Institute of Management Technology, Ghaziabad

 

MANAGERIAL ACCOUNTING

Guided by Prof. Neha Arora

END TERM PROJECT:

COST MANAGEMENT SYSTEM ANALYSIS AND ALSO ANALYSIS
OF THEIR CORPORATE SUSTAINABILITY INITIATIVES

Hero MotoCorp

Submitted by: Group 11 | Section: E

Amitesh Guleria - 200102074

Devashish Singh - 200101055

Harsh Dave - 200103062

Muskaan Nautiyal - 200103095

Vaibhav Gupta - 200101163

Vishal Ahlawat - 200102061

1|Page Group 11 | Section: E

 Hero MotoCorp

Introduction:
Automobile industry is over 100 years old. It started in Germany and France, and was aged in
the U.S. in the era of mass production. Vehicle volume, safety, efficiency, choice and features
have grown consistently throughout the history of this industry. It is so synonymous with
industrial development of the 20th century, and so intertwined with its twin wonders, mass
consumption and mass production, that it is being called the "industry of industries."
However, it's not all well in the automotive world. Worldwide, average margins have
dropped from 20% in the 1920s to 5% now, with lots of companies losing their money. This
poor profit margins is seen in the market capitalization of the industry: despite its huge
revenues and employment, the automobile industry accounts for only 1.6 per cent of the stock
market in Europe and 0.6 per cent in the US. There is a large contrast between the lackluster
financial success of the industry and its oversized social role, employment share and political
influence. These facts mask a broad range of financial performance. Toyota, the most
successful car company, has 15 times the market value of General Motors.

Talking about Hero MotoCorp, it is India's biggest motorcycle manufacturer, is the core unit
of the Hero Group midsize conglomerate.
The company's history is closely linked to Japan's Honda Motor. Hero Group, which had
produced bicycles, entered the motorcycle business in 1984 by setting up a joint venture
called Hero Honda. Small motorcycles with 100cc to 150cc engines have brought the
partnership to the top spot on the Indian market.
Hero, who sought to expand abroad, was out of touch with Honda on management policy,
leading to the end of the partnership in 2011. The name of the company was changed to Hero
MotoCorp.
In 2012, Hero MotoCorp partnered with U.S. motorcycle manufacturer Erik Buell to see a
chance for technical synergies. The Indian company has also built up its sales network in both
urban and rural areas, making it a tremendous competitor to Honda.
Nearly 40% of the outstanding shares of the company are held by the founding Munjal
family. Brijmohan Lall Munjal, head of the Hero Group, serves as chairman of Hero
MotoCorp. His son, Pawan Munjal, is the CEO of the motorcycle business and is accelerating
its overseas expansion, including in Africa and South America.

The rationale of the study is to gain a deeper understanding on how the cost
management systems of a company work and how a company is able to cut costs without
major implications. Moreover, the automobile sector represented an easy sector to gather
information.

2|Page Group 11 | Section: E

The objective of the study:
To study the annual report of the company, the sustainability report of the company and the
various financials of the company to achieve the aim of the project ie cost management
system analysis, sustainability initiatives analysis and comparative analysis.

Literature review:
The company reopened its 3 manufacturing plants in Uttarakhand and Haryana in May 2020.
Operations have also restarted at Global Parts Centre in Rajasthan. However, employees over
60 years and with critical medical conditions were asked to work from home compulsorily.
https://www.thehindu.com/business/Industry/hero-motocorp-resumes-manufacturing-
operations-at-three-plants/article31498942.ece

Hero MotoCorp is planning a tie-up with Harley Davidson, which isn’t doing well in India,
after trying to increase sales for 11 years. According to insiders from the industry, the tie-up
will lead to Hero MotoCorp selling and servicing Harley Davidson bikes along with
accessories. Financial support and backend infrastructure will be provided by Hero.
https://www.business-standard.com/article/automobile/cultural-alignment-a-challenge-as-
hero-looks-to-review-harley-davidson-120120301501_1.html

