EVA ANALYSIS AUTOMOBILE INDUSTRY

ADVANCED FINANCIAL MANAGEMENT - PROJECT

Abstract:
Corporate performance is affected by various factors ranging from company specific, industry
specific and economic variables. There had been wide acceptance on the objective of the firm to
maximize the value. Among the set of popular value based management, Economic Value Added
(EVA) is the most prominent. Therefore, in this study, an attempt has been made to find the EVA
for major automobile companies in India and to derive the relation between EVA, NRIO and
share price of the company in Indian Stock market with statistical tools.
Submitted to,
Mr. Vivek Saxena, Course-In-charge, NIIT University.
Submitted by,
Group 4

Divya Nair
Leoprabhu E
Sanjeev R
Suresh Venkatesan
Ujjawal Mishra
Vignesha Sudan R

P301313CMG426
P301313CMG443
P301313CMG469
P301313CMG479
P301313CMG481
P301313CMG487

EVA ANALYSIS AUTOMOBILE INDUSTRY

Contents
1.

Introduction - Indian Automobile Industry:..............................5

1.1 Market Size...................................................................................................................5

1.2 Government Initiatives............................................................................................5
1.3 Road Ahead..................................................................................................................6
2.

Two Wheeler Segment Hero Moto Corp.................................6

2.1 Company Profile.........................................................................................................6

2.2 Business performance..............................................................................................8
2.3 EVA Calculation:.........................................................................................................9
2.4

Correlation...............................................................................................................10

2.5 Inference:....................................................................................................................10
3.

Two Wheeler Segment TVS Motor Company.........................11

3.1 Company Profile:......................................................................................................11

3.2 Business performance............................................................................................12
3.3 EVA Calculations.......................................................................................................12
3.4 Correlation..................................................................................................................14
3.5 Inference.....................................................................................................................14
4.

Passenger Vehicle segment Mahindra & Mahindra...............14

4.1 Company background............................................................................................14

4.2 Business performance............................................................................................15
4.3 EVA Calculations.......................................................................................................15
4.4 Correlation..................................................................................................................16
4.5 Inference.....................................................................................................................17
5.

Passenger Vehicle segment TATA Motors.............................17

5.1 Company Profile.......................................................................................................17

5.3 EVA Calculation:.......................................................................................................18
5.4 Correlation:.................................................................................................................19
5.5 Inference:....................................................................................................................20
6.

Commercial Vehicle segment Force Motors.........................20

6.1 Company background & Performance:............................................................20

6.2 Business segment of the company:..................................................................21
6.3 EVA Calculation:.......................................................................................................21
2

EVA ANALYSIS AUTOMOBILE INDUSTRY

6.5 Inference:....................................................................................................................22
7.

Commercial Vehicle segment - Ashok Leyland........................22

7.1 Company Profile.......................................................................................................22

7.2 Business Performance:..........................................................................................23
7.3 EVA - Calculations....................................................................................................23
7.4 Correlation..................................................................................................................25
7.5 Inference:....................................................................................................................25
8.

Conclusion..........................................................................26

EVA ANALYSIS AUTOMOBILE INDUSTRY

4
NIIT UNIVERSITY

EVA ANALYSIS AUTOMOBILE INDUSTRY

1. Introduction - Indian Automobile Industry:

The Indian auto industry is one of the largest in the world with an annual production
of 21.48 million vehicles in FY 2013-14. The automobile industry accounts for 22 per
cent of the country's manufacturing gross domestic product (GDP). An expanding
middle class, a young population, and an increasing interest of the companies in
exploring the rural markets have made the two wheelers segment (with 80 per cent
market share) the leader of the Indian automobile market. The overall passenger
vehicle segment has 14 per cent market share. India is also a substantial auto
exporter, with solid export growth expectations for the near future. Various
initiatives by the Government of India and the major automobile players in the
Indian market is expected to make India a leader in the Two Wheeler and Four
Wheeler market in the world by 2020.

1.1 Market Size

Sales of commercial vehicles in India grew 5.3 per cent to 52,481 units in January
2015 from a year ago, according to Society of Indian Automobile Manufacturers
(SIAM).Sales of cars also grew for a third month in a row to 169,300 units in January
2015, up 3.14 per cent from the year-ago period. Car market leader Maruti Suzuki
India witnessed 8.6 per cent higher sales at approximately 118,551 units in
February 2015, out of which 107,892 were sold in domestic market and 10,659 units
were exported. Hyundai Motor India Ltd (HMIL) reported a 2.4 per cent growth in
total sales at 47,612 units in February, compared with 46,505 units in the same
month last year. In the two-wheeler segment, Hero MotoCorp witnessed sales of
484,769 units in February 2015.TVS Motor Co posted 15 per cent higher sales at
204,565 units against 177,662 units. Bajaj Auto sold a total of 243,000 two and
three-wheelers segment.

