Case

Is Apollo Tyres Creating or South Asian Journal of

Business and Management Cases
Destroying Shareholders’ 9(1) 125–137, 2020
© 2019 Birla Institute of Management Technology
Wealth? Reprints and permissions:
in.sagepub.com/journals-permissions-india
DOI: 10.1177/2277977919881388
journals.sagepub.com/home/bmc

Rajesh Mamilla1 and A. Vasumathi1

Abstract
There has been a growing concern about the performance measures based on traditional account-
ing information such as return on equity (ROE), return on capital employed (ROCE), return on net
worth (RONW), earning per shares (EPS), net operating profit after taxes (NOPAT) and return on
investment (ROI). These measures although widely used fail to capture the shareholders’ value cre-
ation/destruction as a result of management actions. The concept of economic value added (EVA) and
market value added (MVA) have gained popularity all over the world particularly in the USA, the UK
and European countries. EVA and MVA are finding acceptance as internal and external performance
measures because these two measures are consistent with the organizational objective of sharehold-
ers’ value creation. Due to its popularity, a lot of research work has been conducted in the late 1990s
covering diverse issues on EVA and MVA. In the light of the above, the present study made an attempt
to calculate EVA as well as MVA and to analyze whether Apollo Tyres is creating or destroying share-
holders’ wealth during the study period.

Keywords
Beta, capital employed, cost of debt, cost of equity, economic value added (EVA), market value added
(MVA), net operating profit after tax, shareholders’ wealth

Introduction
Maximizing shareholders value has become the new corporate paradigm in recent years. The firms,
which gave the lowest preference to shareholders curiosity, are now bestowing the utmost preference to
it. Shareholders’ wealth is measured in terms of returns they received on their investment. It can either
be in the form of dividends or in the form of capital appreciation or both. Capital appreciation depends
on the changes in the market value of the stocks that, in turn, depends upon a number of factors ranging

1
VIT Business School, VIT (Deemed to be University), Vellore, India.

Corresponding author:
Rajesh Mamilla, VIT Business School, Vellore Institute of Technology, Vellore, Tamil Nadu 632014, India.
E-mail: rajesh.mamilla@vit.ac.in
126 South Asian Journal of Business and Management Cases 9(1)

from company specific to market specific. Financial information is used by various stakeholders to
assess a firm’s current performance and to forecast the future as well. It is important to recognize that the
objectives of management may in some situations differ from those of the company’s shareholders. One
of the best ways to induce management and adopt a shareholder orientation is to use performance
measures.
Financial measures like growth in revenue, earnings, and book value as well as return on equity
(ROE) and return on assets (ROA) are at the heart of the traditional approach to company analysis. Along
with this line, the ‘DuPont formula’ is often used to show how profitability and leverage changes at
a company can impact—either positively or negatively—the shareholder’s ROE. Also, to judge if a
company’s internal growth opportunities are correctly ‘priced’ in the marketplace, managers and
investors use traditional valuation measures such as price/earnings and price/book value ratios. In this
regard, active investors should avoid overpaying for the firm’s perceived future growth opportunities,
while they should consider buying those securities where the stock price has been incorrectly driven
down to a level that is inconsistent with a firm’s fundamental earning potential. Since the 1900s,
traditional accounting-based measures such as earnings per share (EPS), ROE and ROA, have been used
to operationalize this. The empirical studies highlight that a single accounting measure is not sufficient
to explain the financial performance of the company. A set of measures are required to assess the financial
performance and shareholders wealth. The present study analyzes the financial performance of Apollo
Tyres through economic value added (EVA) as well as market value added (MVA) to find out whether
the firm has added or eroded the value for its shareholders?