The market share of Hero MotoCorp rose in the month of October by more than 500 bps. The
Company has led the revival of the domestic two-wheeler industry over the past few months,
amid the significant disruptions in the supply chain of parts, operations and consumer
touchpoints in the marketplace, thanks to the extensive preparation and planning carried out
by the entire Hero ecosystem, including the dealer partners.
http://www.businessworld.in/article/Hero-MotoCorp-Retails-More-Than-14-Lakh-Units-Of-
Two-Wheelers-In-32-Days/18-11-2020-344071/

Data and sources

1. www.moneycontrol.com
2. Annual report of Hero MotoCorp
3. Sustainability report of hero MotoCorp

3|Page Group 11 | Section: E

Methodology:
We started by understanding what our project was and what was expected from us in the
project. It was followed by understanding what we had to do in various analysis. Then we
chose a company which had good sustainability initiatives because we felt that was very
important. After choosing the company, we searched the internet for information and data
regarding the company. The comparative analysis was done with the help of the annual report
and money control website. All of the company’s financials were there and the analysis was
done from those financial reports. Then we looked at the sustainability report of Hero
MotoCorp for its various initiatives and analyzed them. Finally, cost management system
analysis was done with the help of the annual report.

Hero MotoCorp sustainability policy:

Their approach to a fast-growing global marketplace is guided not only by their insights into
customers’ wants, expectations and needs but also by their belief that sustainability is the
right instrument to tackle long term goals. Their sustainability initiatives are aligned with
their vision, mission and values. Their constant focus is on ESG (Environment, Social and
Governance) parameters. The company strives to provide an engaging environment for its
employees to perform to their best potential and will continue to focus on creating value and
enduring relationships with its stakeholders. They have called their sustainability strategy to
act as the guiding force for their business eco-system and have managed a robust governance
to ensure and provide continuity and accountability of their actions.

4|Page Group 11 | Section: E

5|Page Group 11 | Section: E
Environmental
All statutory compliance with the preventive maintenance schedule and environmental clearances by
the respective Pollution Control Board shall be taken on time. Several systems and equipment have
been installed to become a zero discharge organisation, thereby avoiding compliance issues
from any of the Pollution Control Boards brief on environmental compliance is also included on
the agenda for meetings of the Board on a quarterly basis where any noncompliance, notifications,
orders or changes to the regulations are reviewed. No environmental fines were levied during the
reporting period.

CSR

They are committed to strategically deploying their CSR expenditures in order to reaffirm
their "social licence to operate" in areas where they operate by improving the social status and
addressing the issues most important to stakeholders.

Energy and Greenhouse Gas (GHG)

Climate change and its associated risks have emerged as a key challenge to sustainability.
Hero MotoCorp continues to work on a variety of energy conservation and emission
reduction strategies.

THE CLIMATE CHANGE MITIGATION STRATEGY:

Internal carbon pricing
Hero MotoCorp is adopting an internal carbon pricing mechanism to facilitate and
promote investment in sustainable and environmentally friendly technologies.
Responding beyond compliance

Hero MotoCorp adheres to all applicable legal protocols and requirements and ensures the
deployment of energy efficient technologies, upgrades of legacy equipment and synergy
between different manufacturing operations.

6|Page Group 11 | Section: E

Afforestation Strategy

Hero MotoCorp is strongly focused on expanding its green coverage within the four
walls of the factories, in the offices and beyond the periphery through its CSR initiative.
Investing in renewable sourcing of energy
Hero Motocorp is constantly striving to generate clean and green energy. With the long-
term target of becoming 100% carbon neutral by 2030, Hero MotoCorp is continually
expanding its renewable portfolio through solar power plants.

Sustainable infrastructure development

All new establishments are being developed on sustainable platforms and are IGBC certified.
Design for environment in product strategy
Hero Motocorp seeks to maximise its product performance, make it more efficient and
reducing emissions.