1.2 Government Initiatives

The Government of India encourages foreign investment in the automobile sector
and allows 100 per cent FDI under the automatic route. Excise duty on small cars,
scooters, motorcycles and commercial vehicles was reduced in February last year to
8 per cent from 12 per cent to boost the Make in India initiative of the Indian
government.
Some of the major initiatives taken by the Government of India are:

EVA ANALYSIS AUTOMOBILE INDUSTRY

Under the Union budget of 2015-16, the Government has announced to provide credit of
Rs 850,000 to farmers, which is expected to boost the tractors segment. The government
is aligning to ensure that at least one family member is economically strong to support
the family. This is expected to improve the sentiments of entry-level two-wheelers.
The Government plans to promote eco-friendly cars in the country i.e. CNG based
vehicle, hybrid vehicle, electric vehicle and also made mandatory of 5 per cent thanol
blending in petrol.
The government has formulated a Scheme for Faster Adoption and Manufacturing of
Electric and Hybrid Vehicles in India, under the National Electric Mobility Mission 2020
to encourage the progressive induction of reliable, affordable and efficient electric and
hybrid vehicles in the country.
The Automobile Mission Plan for the period 20062016, designed by the government is
aimed at accelerating and sustaining growth in this sector. Also, the well-established
Regulatory Framework under the Ministry of Shipping, Road Transport and Highways,
plays a part in providing a boost to this sector.

1.3 Road Ahead

India is probably the most competitive country in the world for the automotive
industry. It does not cover 100 per cent of technology or components required to
make a car but it is giving a good 97 per cent, highlighted Mr Vicent Cobee,
Corporate Vice-President, Nissan Motors Datsun. The vision of AMP 2006-2016 sees
India, to emerge as the destination of choice in the world for design and
manufacture of automobiles and auto components with output reaching a level of
US$ 145 billion; accounting for more than 10 per cent of the GDP and providing
additional employment to 25 million people by 2016. The Japanese auto maker
Maruti Suzuki expects the Indian passenger car market to reach four million units by
2020, up from 1.8 million units in 2013-14.

2. Two Wheeler Segment Hero Moto Corp

2.1 Company Profile

Hero MotoCorp Limited is the World's single largest two-wheeler motorcycle company. The
company is engaged in the manufacture of two wheelers motorcycles and its parts. The company
has three manufacturing facilities namely Dharuhera, Gurgaon at Haryana and Haridwar at
Uttarakhand. The company is based in New Delhi, India.
The company offers a range of bikes starting from CD Dawn, CD Deluxe, Splendor
Plus, Splendor NXG, Passion and Passion Prao. The 125 cubic centimeter segment
offers Glamour, Super Splendor and Glamour F1. It also has an offering called
Achiever in 135 cubic centimeter segment. In the 150 cubic centimeter and above

EVA ANALYSIS AUTOMOBILE INDUSTRY

the company offers brands like Hunk, CBZ X-treme, Karizma and the Karizma ZMR.
It also offers a 100 cubic centimeter scooter, Pleasure.
Hero MotoCorp Limited was incorporated in the year 1984 with the name Hero
Honda Motors Ltd. The company was established as a joint venture company
between Honda Motor Company of Japan and Hero Group. In the year 1983, they
signed a joint collaboration agreement and formed the company. The joint venture
between India's Hero Group and Honda Motor Company, Japan has not only created
the world's single largest two wheeler company but also one of the most successful
joint ventures worldwide.
In the year 1985, the company commenced their commercial production at
Dharuhera plant in Haryana and introduced their first motorcycle, CD 100 in the
market. In the year 1989, they launched the new motorcycle model, Sleek in the
market and in the year 1991, they introduced new motorcycle model, CD 100 SS in
the market. In the year 1995, the company introduced their extraordinary product,
Splendor in the market.
In the year 1997, the company inaugurated their second manufacturing facility at
Gurgaon in Haryana. Also, they introduced new motorcycle model, Street in the
market. In the year 1999, they launched Hero Honda CBZ, the first 150cc
motorcycle in the Indian two wheeler industry. In the year 2001, the company
introduced new models, Passion and Joy in the market. In the next year, they
introduced new models, Dawn and Ambition in the market.
In the year 2003, the company launched new motorcycle models namely, CD Dawn,
Splendor+ and Passion Plus in the market. Also, they launched Hero Honda
Karizma, the industry's first 223cc motorcycle. In the year 2004, they introduced
new models, Ambition 135 and CBZ* in the market. During the year, they renewed
the joint technical agreement with the Honda Motors Company, Japan.
In the year 2005, the company launched Super Splendor, CD Deluxe, Glamour and
Achiever in the market. In the year 2006, the company forayed into scotter
segment and launched 100cc gearless scotter, Pleasure in the market. In the year
2007, the company launched Splendor NXG, CD Deluxe, Passion Plus and Hunk in
the market.
During the year 2007-08, the company commissioned their third plant at Haridwar
in Uttarakhand with an initial installed capacity of 500,000 units. This plant had
lean manufacturing and practices that ensure efficiency. During the year, the
company launched new models (including variants) including Splendor NXG, Hunk,
New Super Splendor, New Passion Plus, Commemorative Splendor+ and a refreshed
version of Pleasure.
During the year 2008-09, the company increased the installed capacity of Motorised
2 wheelers upto 350CC engine by 1800000 Nos to 5200000 Nos. Also, they
launched eight models: Passion Pro (100 cubic capacity-4 Stroke), CBZ-Extreme
(150 cubic capacity - 4 Stroke), Pleasure New Aesthetics, Splendor NXG (Self Start),