Economic Value Added

In 1990, a new device was formulated by the management consulting firm Stern Stewart to gauge the
profitability of a concern, which is known as ‘EVA’. This concept is a reversion to the formulation of
Marshell (1920) who first spoke about the notion of economic profit, in terms of the real profit that a firm
makes when it covers, besides the various operating costs, the cost of its invested capital. The EVA of the
company is just a measure of the incremental return that the investment earns over the market rate of
return. In simple terms, it can be stated that EVA measures the profitability net of cost of capital. As
someone has aptly remarked, ‘you only get richer if you invest money at a higher return than the cost of
money to you’. Everybody knows this but many seem to forget it. Thus, EVA can be taken as the net
operating profit minus an appropriate charge for the opportunity cost of all the capital invested in an
enterprise. As such, EVA is an estimate of true economic profit or the amount by which earnings exceed
or fall short of the required minimum rate of return that shareholder and lenders could get by investing
in other securities of comparable risk (Figure 1).
The traditional measures such as EPS, ROA, return on capital employed (ROCE) take into account
only loan interest as the cost of capital even though a company had a reasonable mix of debt and equity
in the capital structure. EVA overcomes this limitation of accounting based measures of financial
performance. EVA is a single value-based measure that is intended to evaluate business strategies, capital
projects and to maximize long-term shareholder’s wealth. It sets managerial performance target and
links it to reward systems.
Unlike simple traditional budgeting, EVA focuses on ends and not means as it does not state how a
manager can increase a company’s value as long as the shareholder’s wealth is maximized. This allows
managers to have discretion and free-range creativity, avoiding any potential dysfunctional short-term
behaviour. Rewards such as bonuses from the attainment of EVA target level are usually paid fully at the
Mamilla and Vasumathi 127

Figure 1.  EVA Model

Source: Created for this study.
Notes: If EVA > 0, Shareholders value created; If EVA< 0, Shareholders value destroyed.

end of 3 years because workers performance is monitored and will only be rewarded when this target is
maintained consistently, hence, leading to long-term shareholders wealth.
The financial measure, EVA gained early acceptance from the corporate community because of its
innovative way of looking at the firm’s real profitability. Unlike traditional measures of profit—such as
earnings before interest and tax (EBIT), earnings before interest tax depreciation and amortization
(EBITDA), and net operating income—EVA looks at the firm’s ‘residual profitability,’ net of both the
direct cost of debt capital and the indirect cost of equity capital. In this way, EVA serves as a modern-day
measure of corporate success because it is closely aligned with the shareholders wealth-maximization
requirement.
Large firms like Coca-Cola, Diageo, Lilly (Eli), Guidant and SPX have used EVA as a guide to
creating economic value for their shareholders. Bonuses and incentive pay schemes at these firms have
been built around the manager’s ability (or lack thereof) to generate positive EVA within the firm’s
operating divisions. Positive payments accrue to managers having divisional operating profits that on
balance exceed the relevant ‘cost of capital,’ while negative incentive payments may occur if the longer-
term divisional profits fall short of the overall capital costs. Thus, by accounting for both the cost of debt
and equity capital, EVA gives managers the incentive to act like shareholders when making corporate
investment decisions.

Market Value Added

‘The Market Value Added’ is an indicator which is used to appreciate the capacity of the company to
create value added. The evolution of this indicator is closely connected with the evolution of the share
128 South Asian Journal of Business and Management Cases 9(1)

price, which is further influenced both by quantifiable financial indicators and emotional, non-quantifiable
factors. In these circumstances, the level of the MVA is also influenced by such factors. However, in
normal circumstances, the financial factors should have the biggest contribution to explaining the
changes that occurred in the MVA. The goal for managers is no longer to maximize the value of the firm
but to increase the value of the firm without using more capital, or the other way around. This way value
for the shareholders of the company can be created.
The market value of equity and Book value of equity are the main components in computing
MVA. The market value of equity can be recognized by the current valuation of the stock market multiply
by the number of share outstanding by the current share price. The book value of equity indicates the
entire capital dedicated to the corporation by its owners includes equity equivalents, special reserves,
retained earnings and provisions. In a sense, equity can be traced from subtracting both interest and non-
interest bearing debt from total assets on the balance sheet.