7|Page Group 11 | Section: E

Manufacturing operations
They reduce their direct emissions through improved energy efficiency of their
operations, increased use of renewable energy and offsetting mechanisms. The Core
Sustainability Team, together with a team of Energy Managers and Energy Auditors,
manages the energy and climateechange agenda across the organisation.

Products usage
All of their products comply with environmental legislation and frameworks, both locally and
globally.

8|Page Group 11 | Section: E

Water Manufacturing plants and other installations require water to carry out their operations.
Guided by their environmental policy, they have embarked on amission5to reduce water
consumption in all their plants and to continually try to improve their efficiency. Their
future ready water sustainability strategy is to continue investing in the Sewage
Treatment Plant (STP) and to create new Rain Water Harvesting (RWH) structures at
various locations to improve the ground water table. As part of their community
initiatives, they have also created various rainwater harvesting structures beyond theifence.
They have achieved zero discharge status for all their facilities.

Harnessing solar energy

They started their renewable journey from a 100 kWp solar plant in their Gurugram plant in
2010. The Journey has become more aggressive and the continuous improvement of the solar
power plant establishments has made it possible to increase their renewable energy portfolio.
They now have a total installed capacity of 7,700 kWp across installations.

Water positive facilities

Their facilities in Neemrana, Rajasthan have jointly passed through the water footprint
assurance-cum verification and achieved the Water Positivity Index 21,14 which
effectively means that they are giving Mother Nature water 21 times more than their
actual consumption.
Hero MotoCorp's major water conservation measures include large scale rainwater harvesting
projects that ensure the recovery and recycling of water and the recharging of ground water.
In order to prevent water pollution, they have also invested in a wastewater treatment plant
capable of treating wastewater containing degreasing chemicals, acidic/alkaline nature, waste
plating, heavy metals and waste oil produced by the process. Waste water is either reused in
general activities or recycled back to processes with the help of reverse osmosis process and
multi effect evaporators, thus reducing fresh water foot printing.

21X Water positive for the Neemrana facility

Energy conservation in environmental facilities

Improvements: Replaced filter press with dewatering machine at Effluent Treatment Plant
(ETP) and Sewage Treatment Plant (STP).The function of both machines is to separate the
sludge in the treatment of the effluent.

Benefits Energy saving: Electrical energy saved 2,78,986 kWh per year

Cost Saving: Reduction of disposal costs by 4.4 lakh per year

9|Page Group 11 | Section: E

Safety & Comfort: Eliminated manual unpacking of filter presses to remove sludge and
clean filter cloths.
Other:
• One KL/day water saving for cleaning filter cloth. 

• Energy-saving compressed air for the drying of sludge in the press. 

• Easy to handle and store.

Material
Their R&D and manufacturing teams are working to improve the quality and performance of
their vehicles while streamlining their material consumption. Preference is given to recycled
or recycled inputs. Aluminium and Steel give us the opportunity to use second-life materials
instead of virgin materials for a few of their components.

Transition from linear economy to circular economy

They have begun to apply the principles of circular economy through reduction-reuse-
recovery initiatives. Their integrated approach to circularity addresses potential risks
associated with shortfalls in the supply of raw materials by minimising dependence on virgin
materials. Design for easy recovery is one such initiative that matures in its eco-system in
products and processes.

Waste

10 | P a g e Group 11 | Section: E
They are committed to improving their waste management initiatives at their facilities on a
regular basis. All plants dispose of waste in compliance with operating permits and hazardous
waste permits. After due validation, they engage with waste disposal facilities/waste
recyclers/cement companies.

As part of their strategic drive to remove hazardous waste from landfill and incineration, a
number of recycling options have been explored and implemented across the organisation.