EVA ANALYSIS AUTOMOBILE INDUSTRY

CD Deluxe (Self Start), Glamour FI, Glamour (Carb) and HUNK Special Edition. Also,
they launched new motorcycle model, Karizma - ZMR in the market.
During the year 2009-10, the company increased the installed capacity of Motorised
2 wheelers upto 350CC engine by 200000 Nos to 5400000 Nos. The company
launched nine new models during the year.
During the year 2010-11, the company launched six new models including variants
of existing models successfully. They refreshed Glamour and Glamour FI. They
introduced the New Hunk, Super Splendor and Splendor Pro. The company launched
the new upgraded versions of CBZ Xtreme and Karizma. Also, they breached the
landmark 5 million figure cumulative sales in a single year.
During the year, the Indian Promoter Group of the company, which comprised of
Hero Investments Pvt Ltd (HIPL), Bahadur Chand Investment Pvt Ltd (BCIPL) and
Hero Cycles Limited (Hero Cycles) re-aligned the shareholding in the company,
following a family agreement. As a result, Hero Cycles transferred its shareholding
in the company to HIPL on May 28, 2010. As a result of these transactions, the
Indian Promoter Group of the company now comprises of HIPL and BCIPL owned and
controlled entirely by the Munjal Family headed by Brijmohan Lall Munjal.
Also, during the year, the Indian Promoter Group and Honda Motor Co Ltd, Japan
(Honda) entered into a Share Transfer Agreement (the Agreement) on January 22,
2011. As per the terms of the Agreement, Honda had agreed to transfer its entire
shareholding of 26% in the Company to the Indian Promoter Group, bringing an end
to the joint venture between the two promoter groups of the company. The
acquisition was completed on March 22, 2011 and the shares held by Honda were
transferred to the Indian joint venture partner.
In addition to the Agreement, the Indian Promoter Group and Honda also entered
into a License Agreement on January 1, 2011. As per this agreement, Honda has
given to the company, the right and license to manufacture, assemble, sell and
distribute certain products and their service parts under their Intellectual Property
Rights.
In July 2011, the company changed their name from Hero Honda Motors Ltd to Hero
MotoCorp Ltd.

In February 2012, the company entered into a strategic partnership with Erik Buell Racing
(EBR) Of USA for contemporary technology and design inputs to enable the company to launch
high end bikes for the domestic and international markets.
2.2 Business performance

During the Financial year (FY) your Company clocked the sales of 6,245,960 units depicting an
increase of 2.8% over the previous FY 60,75,583 units. The total sales of products (net of excise
duty) was increased by 6.5% to Rs. 25,125 crores in the FY under review from Rs. 23,583 crores
in previous FY.
8

EVA ANALYSIS AUTOMOBILE INDUSTRY

Net Revenue from Operations of the Company increased by 6.3%, from Rs. 23,768 crores in FY
201213 to Rs. 25,275 crores in FY 201314. Profit before Tax (PBT) has shown a increase of
13.37% from Rs. 2,529 crores in 201213 to 2,867 crores in 201314. The Company's Profit
After Tax (PAT) decreased by 0.4% from Rs. 2,118 crores in 201213 to 2,109 crores in 2013
14. Earnings before Interest, Depreciation and Taxes (EBIDTA) margins stood at 14.01% in FY
201314 as compared to 13.82% in FY 201213. Similarly the operating margins stood at 9.62%
in FY 201314 as compared to 9.02% in FY 201213
During the year under review your Company successfully launched the upgraded models of HF
Dawn, HF Deluxe, HF Dlx Eco, Passion Pro, Splendor Pro, Splendor Pro Long Seat, Super
Splendor, Glamour, Glamour FI, I smart, Pleasure IBS and Pleasure Upgrade. You will be
delighted to note that "Splendor" continues to be the largest selling brand in FY 201314 as well
with 19.6% market share coming from sales of 1,967,006 units.
Though the market share declined from 38.4% in the previous year to 36.4% in the financial year
under review, the Company has retained its position as the World's largest TwoWheeler
manufacturer Company for the 12th year in a row.
A detailed discussion on the business performance and future outlook has
been given in the chapter on 'Management Discussion and Analysis' (MDA).

2.3 EVA Calculation:

Year

WACC

NRO
I

Invest
ment

EVA

Market
Value added

% change in
share price

31.00%

38.0
%

1,165.7
3070.98 26

16,116.74

17.52%

2013

21.03%

35.2
%

1,331.9
3785.51 69

281.01

48.01%

2012

10.50%

48.2
%

1,967.3
4080.28 20

(694.79)

-25.01%

2011

-1.30%

118.
3%

1,961.5
1658.78 93

2,022.66

28.22%

2010

12.13%

129.
8%

2,042.5
1573.71 71

5,370.12

-21.98%
9

2014

EVA ANALYSIS AUTOMOBILE INDUSTRY

2009

58.19%

52.8
%

2008

-14.28%

2007

22.04%

2006

17.50%

97.4
%
68.4
%
126.
8%

2005

56.98%

85.2
%

1156.26 610.768

14,783.30

86.57%

1,135.7
1165.53 10

2,350.96

52.01%

1,443.5
1695.14 01

949.37 649.745

(1,093.40)