Apollo Tyres—Overview
Apollo Tyres Ltd is the leading tyre manufacturing company in India. They are engaged in manufacturing
automobile tyres and tubes. They are having their manufacturing facilities at Thrissur in Kerala and
Vadodara in Gujarat. They are the first Indian tyre company to launch exclusive branded outlets for truck
tyres and also the first Indian company to introduce radial tyres for the farm category.
The company was incorporated on 28 September 1972. They started their production in the year 1977
at Perambra in Kerala. In the year 1991, the company commissioned their second plant at Limda in
Gujarat. In the year 1995, they acquired Premier Tyres at Kalamassery in Kerala. In the year 1996,
exclusive tubes plant commissioned in Ranjangoan in Maharashtra and in the year 2000, they established
exclusive radial capacity in Limda.

Market Overview
Despite the uncertainty, India continued to remain a beacon of hope and strong performance, retaining
its position as the fastest growing economy in the world. The IMF, in its estimates in April 2017, pegs
India’s growth at 6.8 per cent. This is further validated by India’s Central Statistical Organisation (CSO)
and multinational which pegs India’s growth rate at 7.1 per cent for FY17. Sectors such as financial
services, real estate, insurance, and professional services have outgrown the national average, with an
estimated growth rate of 9 per cent for FY17.
India’s robust growth was also reflected in commendable numbers reported by the Auto sector,
compared to subdued results in the previous year. As per the Society of Indian Automobile Manu­
facturers (SIAM), with a growth of 6.8 per cent in FY17, the auto industry reported stellar numbers on
the back of Passenger Vehicles (PV) and the two-wheelers segments. The PV segment continued its
third year of sustained growth. It posted growth of 9.2 per cent for FY17, outpacing its last year’s
growth of 7.2 per cent. However, the Commercial Vehicle (CV) segment grew at a slower pace of
4.2 per cent as against its previous year’s double-digit growth of 11.5 per cent. The year also saw
major gains made by the two-wheeler segment which grew at 6.8 per cent as compared to 2.8 per cent
in FY16.
Mamilla and Vasumathi 129

Industry Structure and Developments in India

With the growing insistence to lower emission levels and enhance fuel efficiency in vehicles, besides
reducing weight, the Indian tyre industry is embracing new trends in the manufacturing process to meet
the changing market dynamics and cater to the latest demands of the OEMs (Original Equipment
Manufacturers). The heavy investment-driven tyre industry contributes 3 per cent of the manufacturing
GDP when the entire automotive sector accounts for 7.1 per cent of the GDP and almost 49 per cent to
the nation’s manufacturing GDP (FY 2015–2016). The tyre makers in India are gearing up to intensify
their role in the modernization phase, largely driven by demand and supply conditions as also directly
proportional to automobile sales to some extent. Top 10 companies account for about 80 per cent of the
market share. Top three companies MRF, Apollo Tyres and JK Tyres have 55 per cent of the market share
of the Indian tyre industry and figure among the top 25 global companies in terms of revenue.
Tyre exports estimated to grow by 8–10 per cent over the next 3 years led by stable demand and
increased acceptance of Indian tyres in overseas markets, both in terms of quality and pricing. It was
around 9 per cent in FY 2018. For FY 2019, the unit and tonnage growth pegged at 8–8.5 per cent and
6.5–7 per cent, respectively.
Currently, India’s contribution to the global tyre trade is USD 1.5 billion (1.72%) out of the US$80
billion market. Automotive Tyre Manufacturers Association (ATMA) expects export share to increase to
about 5 per cent given that the industry is highly competitive and there is headroom for tyre exports.
Top destinations for exports include the USA, Germany, France, the UK, Italy, Spain, Turkey,
Netherlands, UAE, Brazil and Australia. The US and EU countries are the top potential markets for
exports, and the driving factor would be the Government signing trade agreements with these countries
which can provide concessional tariff for tyres.
The share of imports from China has gone up to over 50 per cent from just about 20 per cent in the
last 5 years, as per the data available with ATMA. Due to rising imports, the domestic industry has been
lingering with a decline in production, and the capacity utilization of plants has remained subdued. The
corporate income tax in India is higher than many other countries, which reduces competitiveness in
the Indian tyre industry. In terms of raw material, the external environment controls both natural rubber
and crude and little can be done to control the raw material price movement.
Even after the challenges mentioned above, the tyre companies have managed to remain profitable in
the Indian market. However, the potential of growth is almost two times than what it is now if the hurdles
are taken care off.

