AN ANALYTICAL STUDY ON INDIAN TYRE INDUSTRY

WITH REFERENCE TO JK TYRE AND INDUSTRIES

CHAPTER-I
INTRODUCTION
The life blood of business enterprise is considered as Finance. It is one of the basic
foundations of all kind of activities held in economy. The company runs on the basis of its
internal and external factors, it may directly or indirectly affect the structure of the company.
The effect of the company‟s workings will be purely shown in the financial statement of the
company. The financial statement shows the profit and loss of the company and also provides
an idea about the assets and liabilities which the company hold for past financial year. The
prime motive of my study is to analyse the profitability ratio for the past three years. It is very
important to study whether an entity is stable, solvent, liquid, or profitable enough to be
invested in.

The success of a business relies upon its monetary administration. One of the most necessary
motives for failure is the defectives financial plan. If the plan adopted fails to supply
sufficient capital to meet the necessities of fixed and fluctuating capital and particularly, the
latter of it fails to count on the duties with the aid of the corporation, the business cannot be
carried on successfully. Hence sound financial plan is very essential for the success of each
organization.

The overall running of the company is mainly by analysing the profitability over the financial
year. Tyre manufacturing companies are looking for abroad manor of rubbers to make their
raw materials to satisfy demand and supply which encourages the organization to secure the
raw material at less expensive costs Indian markets. The economic crises have an impact on
the commercial enterprise car market which in flip will increase the demand Indian Tyre
Manufacturing Company. This is a study about on financial getting to recognize of the JK
tyres with the assist of greater than a few economic tools by way of ability of studying a
range of liquidity ratios and other kind of ratios over a period of 2017 to 2020. The analysis
takes into account records of the previous three years and the performance is in contrast
inside these periods.

COMPANY PROFILE
JK Tyre & Industries Ltd is an Automotive Tyre, Tubes and Flaps manufacturing company
based in Delhi, India. The name JK is derived from the initials of Kamlapatji (1884-1937)
and his father Seth Juggilal (1857-1922). The company is the market leader in Truck/Bus
Radial tyre in India and is the only tyre manufacturer offering the entire range of 4 wheeler
radials for Trucks, Buses and Cars. JK Tyre has a worldwide customer base in over 80
countries across all 6 continents. It is a part of J.K. Organization group of Companies. JK
Tyre acquired Mexican tyre major-Tornel in 2008. With state-of-the-art modern production
facilities in all 9 plants, total production capacity is almost 20 million tyres per annum. JK
Tyre & Industries Ltd is also part of the JK Organization, one of India‟s leading private
sector conglomerates with multi-product, multi-location, multi-country and multi-business
operations founded more than 100 years ago. JK Tyre is one of India‟s leading four-wheeler
tyre manufacturers and among the 25 largest tyre manufacturers in the world. JK Tyre
pioneered radial technology in India in 1977; the company is the leader in the country‟s
truck/bus radial segment today. It is the only supplier of the tyre for Mercedes Benz and the
2nd largest manufacturer for 4 wheelers in India. JK Tyre is the 16th largest tyre manufacturer
in the world.

VISION OF JK TYRES
“To be amongst the most admired companies in India committed to excellence”

MISSION OF JK TYRES
•To be the largest and most profitable tyre company in India

•To retain No.1 position in truck and bus segment and to be amongst top two in all other 4-
wheeler tyre

•To make truck/bus radial operations profitable and retain leadership in the passenger radial
market

•To be the largest Indian Tyre exporter. Continue to be a significant player in the world in
truck and bus market

•To be a customer obsessed company

•To enhance value to shareholders and services to all stakeholder.

BACKGROUND OF THE STUDY

The success of each business enterprise mainly depends on the common efficiency and
effectiveness of the working of the company. This can be typically make into account by
inspecting how the assets of the company is suitable and the body of workers is manage and
in what all approaches they use their assets ethically and the normal accepts of the company.
Moreover, these elements will help the employer to achieve their goals. The success of the
company deals mainly with their wealth maximization and profit maximization. Without the
proper utilization of these assets these elements cannot be properly attained. It is primarily
based upon how the organization is good used the scares resources of the company. The
modern study is in most cases offers with the profitability analysis, ratio analysis and over all
comparative study with the most important competitors. This evaluation will help to interpret
and to study the principal objectives of the organization and providing perfect suggestions in
order to improve the future performance.