674.48 855.322

658.74

7.95%
-23.55%

12,439.75

64.91%

20,000.00
15,000.00
10,000.00
5,000.00
-

10

(5,000.00)
EVA

Market Value added

10

EVA ANALYSIS AUTOMOBILE INDUSTRY

Chart Title
150.00%
100.00%
50.00%
0.00%
1

10

-50.00%
NROI

% change in share price

2.4 Correlation

Column 1
EVA
Market Value added
Change in stock price

1
-0.20
-0.38

Column 1
NROI
% change in share price

1
-0.34

Column
3

Column 2
1.00
0.68

Column 2

2.5 Inference:
Economic Value Added (EVA) framework is gradually replacing the traditional measures of
financial performance on account of its robustness and its immunity from creative accounting.
Following this global trend, several companies in India are focusing on shareholder value
creation. The main objectives of this study were: to examine whether the sample companies has
been able to generate value for its shareholders.
Eva can be defined as operating profits less the cost of all capital employed to produce those
earnings.
11

EVA ANALYSIS AUTOMOBILE INDUSTRY

As per the correlation values EVA has a negative correlation with the change in stock price.
However in reality the stock price is purely influenced by the prevailing market sentiments and
the investor perception of the company.
Eva is dependent on the premium our investment is earning over the cost incurred in furnishing
the capital. As per the excel also Eva=Investment*(ROI-WACC). As can be seen from the
working Eva is inversely proportional to the cost of capital incurred.

3. Two Wheeler Segment TVS Motor Company

3.1 Company Profile:

TVS Motor Company Ltd, the flagship company of TVS Group is the third largest two-wheeler
manufacturer in India. The company manufactures a wide range of two-wheelers from mopeds to
racing inspired motorcycles. The company is having their manufacturing plants at Hosur in
Tamilnadu, Mysore in Karnataka and Solan in Himachal Pradesh. They are also having one unit
located at Indonesia. Their subsidiaries include Sundaram Auto Components Ltd, TVS Motor
Company (Europe) BV, TVS Motor (Singapore) Pte Ltd, PT TVS Motor Company, Indonesia,
TVS Energy Ltd and TVS Housing Ltd.
TVS Motor Company Ltd is a part of Sundaram Clayton group in TVS group of companies. In
the year 1979, Sundaram-Clayton Ltd started Moped Division at Hosur to manufacture TVS 50
mopeds. In the year 1982, the company entered into a technical know-how and assistance
agreement with Suzuki Motor Co Ltd of Japan and in the year 1985, they incorporated a new
company Lakshmi Auto Components Pvt Ltd for the manufacture of critical engines and
transmission parts
During the year 2009-10, the company launched TVS JIVE and TVS Wego in the market. They
also launched a four stroke three-wheeler with superior features. They commenced export of
TVS Apache to Brazil. Also, they developed a pan India presence in three-wheelers. In
December 2009, the company acquired the entire shareholding of TVS Energy Ltd. Thus, TVS
Energy became a wholly owned subsidiary of the company. In June 2010, they acquired the
entire paid up capital of TVS Housing Ltd and thus, TVS Housing Ltd became a wholly owned
subsidiary of the company.
In October 2010, the company won the SAP ACE Award for Consumer Excellence 2010 in 'Best
Run Award in Automotive' category. They also won the Silver EDGE award from Information
Week, a leading IT magazine for in house design and development of Data Acquisition System
12

EVA ANALYSIS AUTOMOBILE INDUSTRY

for improving shop floor productivity. Information Week annually recognize enterprises driving
growth and excellence through IT.
In November 2010, the company launched TVS TRU4 Premium, a semi-synthetic 4T Engine
Oil. In February 2011, Indian Bank signed an MoU with the company for financing three
wheelers manufactured by the company. In March 2011, the company introduced ABS (Anti-lock
Braking System) in their premium segment motorcycle TVS Apache RTR 180, giving the bike
formidable stopping power and superior braking control that compliments its high performance
capability.

3.2 Business performance

Despite a challenging macroeconomic environment and intense competitive landscape, the
Company sold 19.9 lakh two wheelers in line with last year. Motorcycle sales increased by 4%
and scooters by 6%. Moped sales marginally declined mainly due to poor monsoon and decline
of two wheeler sales in Tamilnadu. Three-wheeler sales of the Company
increased by 63% in 2013-14. Sale of spare parts grew by 18%.TVS Jupiter, the newly launched
scooter bagged seven awards acclaiming its superiority over competitive products.
The Company's total revenue including other income increased to Rs.7,992.06 Cr in the current
year from Rs.7,193.09 Cr in the previous year. Profit before tax and exceptional items (PBT) for
the year 2013-14 significantly increased to Rs.351.26 Cr compared to Rs.254.42 Cr of the
previous year. Similarly Profit after tax (PAT) for the year 2013-14 increased to Rs.261.63 Cr
from Rs.116.02 Cr of the previous year, after taking into account the extra-ordinary and
exceptional

3.3 EVA Calculations

Year

Invest
ment

% change in
share price

1125.71 (2.679)

7,529.90

173.56%

2014

1011.48 125.537

543.35

203.91%

2013

10.13%

1025.57 46.186

(718.72)

-25.14%

2012

-8.57%

(388.02)

