kind
of investors to invest. Bold and adventurous investors generally go for equity shares and
loans and debentures are generally raised keeping into mind conscious investors.

 Capital market condition- In the lifetime of the company, the market price of the shares has
got an important influence. During the depression period, the company’s capital structure
generally consists of debentures and loans. While in period of boons and inflation, the
company’s capital should consist of share capital generally equity shares.

 Period of financing- When company wants to raise finance for short period, it goes for loans
from banks and other institutions; while for long period it goes for issue of shares and
debentures.

 Cost of financing- In a capital structure, the company has to look to the factor of cost when
securities are raised. It is seen that debentures at the time of profit earning of company
prove to be a cheaper source of finance as compared to equity shares where equity
shareholders demand an extra share in profits.

 Stability of sales- An established business which has a growing market and high sales
turnover, the company is in position to meet fixed commitments. Interest on debentures has
to be paid regardless of profit. Therefore, when sales are high, thereby the profits are high
and company is in better position to meet such fixed commitments like interest on
debentures and dividends on preference shares. If company is having unstable sales, then
the company is not in position to meet fixed obligations. So, equity capital proves to be safe
in such cases.

 Sizes of a company- Small size business firms capital structure generally consists of loans
from banks and retained profits. While on the other hand, big companies having goodwill,
stability and an established profit can easily go for issuance of shares and debentures as well
as loans and borrowings from financial institutions. The bigger the size, the wider is total
capitalization.

7
Maruti Suzuki India Limited
Market Capitalisation: 36402.67 crores
Maruti Suzuki India Limited is a passenger car company. The company is engaged in the business of
manufacturing, purchase and sale of motor vehicles and spare parts. The other activities of the
company include facilitation of pre-owned car sales, fleet management and car financing. The
company is a subsidiary of Suzuki Motor Corporation, Japan. The company has a portfolio of 13
brands and over 150 variants.

Interest Coverage Ratio Earnings Per Share

120 100

105.39 90 86.45
100
80
90.62
70
80
60 59.91
54.07
60 61.01 50
40 41.16 42.18
40 40.93
34.21 30
20
20
10
0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Debt Equity Ratio

Profit Before Intrest and Tax Margin
0.12
14
0.11
0.1 12.74
12
0.09
10.7
0.08 10 9.73
0.07 0.07
8
0.06
7
6
5.62
0.04
4

0.02
2
0.01
0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

1000
900.2
900
821.4
800
698.9
700
630.8
600

500

400

300

200
71.7
100

0
2006 2007 2008 2009 2010

Maruti Suzuki - Total Debts

8
Analysis
The gross revenue of the Company for the year (2010 – 2011) was Rs. 301,198 million as against Rs.
214,538 million in the previous year showing growth of 40%. Sales of vehicles in the domestic
market increased to 870,790 as compared to 722,144 in the previous year showing a growth of 21%.
Exports of vehicles grew at an impressive rate of 111% from 70,023 to 147,575 in the current year.
The overall growth was 29%.

Earnings before depreciation, interest, tax and amortization (EBDITA) stood at Rs. 44,510 million
against Rs. 24,333 million in the previous year.

Profit before tax (PBT) stood at Rs. 35,925 million against Rs. 16,758 million in the previous year and
profit after tax (PAT) stood at Rs. 24,976 million against Rs. 12,187 million in the previous year.

The board recommends a dividend of Rs. 6.00 per equity share of Rs. 5.00 each for the year ended
31st March 2010 amountingtoRs.1733 million.

Share Holding Pattern

Others General Public
Private Coporate Bodies 0% 3%
6%

FII's
21%

Foreign Promoters
56%

Banks and Fin. Institutes

15%

Maruti Suzuki, the leader in the passenger car segment has seen volatility in the mix of debt and
equity capital of company over the last 5 years. Sales of the company have increased continuously
during the last decade. Its effect can be seen from the rise in Profit Before Interest and Tax Margin
(PBT). There is a fall in PBT in the last year because of a rise in operating expense of the company.

Most of the funding requirements of the company were done by the internal accruals which were
created through continuous profits.