1. Top in the sales is MRF Ltd. The company’s total income (net of excise duty) was `151,044
million for the year ended 31 March 2018, an increase of 11.22 per cent as compared to `135,808.3
million in the previous year. The Profit before tax stood at `16,019.1 million for the year ended 31
March 2018, as against `20,663.7 million for the previous financial year.
2. Apollo Tyres Ltd. The Company’s net sales for the full year witnessed a growth of 12 per cent,
as compared to the last fiscal, to close at `146,740 million. Net profit reported for the full year
of FY 2018 was `7,240 million. Both, Indian and European Operations, continued with their
growth momentum and registered a revenue growth led by a strong performance in the CV
segment, especially truck radials, in India, and PV category in Europe. Apollo Tyres Ltd
operating profit for the financial year 2017–2018 stood at `17,680 million.
3. CEAT Ltd. The company’s consolidated profit during the 2017–2018 financial year stood at
`2,332.9 million. Total income during the last financial year was `64,291.4 million.
130 South Asian Journal of Business and Management Cases 9(1)

Analysis
The tools and formulae required for applying EVA, MVA and Compound Annual Growth Rate (CAGR)
are displayed in Annexure A. The decision criteria are also listed along with discussion questions.

Earnings Before Interest and Tax and the Net Operating Profit After Tax
Net Operating Profit After Taxes (NOPAT) is used by analysts and investors as a precise and accurate
measurement of profitability to compare a company’s financial results across its history and against
competitors (refer Table 1). NOPAT is considered to be a better measure of the underlying performance
of a business than its net income after tax since NOPAT excludes the effect of excessive debt levels
that might result in large interest charges and offsetting tax effects. However, if a company has no
debt, its net income after tax figure will match its NOPAT result. NOPAT uses only operating income—
the income before taking interest payments into account. For this reason, NOPAT is a crucial measure
in a variety of financial analysis because it gives a clearer view of operating efficiency—a view that
is not clouded by how leveraged the company is or how big of a bank loan it was able to get. This is
important because those interest payments on debt reduce net income and thus reduce the company’s
tax expense. Thus, NOPAT simply looks at how well a company’s core operations did, net of taxes.
Accordingly, NOPAT is also used to calculate EVA. From Table 1, it is observed that the (NOPAT of
the company is increased up to 2016. This happened because of the increase in sales revenue and a
decrease in the tax rate during the study period. The increase in NOPAT of Apollo Tyres Ltd indicates
that the operating efficiency of the company is well, and it indicates that the company has sufficient
funds to meet its debt obligations. In the Year 2017, the sales was decreased because of that EBIT was
shown a decreasing trend.

Cost of Debt and Cost of Equity

The cost of debt and cost of equity is useful to know about how much amount the company spends on
maintaining the debt and equity components in their capital structure. The cost of debt is the return that
a company provides to its debt holders and creditors. These capital providers need to be compensated for
any risk exposure that comes with lending to a company. From Table 2, it is observed that the cost of debt
of the company is increased up to the year 2015 later on it is decreased. The maximum cost of debt (0.36)

Table 1.  Earnings Before Tax and the NOPAT During the Study Period

Year EBIT (` in million) (1 – t) NOPAT (` in million)

2017 13,738.3 0.80 10,990.6
2016 16,796.7 0.76 12,765.5
2015 11,809.2 0.76 8,975
2014 9,335.4 0.82 7,655
2013 6,945.9 0.76 5,278.9
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.
Mamilla and Vasumathi 131