-33.66%

4.5%
39.9
%

EVA

Market
Value added

NROI
32.99% 0.2%
12.4
15.32%
%

2015

WACC

937.59 374.348

13

EVA ANALYSIS AUTOMOBILE INDUSTRY

2011

16.79%

2010

31.26%

2009

-8.01%

2008

22.28%

2007

19.18%

2006

51.27%

9.5%
13.7
%
17.4
%
17.0
%
7.1%
34.0
%

955.73 90.865

1,651.79

(136.282
995.94 )

636.08

257.16%

(717.77)

-36.06%

(135.513
797.08 )

(1,027.04)

-38.66%

766.78 (54.788)

229.00

-61.66%

(391.876
1151.16 )

378.55

100.77%

1016.48 177.106

41.89%

10,000.00
8,000.00
6,000.00
4,000.00
2,000.00
-

10

(2,000.00)
EVA

Market Value added

14

EVA ANALYSIS AUTOMOBILE INDUSTRY

Chart Title
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
1
-50.00%

10

-100.00%
NROI

% change in share price

3.4 Correlation
EVA
Market Value added
Change in stock price
(April - March)

Row
1
1
-0.06

Row 2
1

-0.13

Colu

Row 3

0.88

Column 2
15

EVA ANALYSIS AUTOMOBILE INDUSTRY

NROI
% change in share price

mn 1
1
-0.26

3.5 Inference

The NROI and EVA has negative correlation with share price, however if we consider
the time lag between market response and the realization of the profit we have a
positive correlation of 0.37 between the NROI and share price.
The EVA is inversely proportional to WACC, which is mostly impacted by cost of
equity, which is evident from the above table.
The EVA is negative in FY06, FY08, FY10 and FY15 when the cost of capital is
comparatively high.

4. Passenger Vehicle segment Mahindra & Mahindra

4.1 Company background

Mahindra & Mahindra Ltd., incorporated in the year 1945, is a Large Cap company
(having a market cap of Rs 80636.42 Cr.) operating in Auto sector. Mahindra &
Mahindra is the only Indian company among the top three tractor manufacturers in
the world. The Group has a leading presence in key sectors of the Indian economy.
The Group employs over 50,000 people and has several stateoftheart facilities in
India and overseas.

16

EVA ANALYSIS AUTOMOBILE INDUSTRY

Mahindra & Mahindra has comprehensive manufacturing facilities with high level of
vertical integration, Catering to the Sector's diverse customer base spanning rural
and semi urban customers, defence requirements and luxurious urban utility
vehicles or SUVs. These manufacturing plants keep abreast with the latest
technology to meet the growing market expectations. These manufacturing facilities
have some of the best technologies and equipment in India and provide for a very
challenging and satisfying work environment. Its plants in Mumbai and Nasik
manufacture multiutility vehicles and engines are produced at the Igatpuri plant.
Utility Vehicles, Light commercial vehicles and 3 wheelers are manufactured at the
Zaheerabad plant in Andhra Pradesh and threewheelers at the Haridwar plant.
The company manufactures & markets utility vehicles, light commercial vehicles
that include three wheeler vehicles, namely; Scorpio, Bolero, Champion and many
more. The company also exports its products to several countries in Europe, Africa,
South America, South Asia and the Middle East. Mahindra International is into
producing trucks and buses. The company has entered into a joint venture with
Navistar for production of diesel engines & trucks. M&M's farm equipment segment
has presence in six continents and has a worldwide network of 800 dealers .Its total
combined production capacity is 1,50,000 tractors a year from countries like India,
USA, China and Australia

4.2 Business performance

For the quarter ended 31-Mar-2015, the company has reported a Standalone sales
of Rs. 9411.52 Cr., down -0.57% from last quarter Sales of Rs. 9465.94 Cr. and down
-13.16% from last year same quarter Sales of Rs. 10837.89 Cr. Company has
reported net profit after tax of Rs. 550.56 Cr. in latest quarter.

4.3 EVA Calculations

WACC

2015

19.60%

32.4
%

1,903.14
5876.95 1
76,196.13

2014
2013

16.49%
8.36%

58.5
%
66.9
%

2,899.66
4957.86 4
55,954.88
4293.35
2,870.61 49,572.77

Year

Invest
ment

Market
value
added

NRO
I

EVA

Growth in
stock price
22.86%
17.00%
23.42%
17

EVA ANALYSIS AUTOMOBILE INDUSTRY

2
2012

-7.87%

95.5
%

2,991.21
3132.91 8
44,192.64

4.92%

81.8
%
17.6
%

2,240.39
2738.52 6
39,000.87

29.92%

24,482.34

117.18%

1,145.40
1814.45 6
11,494.13

0.00%

2011

11.29%

2010

61.44%

2009

19.80%

2008

15.18%

2007

15.85%

63.1
%
44.4
%
55.0
%

2006

41.98%

8.0%

2567.6 451.379

1590.57 705.933

17,895.32

-4.17%

1375.26 757.036

17,479.65

29.99%

1364.15 109.586

9,272.79

95.12%

90,000.00
80,000.00
70,000.00
60,000.00
50,000.00
40,000.00
30,000.00
20,000.00
10,000.00
1