PROBLEM STATEMENT
Profit is one of the main objectives of any business organization. All the processes in an
organization are planned to achieve a high profit of the organization. Profit is important tool
measuring the performance of the company. It will reveal the overall performance of the
company. The present study is titled AN ANALYTICAL STUDY ON INDIAN TYRE
INDUSTRY WITH REFERENCE TO JK TYRES. The subject matter is to learn about the
analysis of Indian tyre enterprise by way of examining the profitability ratio and comparative
study of distinct tyre manufacturing industry with reference to JK tyres. In the year 2019-20,
the JK tyres acquires a annual revenue of Rs.7613.35 crores, via 2022 CEAT tyres will
overtake its present day role and end up India‟s Leading Tyre market by examining the
market growth of previous three years.

PURPOSE OF THE STUDY

Financial statement incorporates a wealth of information, which if properly read, analysed or
interpreted can supply precious insights into a firm‟s overall performance and position. Also,
it is the starting point for making plan, before using any state-of-the-art forecasting and
planning procedure. By inspecting these statements, firm can consider its past, present,
projected performance etc. The study is to get information about the efficiency of the firm. In
this study, we analyse the profitability, comparative study of various industries by analysing
the financial position and comprehensive income statement of the firm. By analysing the
changes in the ratio for the past three years, creates the major changes of the company. The
research is all about how the organization accomplishes the significant goals. Through
analysis we examine the gainfulness, similar investigation of various ventures by breaking
down the announcement of monetary position and comprehensive income statement of the
budgetary exhibition of the firm. By breaking down the adjustments in the share for as long
as three years which makes a notable change of the organization. This analysis will help to
study the major objectives of the company and also provide accurate suggestions to improve
the performance of the company in future.

RESEARCH QUESTIONS
Research questions arise in each stage of making the study. They are often made as doubts in
the preliminary views which then take into complete form of a meaningful question. Those
with a clear view on the making of the study will even falls into this category as no one
virtually is aware of the whole part of the study earlier than making it. The made assumptions
are hence made inside and turned into questions. Through the making of the research it takes
shifts the place where the individual goes to such areas which are not already planned, these
areas of study either evolves or are taken as a considerate decision as it offers greater which
means to the study. The research questions of the study as follows;

1. What are the various ratios used in this study?

2. What is the current financial position of JK tyres and its competitors?

3. What is the liquidity position of the firm?

4. What are the turnover and leverage position of the firm?

RESEARCH OBJECTIVES
There were precise reasons why this study is made; from its title itself it is evident that there
were some main focus areas which have been aimed at deriving and finding answers from.
The objective of this study gives a way to where the research or study is mainly focused to
the readers. The prime objectives with which the study is made are;

1. To study the financial structure of the organization

2. To find out the ratios and comparing them with the ratios of past 3 years

3. Differentiate the financial management system by analysing the various ratios of three
different companies with reference of JK tyres.

4. To analyse the operational efficiency in the current with previous year.

5. To study the financial ratios

6. To analyse the current status by analysing the financial data‟s of previous three years.

7. To know the liquidity, solvency and profitability position of the companies.

SCOPE OF THE STUDY

Each and every study has its own scope. The research is focus on the financial performance
of the company to analyse the financial profitability and is definitely focusing the company
JK tyres. For this purpose, it considered Ratio analysis, and other comparative statements.
Financial statements help the management to analyse profit, solvency, liquidity and
efficiency etc. this analysis will give the clear picture of the company. These studies will also
help the management to take managerial decisions and also help to understand the new
possibilities.