Table 2.  Cost of Debt and Cost of Equity

Interest Borrowings Tax Cost of EPS MPS Cost of

Year (` in million) (` in million) (` in million) Debt (`) (`) Equity
2017 922.1 8340.3 2,828.8 0.08 15.71 268.8 0.06
2016 925 2125.9 4,123.7 0.31 19.73 184.95 0.11
2015 1757.5 3339.4 2,890.6 0.36 12.69 153.5 0.08
2014 2503.9 7137.3 1,718.3 0.25 10.22 223.1 0.05
2013 2667.7 13,383.7 1,619.9 0.13 5.76 107.15 0.05
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.

is found in the year 2015 and the company paid less (0.08) cost of debt in the year 2017. In finance, the
cost of equity is the return (often expressed as a rate of return) a firm theoretically pays to its equity
investors, that is, shareholders, to compensate for the risk they undertake by investing their capital. Firms
need to acquire capital from others to operate and grow. Individuals and organizations who are willing
to provide their funds to others naturally desire to be rewarded. Just as landlords seek rents on their
property, capital providers seek returns on their funds, which must be commensurate with the risk
undertaken. From Table 2, it is observed that cost of equity is increased up to the year of 2016 later it was
decreased because of the decrease in PBIT.

Estimation of Weighted Average Cost of Capital and the Cost of Capital

Employed
The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average
to all its security holders to finance its assets. The WACC is commonly referred to as the firm’s overall
cost of capital and it is influenced by the composition of debt and equity in the capital structure. The
WACC represents the minimum return that a company must earn on an existing asset base to satisfy its
creditors, owners, and other providers of capital, or they will invest elsewhere. It is most usually used to
provide a discount rate for a financed project because the cost of financing the capital is a fairly logical
price tag to put on the investment. From Table 3, it is observed that the WACC of the Apollo tyres shows
an increasing trend during 2013–2016. This happened because of the decrease in debt usage when

Table 3.  Estimation of Weighted Average Cost of Capital (WACC) and the Cost of Capital Employed

Equity Based on Cost of capital

Debt Market Value employed (COCE)
Year (` in million) (` in million) CE Wd We Kd Ke WACC (` in million)
2017 8,340.3 139,600 14794.05 0.06 0.94 0.08 0.06 0.06 9,043.2
2016 2,125.9 81,540.2 8366.609 0.03 0.97 0.31 0.11 0.12 9,628.4
2015 3,339.4 88,233.9 9157.326 0.04 0.96 0.36 0.08 0.09 8,260.9
2014 7,137.3 80,980.3 8811.757 0.08 0.92 0.25 0.05 0.07 5,833.3
2013 13,383.7 42,156.4 5554.011 0.24 0.76 0.13 0.05 0.07 3,847.7
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.
132 South Asian Journal of Business and Management Cases 9(1)

compared with the year 2013 and increase in the cost of equity during the study period. The capital
employed in the company shows an increasing trend throughout the study period. The WACC showed an
increasing trend up to the year 2016 and later, it came down to 0.06, which is found as an optimal cost
of capital during the study period.

EVA: Is the Firm Creating or Destroying Shareholders’ Value?

EVA as a performance indicator is very useful in analyzing shareholders wealth creation. The calculation
shows how and where a company created wealth, through the inclusion of balance sheet items. This forces
managers to be aware of assets and expenses when making managerial decisions. However, the EVA
calculation relies heavily on the amount of invested capital and is best used for asset-rich companies that
are stable or mature. EVA is the incremental difference in the rate of return over a company’s cost of capital.
Essentially, it is used to measure the value a company generates from funds invested into it. If a
company’s EVA is negative, it means the company is not generating value from the funds invested into the
business. Conversely, a positive EVA shows a company is producing value from the funds invested in it.
From Table 4, it is observed that the NOPAT as well as COCE of the company both are increased during
2013–2016 but in the year of 2017 both were decreased. The rate of increase of COCE is less than the rate
of increase of NOPAT during the study period, hence the EVA of the company is found positive. The CAGR
of the company during the study period is 7.99 per cent. The value is positive and shows a cumulative
growth of 8 per cent in shareholders’ value. Hence, with respect to EVA, we can say that the Apollo tyres
created value to their shareholders during the study period (Table 6).