Maruti Suzuki will maintain its strong business and financial risk profiles on the back of the healthy
cash generation and good liquidity. The company is expected to sustain its dominant position in the
domestic passenger car segment, given its large product portfolio. Maruti’s financial risk profile is a

9
also expected to remain comfortable, with incremental capital expenditure being funded entirely
through internal sources.

Though the company has a history of dependence on the internal funds, it has capability of raising
debt if required for funding. Seeing to its good debt equity, there is a chance for the company to
acquire debt for funds required for investment opportunity. Interest coverage ratio is also to be paid
on borrowed amount.

Tata Motors Limited

Market Capitalisation: 78185.92 crores
Tata Motors Ltd is a multinational automotive corporation headquartered in Mumbai, India. The
Company continues to be amongst the top three players in the passenger vehicle market which has
over 25 players. Tata Motors has products in the compact, midsize car and utility vehicle segments.
The company is the world's fourth largest truck manufacturer, the world's second largest bus
manufacturer, and employs 24,000 workers. 

Interest Coverage Ratio Earnings Per Share

9 60

8 52.63
7.62 50 49.65
7 7.19

6.28
6 40 39.94 39.26
5
30
4

3 20 19.48
2.77
2.43
2
10
1

0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Debt Equity Ratio Profit Before Intrest and Tax Margin

1.2 10
1.11 9
1.06 8.82
1 8.16
8 7.82
7 7.25
0.8 0.8
6
0.6 0.59 5
0.53
4
0.4 3.2
3
2
0.2
1
0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

10
 18,000.00
16,625.91
16,000.00

14,000.00 13,165.56

12,000.00

10,000.00

8,000.00
6,280.52
6,000.00
4,009.14
4,000.00
2,936.84
2,000.00

0.00
2006 2007 2008 2009 2010

Total Debt - Tata Motors

Analysis
The Company recorded a sale of 633,862 vehicles in 2009-10, a growth of 34% over previous year
(472,885 vehicles) in the domestic market in India, representing a 25.5% share in the industry
(improving from 24.4% share in the previous year).

The Tata Motors’ Group turnover was Rs.95,567 crores, a growth of 29% over previous year
contributed mainly by market recovery, improved realization and successful launch of new products.
Consolidated Profit Before Tax was Rs.3,523 crores (Loss of Rs.2,129 crores in 2008-09) and
Consolidated Profit for the year was Rs.2,571 crores (Loss of Rs.2,505 crores in 2008-09).

The Profit Before Tax of Rs.2,830 crores and Profit After Tax of Rs.2,240 crores also grew significantly
over the previous year by 179.1% and 123.7% respectively.

The borrowings of the Company as on March 31, 2010 stood at Rs.16,625.91 crores (previous year
Rs.13,165.56 crores). The key highlights were:- In 2009-10, the Company raised Rs.4,200 crores from
the issue of Secured, Rated, Credit Enhanced, Listed, 2% Coupon Non-Convertible Debentures
(NCDs) with premium on redemption and Rs.200 crores from the issue of 9.95% Secured NCDs.

Share Holding Pattern

General Public
8%

Others
14%
Govt
0% Indian Promoters
38%
Private Corporate Bodies
1%

FII's
24%

Banks and Fin. Institutes

14%

11
In a challenging financial market environment, the Company successfully rolled over in May 2009,
the bridge finance it had obtained for acquisition of the Jaguar Land Rover business for a period of
18 months, till December 2010. Subsequently, the Company was able to prepay this loan facility in
October 2009 from certain divestments, improved cash generation from operations and also through
fund raised, US$ 375 million from the issue of Global Depository Receipts and US$ 375 million from
issue of Foreign Currency Convertible Notes.

The Company will further consider suitable steps to de-leverage and hence de-risk the balance sheet
from volatility and has also taken and will continue to implement suitable steps for raising long term
resources to match the Company’s fund requirement and to optimize its loan maturity profile.

In the Last 5 years the debt equity ratio of Tata Motors is has remained around 0.8 which is near to
the industry average of debt to equity. Company has been making huge amount of profits and thus
have sufficient surplus and reserves for funding the requirements of the company. Major proportion
of the liquidity requirement of the company is met internally with the accumulated reserves and
surplus. With a good interest coverage ratio in last 4 years except for the year ended on March 2009,
company has been able to raise the debt easily from the market. There has been significant rise in
the debt during the year 2008 because of TATA-Jaguar deal.