DEFINITIONS
FINANCIAL PROFITABILITY
Profitability is a business‟s potential to produce a return on an investment based on its
sources in assessment with an alternative investment. Earning a profit is important to a small
commercial enterprise because profitability impacts whether or not a company can secure
financing from a bank, can attract buyers to fund its operations and grow its business.
Companies can‟t continue to be in commercial enterprise besides turning a profit.
Profitability is measures to show how the firm is active. It is the transformation between
revenues and expenses done for a period of time. The ratios of financial profitability are the
measures of financial presentation and position. Profitability is from profits and is denoted by
the Greek letter „n‟ which is defined well to be the difference among the total revenue (TR)
and total cost (TC) that is profit = total revenue – total cost. Profitability is generally termed
as the distinction between the income generated by corporate firm and expenses incurred
during the operation of the business.

The primary goal of all business projects are the financial analyses. Profit can be exercise in
different ways and gross profit is between sales and sales sold. The term profitability is
controlled with income to expenses and also it is measured with an “income statement”. A
business needs profits not only for its existence but also for the expansion and diversification.
Every business finds it difficult to remain stable and survive in market without profits.

RATIO ANALYSIS
Ratio analysis can be defined as the method of ascertaining the monetary ratios that are used
for indicating the on-going financial performance of a company using few kinds of ratios
such as liquidity, profitability, activity, debt, market, solvency, efficiency and coverage
ratios. It is a useful management tool that will improve the understanding of financial results
and the trends over time, which also provide key indicators of organisational performance.
According to Accountant‟s Handbook by Wixon, Kell and Bedford, “a ratio is an expression
of the quantitative relationship between two numbers”. The financial ratio analysis is very
popular because it makes the analysing of stocks easier. Ratios are the balancing points for
companies. They assess stocks within an industry. In addition, they measure the position of a
company today by comparing its past history.
In most of the cases, it is very important to understand the variables driving ratios as
management has the flexibility to, at times, alter its approach to make its inventory and
company ratios more beautiful or attractive. Normally, ratios are not used in segregation but
rather in combination with other ratios. Ratios are typically only comparable across
companies within the same sector. The various kinds of financial ratios are liquidity ratios,
solvency ratios, profitability ratios, efficiency ratios, coverage ratios, market prospectus ratios
etc.

LIMITATIONS OF THE STUDY

The major limitations of this study are possibly to suffer from certain limitations. The data‟s
collected from various websites which doesn‟t shows the original information which we
need. Different organisations have different perspectives on different subjects, since the study
is typically beneath the secondary data‟s and its control may additionally have an effect on
the overall result of the firm.

The secondary data‟s are collected from various sources, it might get possible these not being
accurate as that of primary data and it is not displayed in the right order. This study have been
limited by way of the ratio analysis and the data‟s are collected for calculating the result may
not be accurate. This study is related to a period of past three years, i.e. from 2017 to
2020.We cannot predict future financial position of the company based on this study.

SIGNIFICANCE OF THE STUDY

This study gives a clear picture on the company‟s profitability and a comparative study on the
past three year ratios of its major competitor companies. The data‟s collected are based on the
detailed study and keen understanding about the various problems happen in the industry.
The main motive of this study is to give an exact idea to understand the effectiveness and
efficiency of the firm. In the study of Indian tyre industry, it involves the company‟s
profitability and overall analysis with the cash inflows and outflows of the company. This
study is analysed from the annual report of past three years. The collected data‟s are accurate
and genuine. Each and every organisation wishes to have cash inflows than outflows in order
to maximise the profit of the firm. The study on Indian tyre industry which entails that the
investigation which gives an unmistakable picture on the gain of the company and a relative
report on the proportions of the significant contenders for as long as three years. The basic
intention of this research is to understand the productivity and moreover the adequacy of the
organisation. The research on the Industry includes the company‟s productivity and business.
This examination is inspected from the yearly report of the recent years.
CHAPTER-II
THEORETICAL FRAMEWORK
A theoretical framework is the application of a theory, or a set of concepts drawn from one
and the same theory, to offer an explanation of an event, or shed some light on a particular
phenomenon or research problem it may also be described as the theory that a researcher
chooses to guide the research. It specifies which key variables influence a phenomenon of
interest and therefore what variables to measure and the rationale for relationships between
the variables.