3
EVA

10

Market value added

18

EVA ANALYSIS AUTOMOBILE INDUSTRY

140.00%
120.00%
100.00%
80.00%
60.00%
40.00%
20.00%
0.00%
-20.00%

NROI

10

Growth in stock price

4.4 Correlation

Column
2

Column 1
NROI
% change in share
price

1
-0.66

4.5 Inference

1. The company raises funds by equity and debts with insignificant portion of debentures.
Cost of equity is more than cost of debt and cost of debentures.
2. The ROI of the company is on the higher side and varies between 50% to 93% in the last
19

EVA ANALYSIS AUTOMOBILE INDUSTRY

10 years
3. There is no direct relationship between PAT and ROI of the company.
4. The NROI of the company varies between 8% to 95.5% in the last 10 years
5. The values of EVA fluctuate similar to NROI. EVA is minimum for lowest NROI of 8%.
6. Steady increase in market value for last 7 years.
7. There is no direct relationship between EVA and market value addition.
8. Correlation was conducted to find the relationship between NROI and growth in
company's stock price.
9. For M&M, there is a negative correlation between NROI and growth in stock price for
the time period under study.

5. Passenger Vehicle segment TATA Motors

5.1 Company Profile

Tata Motors Ltd is India's largest automobile company. The company is the leader in commercial
vehicles in each segment, and among the top three in passenger vehicles with winning products
in the compact, midsize car and utility vehicle segments. They are the world's fourth largest truck
manufacturer, and the world's second largest bus manufacturer.
Tata Motors Limited recorded a gross turnover of Rs.37,758 crores, 23.4% lower from Rs.49,320
crores in the previous year. On top of a 16.7% decline in FY 2012-13, a decline of more than
40% over a 2 year period was witnessed. Sustained deceleration in the economic growth, high
inflation, higher fuel prices, reduced availability of finance and elevated interest rate regime
continued to impact demand for the Indian auto industry in general and commercial vehicle
industry in particular. Additionally, the need to increase marketing expenses on account of severe
competitive intensity and depressed market scenario impacted EBITDA margins from positive
4.8% in FY 2012-13 to negative 1.4% for FY 2013-14. The reduction of profits from operations
was offset by dividend from subsidiary companies of Rs.1,574 crores (including dividend from
JLR) as compared to Rs.1,584 crores for the previous year and profit of Rs.1,966 crores on
divestment of investments in certain foreign subsidiaries to TML Holdings Pte Ltd, Singapore, a
wholly owned subsidiary. Loss Before Tax and Profit After Tax for the FY 2013-14 were at
Rs.1,026 crores and Rs.335 crores respectively, as compared to Profit Before Tax and Profit
After Tax of Rs.175 crores and Rs.302 crores respectively in FY 2012-13.

5.3 EVA Calculation:

Year

WACC

NROI

Invest

EVA

Market

% Change in
20

EVA ANALYSIS AUTOMOBILE INDUSTRY

ment

Value added

Share Price

24.47%

23.1
%

15455.7 (3,564.5
4 61)

19,527.13

50.15%

11.54%

4.3%

15019.5 (640.375
2 )

19,998.37

-2.76%

2013

-16.62%

34.3
%

13417.0 4,600.41
7 4

2,128.47

10.83%

2012

12.95%

13.4
%

11203.8 1,501.95
9 6

31,890.28

60.53%

2011

44.55%

2.3%

(179.050
7645.27 )

13,145.37

320.92%

2010

-10.00%

43.5
%

2,340.93
5387.31 1

(13,573.98)

-70.36%

2009

16.46%

44.4
%

1,725.17
3881.26 8

(4,714.46)

-7.19%

2008

15.13%

46.1
%

1,647.35
3570.04 1

11,453.48

-25.10%

4.1%
27.1
%

(128.199
3157.67 )

5,040.52

115.12%

3247.8 878.534

5,129.54

-16.37%

2015
2014

2007

59.40%

2006

16.06%

21

EVA ANALYSIS AUTOMOBILE INDUSTRY

40,000.00
30,000.00
20,000.00
10,000.00
1

10

(10,000.00)
(20,000.00)
EVA

Market Value added

350.00%
300.00%
250.00%
200.00%
150.00%
100.00%
50.00%
0.00%
-50.00% 1

10

-100.00%
% Change in Share Price

NROI

5.4 Correlation:

Row 1
EVA
Market Value added
Change in stock price (April March)

Row 2

Row 3

1
-0.46

-0.54

0.61

1
22

EVA ANALYSIS AUTOMOBILE INDUSTRY

Row 1
NROI
% change in share price

Row 2

1
-0.56

5.5 Inference:

1. The company raises funds by equity, debts and debentures. Cost of equity is more than
cost of debt and cost of debentures.
2. The ROI of the company varies 1% to 61% in the last 10 years.
3. The ROI of the company under study is positive, whenever the company has booked
profits.
4. The NROI of the company varies -23% to +46% in the last 10 years.
5. The values of NROI are negative in some years (FY 06, FY 10, FY 13 & FY 14), even
though the company had booked profits and had positive ROI.
6. The values of EVA fluctuate similar to NROI. EVA < 0 for 4 years where NROI was
negative.
7. Thus it can identify that positive ROI does not always signify that the company is doing
good.
8. The company has added to the shareholder value for the rest of the 6 years and maximum
value was added in FY 12
9. Correlation was conducted to find the relationship between NROI and growth in
company's stock price.
10. For Tata Motors Ltd there was negative correlation between NROI and growth in stock
price for the time period under study.
6. Commercial Vehicle segment Force Motors

6.1 Company background & Performance:

Force Motors Ltd was incorporated in the year 1958 by signing collaboration
between Vidal & Sohn Tempo Werke. The company, formerly known as Bajaj Tempo
Limited, is a Firodia Enterprise company established in 1958 the founder and the
managing director for the company was N K Firodia.