EPS of the company was around 52 at the end of the year March 2008 when the Debt-to-equity ratio
was 0.7. EPS has decreased during the last year because of fall in sales and also the equity capital has
increased with the right issue. During last year company has also raised fund through issue of
debentures. Company is not in a healthy position to raise debt from the company because currently
the interest coverage ratio is less than 2 which means that company has higher proportion of its
profit to be distributed as interest.

12
Mahindra & Mahindra Limited
Market Capitalisation: 43195.89 crores
Mahindra & Mahindra Limited is the flagship company of the Mahindra Group, a multinational
conglomerate based in Mumbai, India.

Mahindra & Mahindra is a major automobile manufacturer of utility vehicles, passenger cars,
pickups, commercial vehicles, and two wheelers. Its tractors are sold on six continents It has
acquired plants in China and the United Kingdom, and has three assembly plants in the USA. M&M
has partnerships with international companies like Renault SA, France and International Truck and
Engine Corporation, USA.

Interest Coverage Ratio Earnings Per Share

80 50
45 46.15
70 44.88
67.24
40
60 36.72 36.89
35
50 30 30.69

40 25
32.17 20
30
15
20 18.9
14.64 10
10 9.69 5
0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Debt-Equity Ratio Profit Before Interest and Tax

0.9 16

0.8 14 14.04
0.77
0.7
12
0.6 0.6
10
0.5 8.97
0.46 8 8.05 7.87
0.4 7.41
0.37
6
0.3 0.31
4
0.2

0.1 2

0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

13
 4500
4,052.76
4000

3500

3000 2,880.15
2,587.06
2500

2000
1,636.00
1500

883.39
1000

500

0
2006 2007 2008 2009 2010

Total Debt

Analysis
The Automotive Divisions of M&M have clocked one of their best performances reflecting in
substantial growth in the net income of the Company by 40.7% to Rs.18,801 crores in the year under
review from Rs.13,364 crores in the Financial Year 2009.

The Profit for the year before Depreciation, Interest, Exceptional items and Taxation was Rs.3,154.59
crores as against Rs. 1,362.9 crores in the previous year, an increase of 131.45%. Profit after tax was
Rs.2,087.75 crores as against Rs.836.78 crores in the previous year clocking an increase of 149.50%.

The company recommended a dividend of Rs.8.75 per Ordinary (Equity) Share and also a Special
Dividend of Rs.0.75 per Ordinary (Equity) Share aggregating Rs.9.50 per Ordinary (Equity) Share of
the face value of Rs.5 each.

M&M recorded total sales of 2,36,759 vehicles and 45,360 three-wheelers as compared to 1,61,882
vehicles and 44,806 three-wheelers in the previous year registering a growth of 46.3% and 1.2% in
vehicles sales and three-wheeler sales respectively.

Share Holding Pattern

General Public
9%

Others
10%
Govt. Indian Promoters
0% 25%
Provate Corporate Bodies
8%
Foreign Promoters
3%

FII's
24%
Banks and Fin Institues
21%

14
Even while financing its ongoing modernisation and growth initiatives, it was ensured that the
Company had abundant liquidity. It did not need to tap the capital market and in fact used its strong
liquidity at its disposal to repay foreign currency loans aggregating USD 94.5 million without the
need for refinancing.

As was reported in the previous year's Director's Report, the Company had, in July, 2008, issued
9.25% p.a. Unsecured Fully and Compulsorily Convertible Debentures (FCD), each FCD having a face
value of Rs. 745 and convertible into one Equity Share of Rs. 10 each in the Company at a price of Rs.
745 per Share. In January, 2010, in accordance with the terms of the issue, the FCDs were converted
into Equity Shares of the Company and your Company allotted 93,95,974 Ordinary (Equity) Shares of
Rs.10 each, adding Rs. 700 crores to its Net Worth.