Table 4.  EVA: Is the Firm Creating or Destroying Shareholders’ Value?

NOPAT COCE EVA

Year (` in million) (` in million) (` in million)
2017 10,990.6 9,043.2 1,947.4
2016 12,765.5 9,628.4 3,137.1
2015 8,9750 8,260.9 714.1
2014 7,6550 5,833.3 1,821.7
2013 5,278.9 3,847.7 1,431.2
CAGR 7.99%
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.

MVA: Is the Firm Creating or Destroying Shareholders’ Value?

When investors want to look under the hood to see how a firm performs for its shareholders, they first
look at MVA. A firm’s MVA is an indication of its capacity to increase shareholder value over time. A
high MVA is an indication of effective management and strong operational capabilities (Table 5). A low
MVA indicates the value of management’s actions and investments are less than the value of the capital
contributed by the investors. MVA is another shareholder value analysis metric, which helps to understand
the shareholder’s wealth creation. MVA is the difference between the market value of the company and
the capital contributed by all the investors of the company. The values of MVA of the company is
positive and is showing an increasing trend (except in 2016–2017) during the study period. Companies
Mamilla and Vasumathi 133

Table 5.  MVA: Is the Firm Creating or Destroying Shareholders’ Value?

Market Value of Stocks Book Value MVA

Year (` in million.) (` in million) (` in million)
2017 13,960.02 5,331.9 8,628.12
2016 8,154.019 3,996.41 4,157.61
2015 8,823.386 3,270.69 5,552.70
2014 8,098.027 2,739.82 5,358.21
2013 4,215.641 2,341.42 1,874.22
CAGR 0.47
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.

Table 6.  Comparison of Apollo Tyres with MRF and CEAT Tyres w.r.t. EVA for the Year 2017

Particulars Apollo Tyres Ltd MRF Ltd CEAT Ltd

NOPAT (A) (` in million) 10,990.6 12,560.144 3,419.924
COCE (B) (` in million) 9,043.2 16,995.5 5,344.8
EVA (A-B) (` in million) 1,947.4 −4,435.4 −1,924.9
Source: Compiled for the study.
Note: `10 million = US$0.14 million; US$1 = `71.22.

with a high MVA are eye-catching to investors not only because of the greater possibility they will
produce positive returns, but also it is a good signal that they have strong leadership and sound
governance. MVA can be interpreted as the amount of wealth that management has created for investors
over and above their investment in the company. Companies that are able to withstand or increase MVA
over time typically attract more investment, which continues to enhance MVA. The CAGR of the
company during the study period is 0.47. The value is positive and shows a cumulative growth of 47 per
cent in shareholders’ market value. Hence, with respect to MVA also, we can say that the Apollo tyres
created value to their shareholders during the study period.

Conclusion
Has Apollo Tyres continued creating wealth in the year 2018–2019 for its shareholders in comparison
with two of its rival firms—MRF Tyres Ltd and Ceat tyres Ltd? To answer this question, the information
given in Tables 7–9 is used. With respect to NOPAT and COCE MRF Tyres Ltd stood first followed by

Table 7.  Competition

Last Price Market Cap. Sales Turnover Net Profit Total Assets
Name 29 March 2018 (` in million) (` in million) (` in million) (` in million)
Apollo Tyres 203.05 116,154.7 105,545.9 6,223.9 97,724.1
MRF 61,868.15 262,391.7 152,270.7 10,922.8 111,519.0
Ceat 1,111.45 44,958.3 63,302.5 2,787.2 29,627.6
Source: Compiled for the study from Moneycontrol.com
Note: `10 million = US$0.14 million; US$1 = `71.22.
134 South Asian Journal of Business and Management Cases 9(1)