23

EVA ANALYSIS AUTOMOBILE INDUSTRY

Four decades ago, Force Motors started production of the Hanseat threewheelers in
collaboration with Vidal & Sohn Tempo Werke, Germany, and went on to establish a
strong presence in the light commercial vehicles (LCV) field with the Matador, the
proverbial LCV in India. Through the 80s and 90s, especially in the last five years
with a major product development effort, Force Motors has introduced new LCVs, a
new family of utility vehicles, new stateoftheart tractors, and a new range of
threewheelers.
Force Motors is a fully vertically integrated automobile company, with expertise in
design, development and manufacture of the full spectrum of automotive
components, aggregates and vehicles.

6.2 Business segment of the company:

Force Motors stands on the threshold of a new era in the automobile industry in
India, with a stake in five products
1) Tractors: OX and Balwan Modern tractors, sporting synchromesh transmission,
Bosch hydraulics, excellent ergonomics and fuel efficient engines designed for
demanding farmers of developing countries.
2) Three wheelers: Minidor A family of new and beautifully engineered three
wheelers economical, rugged and environment friendly very efficient transport
for people and goods.
3) Light commercial vehicles: Traveller and Excel range of passenger and goods
carriers. Powered by a family of DI and IDI engines including the legendary
Mercedes derived OM 616 engines. A range of high reliability axles and
transmissions add value.
4) Multi Utility Vehicles: Complete range of multi utility vehicles including Trax Judo,
Trax Gama, Trax Cruiser, Trax Kargo King range of single cabin and double cabin
pickups. And the 4X4 cross country vehicle Trax Gurkha.
5) Heavy commercial vehicles: In technical collaboration with MAN AG, Germany,
the company will be introducing shortly a range of heavy commercial vehicles with
a payload capacity ranging from 16 to 50 tonnes. For the quarter ended 31-Mar-2015, the

company has reported Standalone sales of Rs. 694.55 Cr., up 35.68% from last quarter Sales of
Rs. 511.92 Cr. and up 24.03% from last year same quarter Sales of Rs. 560.00 Cr. Company has
reported net profit after tax of Rs. 46.28 Cr. in latest quarter
.

6.3 EVA Calculation:

Year

WACC

NROI

Investm
ent

EVA

% change in
share price
24

EVA ANALYSIS AUTOMOBILE INDUSTRY

2014

26.75%

23.6%

1271.02 (299.390)

2013

8.88%

-7.7%

1226.53 (94.253)

-26.88%

2012

21.11%

32.6%

1240.51 404.492

-30.49%

2011

-8.44%

14.5%

616.5 89.305

2010

13.84%

-5.7%

431.15 (24.637)

2009

35.58%

388.44 (1.003)

2008

-0.96%

2007

20.30%

2006

21.41%

2005

23.98%

-0.3%
10.2%
21.3%
11.7%
19.5%

99.76%

28.22%
281.56%
-5.60%

468.87 (48.056)

-53.02%

435.93 (92.915)

-40.86%

449.29 (52.407)

65.74%

251.68 (49.083)

8.45%

350.00
300.00
250.00
200.00
Ri,%

150.00

NROI

100.00
50.00
0.00
-50.00

10

-100.00

Column 1
NROI
Share
price

1
0.13604
9224

Colum
n2

25

EVA ANALYSIS AUTOMOBILE INDUSTRY

6.5 Inference:
1. The company raises funds by equity and debts. Cost of equity is more than cost of debt.
2. The ROI of the company varies between -11.2% to 53% in the last 10 years
3. There is no direct relationship between PAT and ROI of the company.
4. The NROI of the company varies between -23.5% to 32.6% in the last 10 years
5. The values of EVA fluctuate similar to NROI. EVA is minimum for lowest NROI of -23.5%.
6. For Force motors, there is a negative correlation between NROI and growth in stock price.

7. Commercial Vehicle segment - Ashok Leyland

7.1 Company Profile

Ashok Leyland is the 2nd largest manufacturer of commercial vehicles in India, the 4th largest
manufacturer of buses in the world and the 16th largest manufacturer of trucks globally. With a
turnover in excess of US $ 2.3 billion (2012-13) and a footprint that extends across 50 countries,
it is the most fully-integrated manufacturing companies in this side of the globe. Headquartered
in Chennai, India, their manufacturing footprint spreads across the globe with 8 plants; including
one at Ras Al Khaimah (UAE). Their Joint Venture partners include Nissan Motor Company
(Japan) for Light Commercial Vehicles, John Deere (USA) for Construction Equipment,
Continental AG (Germany) for Automotive Infotronics and the Alteams Group for the
manufacture of high-press die-casting extruded aluminum components for the automotive and
telecommunications sectors.
Product range of the company includes:
Buses
Trucks
Engines
Defence & Special Vehicles
Associates Companies:
Automotive Coaches & Components Ltd (ACCL)
Lanka Ashok Leyland
Hinduja Foundries
IRIZAR-TVS
Ashok Leyland Project Services Limited