During the year under review, your Company allotted:

1) 10,00,000 Ordinary (Equity) Shares of Rs.10 each to the Trustees of Mahindra & Mahindra
Employees' Stock : Option Trust; and

2) 93,95,974 Ordinary (Equity) Shares of Rs.10 each to Golboot Holdings Limited upon compulsory
conversion of 93,95,974 Fully and Compulsorily Convertible ; Debentures.

M&M follows a prudent financial policy and aims to maintain optimum financial gearing at all times.
The Company's total Debt to Equity Ratio was 0.37 as at 31st March, 2010.

During the year, CRISIL reaffirmed its rating of AA and revised its rating outlook to AA/ Stable from
AA/Negative for M&M's Long Term Facilities under Basel II. During the year, ICRA also reaffirmed its
rating of LAA+ for the Company and also revised its rating outlook from LAA+/Negative to
LAA+/Stable and CARE has maintained a Long Term Rating of CARE AA+.

15
Hero Honda Motors Limited
Market Capitalisation: 35488.46 crores
Hero Honda Motors Limited is a two wheeler manufacturer based in India. Hero Honda is a joint
venture between the Hero Group of India and Honda of Japan. The company is the largest two
wheeler manufacturer in India.

Profit Before Interest and Tax Margin Interest Coverage Ratio

18 1400

16 16.01 1262.36
1200
14 14.44
12.64 1000
12 11.57
10.63 800
10
711.75
648.15 664.4
8 600
6 453.39
400
4
200
2

0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Earnings Per Share Debt-Equity Ratio

120 0.1
111.77
0.09 0.09
100
0.08
0.07 0.07
80
0.06
64.19
60 0.05
48.64 48.47 0.04 0.04
40 42.96
0.03
0.02 0.02 0.02
20
0.01
0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

200
185.78
180
165.17
160

140 132

120

100
78.49
80
66.03
60

40

20

0
2006 2007 2008 2009 2010

Total Debt

16
Analysis
During the year under review, the Company, the world’s largest two-wheeler manufacturer for the
past nine years in a row recorded its highest-ever annual revenue, operating income and earnings
per share. The Company reported a consolidated turnover (Net sales and other income) of Rs.
16,098.79 crores, a whopping growth of 28.12 percent over the consolidated turnover recorded in
the previous financial year, i.e. Rs. 12,565.21 crores. For the year under review, the Company has
recorded an EBIDTA margin of 17.45 per cent as compared to 14.13 per cent in the financial year
2008-09.

Share Holding Pattern

General Public
Others 8%
1%
Private Corporate Bodies
2%
Indian Promoters
26%
FII's
32%
Foreign Promoters
26%

Banks and Financial Institutes

5%

Celebrating the strength of its operations and the resulting strong financial position, declared and
paid an Interim Silver Jubilee Special Dividend of 4,000% i.e. Rs. 80 per Equity Share of the face value
of Rs. 2 each, aggregating to Rs. 1,597.5 crores (exclusive of Tax on Dividend). The dividend, in
percentage terms, is the highest pay out by an Indian company till date.

Reaffirming the financial strength of the Company, a sum of Rs. 225 crores has been transferred to
the General Reserve of the Company for the financial year 2009-10.

Hero Honda being the leader in two wheeler segment has been doing well as far as the returns to
shareholder are considered. Company by far has remained a low debt company. Majority of the
funding of the company is done from accumulated reserves and surplus out of the past profits. From
the figure in the balance sheet it can be seen that the reserves has increased by more than 10 times
in last 10 years.

Because of its increasing sales continuously company has remained least dependent on the
external financing in past. It has also not raised any equity capital from the market by issue of
shares.

17
With a current position of low debt and equity company has backed itself with good credibility. It has
maintained a strong liquidity position with high interest coverage ratio which in the last year was
moving in the range of 700+. This shows that company has good image of itself to raise any debt if
required from the market.

Bajaj Auto
Market Capitalisation: 41910.47 crores
Bajaj Auto is a major Indian automobile manufacturer based in Pune, Maharashtra. Over the last
decade, the company has successfully changed its image from a scooter manufacturer to a two
wheeler manufacturer. Its product range encompasses scooterettes, scooters and motorcycles. Its
real growth in numbers has come in the last four years after successful introduction of a few models
in the motorcycle segment.