• RATIO ANALYSIS

The ratio analysis is a technic to identify the company‟s overall performance and the working
of the company unit. In this ratio analysis we analyse the major financial ratios like liquidity
ratios, leverage ratios and other ratios in order to calculate the financial position of the
company. It is also a technique to find out the current performance of the company. The
calculation of the ratios in order to get a brief and overall idea regarding the company‟s
financial statement. A ratio becomes meaningful when compared with some standard. Ratios,
like other statistical data, merely represent a convenient means of focusing the attention of
the analyst on specific relationships that demand further investigation. Ratio analysis can
only be conducted when a set of ratios is judged from some standard set of comparisons.

• LIQUIDITY RATIOS

These ratios show the overall financial position and also meet small scale financial
obligation. Liquidity of business is the company‟s current situation or the financial reputation
in order to meet the current needs that are short-term liabilities. Liquidity ratios are these
ratios which are computed to analyse the capability of the entity to meet its non- permanent
liabilities.

•CURRENT RATIO

The current ratio comes under liquidity ratio, that measures capability of the organization to
pay its short-term financial obligations that is current liability. It is a relationship of current
assets and current liability. Current Ratio suggests whether or not the business enterprise have
the current status or the cash in order to achieve the financial obligation in case of they
become due for payment. Thus, current ratio is a measurement of financial health of the
enterprise in a short-term.
CURRENT RATIO = CURRENT ASSETS/CURRENT LIABILITY

•QUICK RATIO

LIQUID RATIO/QUICK RATIO/ACID TEST RATIO

It is the ratio for analyse or interpret how the company manages the liquidity position of the
company with its current liabilities. It is a relationship of liquid assets with current liabilities.

LIQUID/QUICK RATIO = LIQUID ASSETS OR QUICK ASSETS/CURRENT

LIABILITIES

Liquid or quick assets are the assets which are in their liquid cash form that take some more
time to transfer into its current useful cash that is the mostly used as liquid assets. Thus, they
exclude inventories and prepaid expenses. Inventories are excluded from liquid assets
because it takes time earlier than it can be converted into cash and cash equivalents. Prepaid
expenses are excluded from it due to the fact these are the expenses paid in develop
subsequently cannot be converted into cash and cash equivalents.

• FINANCIAL RATIO ANALYSIS

One of the tools for the analysis of financial statements is the ratio analysis. This analysis
describes a particular relationship between elements of one with the other factors in a
monetary report. Financial statements referred to is the balance sheet and income statement.
Balance sheet shows assets, debt and the company‟s capital at a given time. Income statement
reflects the results performed by means of the company inside certain duration (usually one
year).

Financial ratio analysis of a company used to verify the state of affairs and traits also measure
the overall performance of management. Through analysis of the ratio can be used as a basis
to assess whether or not management‟s overall performance has reached a predetermined goal
or not, and early understanding on traits or traits that management performance can be
predicted earlier.

The results of analysis can be used to examine the weakness of the organization during the
duration of time to walk, is there any weakness in the organization can be repaired, while the
results are good enough to be maintained in the future. Further historical ratio analysis can be
used for the guidance of plans and policies in the coming years in order to determine the right
policy direction.
•PROFITABILITY RATIOS

Profitability ratio is the ratio is to analyse whether the company have adequate assets in order
to attain profit for the year and at the same time, how these profit is utilized in order to gain
its results. This also includes how these profits get generated from primary sources and also it
has many other sources for the income.

•RETURN ON ASSETS

Return on asset ratios is also known as return on total assets. The net profits of the company
are compared to the total average of its assets to measure the net income generated from the
total assets throughout a specific period. The ratio also measures the organization‟s efficiency
in managing its assets to earn profits during a period. The arrival on aid proportions is
otherwise called profit for all out resource. It thinks about to the net gain of a firm to its
absolute normal resources for measure the net gain produced by the all-out resources during a
particular period. The proportion moreover measure the productivity of the firm in dealing
with its assets for acquire benefits throughout a period. The ROA is beneficial for the
executives simply as financial specialists to be aware of the effectiveness of the enterprise in
changing over its pursuits in sources into benefits as the motivation behind any benefits of the
business enterprise is to supply incomes and procure benefits. ROA is useful for management
as well as for investors to be aware of the company‟s efficiency in changing its funding in
belongings into income because the purpose of any company assets is to produce revenue and
earn profits.