7.2 Business Performance:

26

EVA ANALYSIS AUTOMOBILE INDUSTRY

The company has faced with multiple challenges over the past two years. While the economic
slowdown impacted sales of commercial vehicles, the companys capital expenditure of Rs 6,000
crore over FY08-13 added to its debt burden. The companys under-utilized capacities have hurt
operating leverage and tilt towards light commercial vehicles (CVs) hurt volumes. The CV
makers profitability took a huge hit both counts. With the mining industry in distress and
industrial output collapsing, the outlook remained weak for the CV industry. But with the new
government taking charge, the outlook for Ashok Leyland has dramatically changed. Driven by a
strong 33 per cent year-on-year growth in volume and improvement in realisations, Ashok
Leylands revenues grew 46 per cent to Rs 4,505 crore in the quarter ending March 2014.
Realisations were up 10 per cent as the proportion of medium and heavy commercial vehicles
(M&HCV) improved. Price increases helped, with the operating profit margin up 430 basis
points (bps) over a year earlier, to 10.1 per cent, slightly lower than some estimates. Driven by a
strong 33 per cent year-on-year growth in volume and improvement in realisations, Ashok
Leylands revenues grew 46 per cent to Rs 4,505 crore in the quarter ending March. Realisations
were up 10 per cent as the proportion of medium and heavy commercial vehicles (M&HCV)
improved. Price increases helped, with the operating profit margin up 430 basis points (bps) over
a year earlier, to 10.1 per cent, slightly lower than some estimates.

7.3 EVA - Calculations

Year
2015

WACC
26.36%

2014

14.66%

2013

8.60%

2012
2011

NROI
21.6
%
24.5
%

Invest
ment

EVA

Market Value
Added

Growth in
Stock Price

(1,220.0
5659.86 13)

12,687.34

(1,296.6
5281.88 62)

4,692.00

6.77%

6,668.15

-29.40%

(249.483
4913.5 )

224.34%

-0.65%

-5.1%
13.9
%

4633.79 643.355

6,873.55

4.91%

9.90%

8.6%

4249.56 366.840

8,680.31

-0.18%

(156.911
3399.12 )

5,454.39

202.28%

3,335.82

-48.20%
-2.37%
27

2010

29.76%

2009
2008

-9.25%
21.04%

-4.6%
22.9
%
26.7

1525.55 349.823
1307.04

EVA ANALYSIS AUTOMOBILE INDUSTRY

2007

13.52%

%
34.1
%

2006

40.53%

-6.0%

349.596

5,238.93

943.27 321.788

5,461.51

-6.25%

893.84 (53.192)

3,508.98

85.71%

14000.00
12000.00
10000.00
8000.00
6000.00

EVA

Market Value Added

4000.00
2000.00
0.00
1

10

10

-2000.00

150.00%
100.00%
50.00%
0.00%
-50.00%
-100.00%
NROI

Growth in Stock Price

28

EVA ANALYSIS AUTOMOBILE INDUSTRY

7.4 Correlation

NROI
Change in stock price

Column
1
1
-0.54
Column 1

EVA
Change in stock
price

Column 2
1
Column 2

1
-0.36

7.5 Inference:
The company raises funds by equity, debts and debentures. Cost of equity is more than
cost of debt and cost of debentures.
The ROI of the company varies between -10% to +48% in the last 10 years.
The ROI of the company under study is positive, whenever the company has booked
profits. The ROI is negative, when the company is under loss.
There is direct relationship between PAT and ROI of the company.
The NROI of the company varies between -24.5% to +34.1% in the last 10 years.
The values of NROI are negative in some years (FY 15, FY 13, FY 10 & FY 05), even
though the company had booked profits and had positive ROI.
The values of EVA fluctuate similar to NROI. EVA is negative (EVA < 0) for 4 years
where NROI was negative.
Hence it can be identified that positive ROI does not always signify that the company is
doing good.
The company has added to the shareholder value for the rest of the 6 years where EVA is
positive and maximum value was added in FY 12.
Correlation was conducted to find the relationship between NROI and growth in
company's stock price.
For Ashok Leyland there was negative correlation between NROI and growth in stock
price for the time period under study.

8. Conclusion

29

EVA ANALYSIS AUTOMOBILE INDUSTRY

M&M and Hero Moto Corp are the only two companies which has
positive NROI throughout 10 years.
Tata Motors, Ashok Leyland and Force share similar NROI trend with
positive and negative NROIs.
TVS Motors booked consecutive positive NROI in last 4 years except in
FY 2015.
Similar to NROI, M&M and Hero Moto are the only 2 companies with
positive EVA throughout the 10 years. All other companies followed
similar trend in line with NROI.
All the companies booked positive EVA in FY 2012 and FY 2011 and
TATA motors added more shareholder value in FY 2012.

6000
5000
4000

M&M

3000

Tata Motors

2000

Hero Moto Corp

1000

Ashok Leyland
TVS Motor

0
-1000 1

10

Force

-2000
-3000
-4000

30