Interest Coverage Ratio Profit Before Interest And Tax Margin

4,500.00 25
4280.03
4,000.00

3,500.00 20 19.78

3,000.00
15
2,500.00 13.7

2,000.00 11.65
10.88
10 10.03
1,500.00

1,000.00 5
500.00 421.06
280.28 224.91
0.00 53.71 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

Earnings Per Share Debt Equity Ratio

140 0.9
0.84 0.84
122.35 0.8
120 117.69
108.87 0.7
100
0.6
80 0.5
0.46
60 0.4
52.25
45.37 0.3 0.31 0.29
40
0.2
20
0.1

0 0
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010

18
 1,800.00
1,625.43
1,600.00 1,570.00
1,467.15
1,400.00 1,334.34 1,338.58

1,200.00

1,000.00

800.00

600.00

400.00

200.00

0.00
2006 2007 2008 2009 2010

Total Debt

Analysis
The company focuses on motorcycles in the two-wheeler segment. It operates in segments, such as
automotive and investment. Its product portfolio comprise; Scooters, Autorickshaws, Motorcycles
and Mopeds. Its subsidiaries include Bajaj Auto international Holdings BV and Pt Bajaj Auto
Indonesia. It has sales and service network covering major cities of jawa, Sumatara, Bali and Sulawesi
islands.

Bajaj Auto has maintained healthy internal accrual for funding he requirement of the company. With
the increase in the profits of the company there has been steady rise in the reserves and surplus of
the company.

Share Holding Pattern

General Public
17%

Others
1%
Private Corporate Bodies
9% Indian Promoters
51%

FII's
19%

Banks and Fin. Institutes

3%

Though profits of the company have been rising, it has also raised debt from the market regularly.
Company has raised debt but has maintained a healthy position as far as the debt – equity of the
company is considered. During 2007 debt to equity was around 0.29.

With the rise in sales and also rise in the profits it has been able to deliver good returns to its
shareholder. EPS has steadily risen to 115 in the year 2007. Company’s profit has raised as compared

19
to its other competitors in the two wheeler segment because of the sale of high profit margin three
wheeler.

Total foreign exchange earned by the company during the year under review was Rs.32,690 million,
compared to Rs. 26,819 million during the previous year.

With its strong financial base company has very good credit rating. In the last year though
company’s sales has reduced but it is still the second largest player in the two wheeler
segment.

CRISIL has given a stable rating to the company as far as long term and short term debt are
considered. This makes company enable to raise any further debt from the market. Another
indicator of this is the high interest coverage ratio of the company.

Current debt of Baja Auto comprises of loans from bank against the hypothecation of assets,
raw materials, finished goods and cash credit.

20
Conclusion

Comparing the overall performance of the 5 companies selected, it is Hero Honda which had
displayed a steady and constant performance over the past 5 yeras. The EPS for Hero Honda
shares stood at Rs. 111.77 at year end 2010. The EPS has been on a gradual rise till year end
2009 and has seen a swift rise in 2010. No drastic or sudden falls have been clocked.

Profit of the company is rising along with EPS. Reduction in debt over the run has also
helped the company to maintain its goo debt to equity ratio.

Hero Honda’s interest coverage ratio has been at an impressive 1262.36 at year end 2010
with Bajaj auto being the next closest at 421.06 followed by Maruti Suzuki at 105.39 in the
third place. However s far as the PBT are concerned Hero Honda is only second to Bajaj Auto
which has a 19.78 cr. compared to its 16.01 cr.

The companies in the sector which we have compared are in different segment. Within the
two wheeler segment Hero Honda has the best capital structure. In the commercial vehicle
segment TATA Motors has adequate ratio of debt to equity giving maximum returns to its
shareholders. Seeing to its current capital structure it also has capacity to raise further
capital if required for funding.

21
Bibliography

1. InFinancial Analytics http://www.infinancialsanalytics.com/Eurofin

2. Moneycontrol.com http://www.moneycontrol.com/news/

3. Money.rediff.com http://money.rediff.com/

4. Utvmoney.mangopeople.com http://utvmoney.mangopeople.com/

5. Capitaline Databases
6. Business Today Magazine http://businesstoday.intoday.in/

7. Investopedia.com http://www.investopedia.com/

22