RETURN ON ASSETS = (NET INCOME/TOTAL ASSETS)*100

•RETURN ON CAPITAL EMPLOYED

Comparing the operating net profit with the used capital and the return on the used capital
(ROCE) measures the company‟s efficiency in achieving profits from the used capital. In
short, the ROCE for every dollar of capital used shows the amount of income generated.

ROCE is a more useful percentage of ROE in assessing a company‟s longevity. This ratio
also helps you see how well your assets are performing while looking at long-term financing.
This quantitative relationship depends on two integral accounts: operating profit and capital
used. Operating profit is commonly recognised as EBIT or EBITDA. Profits are usually
calculated before interest, taxes, depreciation and amortization in accordance to the profits
statement, and as a end result the company‟s profit from operations are shown. Profits will be
calculated earlier than interest, taxes and depreciation by including interest and taxes to net
income if desired.
The capital employed can be a term involved as a result of which it will no longer be
established with many different financial reasons. More frequently, capital employed refers to
all the belongings of an enterprise without all current liabilities. This could even be verified
as book capital less long-term liabilities.

ROCE = PROFIT FOR THE YEAR/CAPITAL EMPLOYED

(TOTAL ASSETS – CURRENT LIABILITIES

LITERATURE REVIEW
It is the review made by means of the scholars related to the learn about performed by means
of the based totally on a subject. It can be an end result made through a particular analysis. A
long time study will help the scholar to contact every subject of the concern which helps him
to analyse the limitations and delimitations of the study and make a conclusion related to the
analysis. The assessment can be positive or negative; it is based totally upon the efficiency of
the study conducted. Through the study, problem area of the topic can be analysed and the
reasons for the problem can be ascertained. The overview of literature helps us to understand
how the scholars derived at a conclusion on precise topics. It will enlighten the key region of
the study which will help us to focus on those areas before get into a conclusion. Literature
reviews help the current study to understand relevant areas and terms for the study. This will
gain the study with an extra analysis on that. The evaluation of literature is totally based upon
the topic chosen for the current study. The primary aim of reviewing the literature already
done by scholar on particular topic will help to get to know information involving the
importance of the topic and their view point on precise topic. It will depend upon the
conclusion made by them will help us to find out the problem statement on which the analysis
of profitability of the company will be a solution for bettering efficiency of the firm. Some of
the literature review analysed for the current year as follows:

• Dr. Khalid Ashraf Chisti, Mouh-I-Din Sangmi, Dr. Khursheed Ali (2013): The study is
based on 10 automobile companies for the period of five years. This study is also based on
secondary data. For achieving the objectives of the study, the researchers worked for the
profitability analysis through various ratios. The findings of the study have put forth the
capital structure have a significant impact on the profitability of firm. This study is done for a
period of previous three years through various ratios for analysing the profitability of a tyre
industry.

• Rakhi Sharma (2016): It includes a detailed analysis of profitability of the company

having regard to important aspects concerning the same. The comparative study of increase in
annual sale and profitability made to understand the growth of the company. Some factors
like return on net worth, net profit, EBDIT etc. included. In this study the data are analysed
through return on capital employed, debit to asset ratio, inventory turnover ratio etc. The
study is doing in the year 2020.

• Mei zhang and jighua wen (2017): The study is for measuring business performance and
forecast its prospects plays a major role. An estimate of profitability related indicators of king
long company‟s profitability does a specific analysis for finding the factors which required
for the company. The study focus on only secondary data and some of the study used both
primary and secondary data.

• Jacque Dreyer (2010): The study gives a relationship between the overall financial ratios
and profitability of the firm. The major factors which have to analyse is the financial ratios,
earnings and the liability. The theory called capital structure theory is the relationship
between debt, equity and hybrid securities. It is mainly used to analyse the financial position.

• Rao (1985): The study is regarding „Impact of Debt – Equity Ratio on Profitability-An
Exploratory study of Engineering Industry‟, in this study he identified that the earning ability,
i.e., profitability, has any impact on the debt- equity ratio and he has revealed a negative
association i.e., high debt-equity ratios meant low profitability due to large interest payments,
whereas low debt-equity ratio caused high profitability because of low interest payments. He
concluded that the operating efficiency of the firm and reasonable rate of return on owner‟s
capital ultimately depend on the profits earned by it and thus, profits are necessary to run a
firm in a healthy atmosphere of present day cut throat competitions and also defend it from
business rivalry.