Table 8.  Balance Sheet—Comparison with Competitors

------------------- in ` million-------------------
Apollo Tyres MRF Ceat JK Tyre & Ind
Balance Sheet March 2018 March 2018 March 2018 Mar ‘18
Sources of funds
Total share capital 572.1 42.4 404.5 45.36
Equity share capital 572.1 42.4 404.5 45.36
Share application 0.00 0.00 0.00 0.00
money
Preference share capital 0.00 0.00 0.00 0.00
Reserves 72,034.1 95,999.6 25,063.7 1,598.93
Revaluation reserves 0.00 0.00 0.00 0.00
Networth 72,606.2 96,042.0 25,468.2 1,644.29
Secured loans 19,787.3 7,283.7 4,159.4 2,980.13
Unsecured loans 5,330.9 8,193.3 0.00 0.00
Total debt 25,118.2 15,477.0 4,159.4 2,980.13
Total liabilities 97,724.4 111,519.0 29,627.6 4,624.42

Apollo Tyres MRF Ceat JK Tyre & Ind

March 2018 March 2018 March 2018 Mar ‘18
Application of funds
Gross block 84,341.5 79,356.1 28,443.8 5,507.75
Less: accum. 27,202.9 18,603 3,691.3 1,935.87
depreciation
Net block 57,138.6 60,753.1 24,752.5 3,571.88
Capital work in 6,717.9 10,788.4 1,618.6 89.35
progress
Investments 29,784.2 41,464.4 3,200.5 544.87
Inventories 17,214.9 21,720.7 7,549.6 1,026.01
Sundry debtors 5,501.5 21,359.2 7,121.5 1,289.72
Cash and bank balance 2,605.2 1,394.1 730.1 72.29
Total current assets 25,321.6 44,4740 15,401.2 2,388.02
Loans and advances 12,463.4 5,538.1 2,832.1 584.29
Fixed deposits 0.00 0.00 0.00 0.00
Total CA, loans and 37,785.0 50,012.1 18,233.3 2,972.31
advances
Deffered credit 0.00 0.00 0.00 0.00
Current liabilities 30,599.7 48,543.3 17,337.9 2,523.71
Provisions 3,101.9 2,955.7 839.4 30.28
Total CL and provisions 33,701.6 51,499.0 18,177.3 2,553.99
Net current assets 4,083.4 −1,486.9 56 418.32
Miscellaneous expenses 0.00 0.00 0.00 0.00
Total assets 97,724.1 111,519.0 29,627.6 4,624.42
Contingent liabilities 3,353.4 4,105.7 14,596.7 246.47
Book value (`) 1,269.2 226,453.1 6,296.2 72.50
Source: Compiled for the study from Dion Global Solutions Limited, Moneycontrol.com
Note: `10 million = US$0.14 million; US$1 = `71.22.
Mamilla and Vasumathi 135

Table 9.  Profit and Loss Account—Comparison with Competitors

------------------- in ` million-------------------
Apollo Tyres MRF Ceat JK Tyre & Ind
Profit and Loss Account March 2018 March 2018 March 2018 Mar ‘18
Income
Sales turnover 105,545,9 152,270.7 63,302.5 6,578.50
Excise duty 2,548.9 4,051.5 1,689.1 125.15
Net sales 102,997.0 148,219.2 61,613.4 6,453.35
Other income 1,218.5 2,824.8 372.3 25.76
Stock adjustments −125.5 −760.4 −933.2 69.80
Total income 104,090 150,283.6 61,052.5 6,548.91
Expenditure
Raw materials 66,127.7 93,041.2 37,571.7 4,483.50
Power and fuel cost 3,234.6 6,376.5 1,881.5 251.19
Employee cost 7,096.8 10,746.5 4,131.1 523.60
Other manufacturing 0.00 0.00 0.00 0.00
expenses
Selling and admin 1,421.9 2,597.9 1,467.2 109.85
expenses
Miscellaneous expenses 12,516.7 11,997.3 9,354.9 667.67
Preoperative exp. 0.00 0.00 0.00 0.00
capitalized
Total expenses 90,397.7 124,759.4 54,406.4 6,035.81