• Deepak Chawola (1986): The study was on an empirical analysis of the profitability of the
Indian man-made fibres industry. This study explains and examines the trends in the
profitability of the Indian man-made fibres industry. The relevant data for the study is
obtained from 17 firms found in BSE Official Directory for the period 1963-64 to 1977-78.
An increase in the exercise duty of man-made fibres seems to be associated with the decline
in profitability of the industry. Both awareness and vertical integration influence the
profitability. However, there have an effect on differs for cellulose and petro-chemical based
group of fibres.

• Cleveland and Frederick (1993): In their study „Profitability, Uncertainty and Firm Size‟,
examines the connections between variations in profit and loss rates amongst companies in
small-firm and large-firm size classes as reflections of uncertainty. They found that, within
industries, such variations are particularly extraordinary for firms in small-firm size classes,
leading to operating insurance policies for small firms best characterized as entrepreneurial.
Large firms, in contrast, faced with less uncertainty in earning profit, appear to adopt policies
that take place an emphasis on strategic planning.

• Rei & Sur (2001): They studied about profitability analysis of Indian food products
industry: A case study of Cadbury India Ltd. They tried to attempts the measurement of
profitability situation of Cadbury India Ltd. And they analysed the relationship among
various profitability ratios and their joint impact using multiple correlation co-efficient and
multiple regression method. They studied on the inter-relation between the selected ratios on
the subject of the company‟s position and overall performance and profitability of the
company. On the basis of analysis, they revealed both negative and positive association.

• Vijayakumar and Kadirvel (2003): They studied the profitability and size of firm in
Indian Minerals and Metals industry. Generally, it is recommended that the large the firm
might also be in a position to earn a higher rate of return on its investment than the smaller
firm. Similarly, a counter argument is that size of firms. Thus, they find that some theoretical
arguments suggest that profitability should increase with the firm size; others suggest that
profitability should increase with the firm size, others recommend a negative relationship. It
is in view of these contrasting suggestions that it turns into necessary to study the relationship
between size and profitability of the firms. For this purpose, Indian public sector minerals and
metals enterprise has been selected. The study reveals that size is found to be significantly
associated with the profitability during the study period. It is also evident from the evaluation
that size is positively associated with profitability. Thus, larger firm may be in a position to
earn higher rate of return on investment through diversification and moving into higher
technology.

• Singh Amarjit and Gupta Vinod (2012): It discovers mainly in the area of mechanical
centre numerous joint ventures have developed into the system in India with distant
association. The Indian tyre industry faces many problems in the business environment. By
analysing the strength, weakness, opportunities and treads are the certain tasks by the asset
which the tyre manufacturing companies have to overcome the problems on the keyless
entry‟s for four wheelers and electrically managed devices, future the company focuses in
better fuel efficiency , safety, pollution reduction and reliability. It finds a considerable over
the Indian tyre manufacturing units which have mechanical focus and numerous joint
endeavours have formed into the framework in India with far off affiliation. The Indian tyre
industry faces numerous issues in the business condition. By dissecting the quality,
shortcoming, openings and tracks are the sure assignments by using the advantage of which
the level assembling organizations faces a great deal of issues and some dynamic key
structure are the keyless entry‟s for four wheelers and electrically controlled gadgets, future
the organization centres in better eco-friendliness, wellbeing, contamination decrease and
unwavering quality.

The study has been conducted considering the data of past three year from 2017 to 2020. This
study attempts to analyse and evaluate the profitability of the company through various
variables. The reviews by different researchers are showing a positive equivalent attitude
towards the importance of profitability business in the firm for its effective existence. The
literatures point out that profitability function as a centre nerve of the firm in which the firm
operates efficiently and accurately. In this study the data‟s are only secondary and by
analysing the literatures, it is clear that, each and every review stating the importance of
profitability for the existence of the organisation.