Apollo Tyres MRF Ceat JK Tyre & Ind

March 2018 March 2018 March 2018 Mar ‘18
Operating profit 12,473.8 22,699.4 6,273.8 487.34
PBDIT 13,692.3 25,524.2 6,646.1 513.10
Interest 1,375.4 2,451.7 864.5 274.12
PBDT 12,316.9 23,072.5 5,781.6 238.98
Depreciation 3,643.8 7,053.4 1,616.8 175.13
Other written off 0.00 0.00 0.00 0.00
Profit before tax 8,673.1 16,019.1 4,164.8 63.85
Extra-ordinary items 0.00 0.00 0.00 0.00
PBT (post extra-ord 8,673.1 16,019.1 4,164.8 63.85
items)
Tax 2,449.2 5,096.3 1,309.4 20.76
Reported net profit 6,223.9 10,922.8 2,787.2 43.09
Total value addition 24,269.9 31,718.2 16,834.7 1,552.31
Preference dividend 0.00 0.00 0.00 0.00
Equity dividend 1,527.1 254.5 465.2 56.70
Corporate dividend tax 310.9 51.6 55.3 11.55
Per share data
(annualized)
Shares in issue (million) 572.05 4.241 40.45 2,268.13
Earnings per share (`) 108.8 25,754.4 689 1.90
Equity dividend (%) 3,000 6,000 1,150 75.00
Book value (`) 1269.2 226,453.1 6,296.2 72.50
Source: Compiled for the study from Dion Global Solutions Limited, Moneycontrol.com
Note: `10 million = US$0.14 million; US$1 = `71.22.
136 South Asian Journal of Business and Management Cases 9(1)

Apollo tyres Ltd and Ceat tyres Ltd, respectively. The EVA values of MRF and Ceat tyres Ltd companies
were found to be negative. This happened because the NOPAT values of these companies are less than
COCE, but the Apollo tyres Ltd EVA values are positive and created value to their shareholders.

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship, and/or publication of
this article.

Funding
The authors received no financial support for the research, authorship, and/or publication of this article.

Annexure A

Tools for Analyses, Decision Criteria and Discussion Questions

1. Economic value added
Formulae
Economic value added (EVA) = net operating profit after tax (NOPAT) – COCE
where
NOPAT = net operating profits after tax
COCE = weighted average cost of capital (WACC) × capital employed (CE)
CE = total assets – current liabilities
WACC = Wd . Kd + We . Ke
Wd, We = weights assigned to debt and equity
Kd = KI (1 - t)
Kd = after tax cost of debt
KI = [I/SV]
I = interest expense
SV = total borrowings
t = tax rate
Ke = E/MPS
E = earnings per share
MPS = market price of share
Decision criteria
If, EVA > 0, shareholders value is created
EVA < 0, shareholders value is destroyed
2. Market value added
Formula
Market value added (MVA) = market value of stocks – book value of equity
where
Market value of stocks = number of shares outstanding × current market price of a share
Book value of equity = share capital + additional paid in capital + retained earnings
Mamilla and Vasumathi 137

Decision criteria
Higher MVA increases the shareholders’ value
Lower MVA decreases the shareholders’ value during the study period
3. Compound annual growth rate
Compound annual growth rate (CAGR) is a better measure of an investment’s return during the
study period. It is a geometric mean that helps to find out the consistent rate at which the investment
would have grown if the investment had compounded at the same rate every year.

CAGR = [(Pn /P1) (1/n - 1)] - 1

where
Pn = EVA or MVA at the end of the period
P1 = EVA or MVA at the beginning of the period
n = number of years.

Discussion questions
1. Find out the NOPAT during the study period.
2. Calculate the Apollo tyres cost of debt as well as cost of equity?
3. Estimate the WACC during the study period and compute the cost of capital employed in the
Apollo tyres during the study period?
4. Determine, Whether the company is creating or destroying shareholder’ wealth through EVA and
MVA.
5. Calculate the Compound Annual Growth Rate of the company during the study period.
6. Has Apollo Tyres continued creating wealth in the year 2017–2018 for its shareholders in
comparison with two of its rival firms—MRF and CEAT?

Reference
Marshell, A. (1920). Principles of Economics (8th ed.). London: Macmillan and Co.