HAZARDOUS WASTE
All of their units have sewage treatment plants, effluent treatment plants and recycling plants.
They handle all hazardous waste in accordance with local regulations. The amount of
hazardous waste generated in two years is shown in the table below:

NON-HAZARDOUS WASTE
Consists of metal turning and rejected metal or plastic components. The amount of non-
hazardous waste generated over two years is shown in the table below:

11 | P a g e Group 11 | Section: E
Air emissions
In their manufacturing plants, process vents and the use of fossil fuels generate air emissions
of SOx, NOx and particulate matter (PM). They monitor NOx, SOx air emissions and
particulate matter in order to keep emissions below the permissible limits. Their facilities are
equipped with appropriate emission control equipment to stop emissions during operation.
Details of air emissions from manufacturing plants are given in the following table:

OZONE DEPLETION AND VOLATILE ORGANIC COMPOUNDS (VOCs)

They are taking initiatives to reduce their ODS footprint in all their facilities. They replace
their old air conditioners with air conditioners that use R410 gas and do not harm the ozone
layer. The ODS footprint of the last two years has been shown in the table below:

Zero waste to landfill

The zero waste to landfill (ZWL) approach was adopted at Hero Motocorp. All
hazardous waste is either diverted for co-processing in cement stoves as an alternative
resource or as a direct resource for recyclers. All their non-hazardous waste is segregated
at source and managed as follows:

• Transfer of waste in a segregated manner by an authorised waste collector

• Generate energy and compost from organic waste.
• Recycle the waste into a useful resource.

In FY20, three of their plants in Dharuhera, Gurgaon and the Global Parts Centerin Neemrana
achieved ZWL diversion certification at more than 99 per cent after certification audit, while
the manufacturing plant in Neemrana has already been certified foriZWL in FY19. ZWL
certification improves the credibility and visibility of an organization's efforts to improve its
environmental impact within the organisation as a whole and its commitment to
sustainability.

12 | P a g e Group 11 | Section: E
Hazardous waste reduction
Improvement:
Installation of an evaporating machine to remove moisture content from the ETP sludge
to zero. It helps us reduce 70% (by weight) of the generation of ETP sludge.
Benefits Waste Reduction:
Reduction of 70% of Haz waste (Moisture reduces from 70 per cent to zero).
Cost Saving:
Reduction in disposal cost by 8.8 lakh/ year.
Other:
Dry sludge is easier to handle and store with less space. Also, energy saved while
disposal in cement plants through co-processing as the sludge has 0 moisture waste.

13 | P a g e Group 11 | Section: E
14 | P a g e Group 11 | Section: E
Comparative analysis:
Balance sheet:
Particulars 2016 2017 2018 2019 2020
Equity & Liabilities          
4 4 4 4 4
Equity Share Capital 0 0 0 0 0
7,91 10,27 11,93 13,08 14,36
Other Equity 3 6 2 0 6
7,95 10,31 11,97 13,12 14,40
Total Equity 3 6 1 0 6
5 6 9 11 14
Non-Controlling Interest 4 7 3 6 1
           
Non-Current Liabilities          
14 20 15 12 4
Borrowings 6 8 0 5 4
22 46 58 61 47
Deferred Tax Liabilities 8 9 2 3 3
12 7 11 12 33
Other Non-Current Liabilities 0 6 9 1 2
49 75 85 85 84
Total Non-Current Liabilities 3 2 1 9 8
           
Current Liabilities          
8 4 7 18 16
Short Term Borrowings 4 0 5 4 6
2,79 3,26 3,37 3,43 3,12
Trade Payables 2 6 5 8 8
35 20 22 29
Other Financial Liabilities   9 3 4 2
1
- Current Maturities' of LTB   3 3 3 2
1,29 49 82 56 69
Other Current Liabilities 6 9 5 1 1
4,17 4,17 4,48 4,40 4,27
Total Current Liabilities 2 7 1 9 9
TOTAL EQUITIES & 12,67 15,31 17,39 18,50 19,67
LIABILITIES 2 2 7 4 4
Assets          
Non-Current Assets          
3,90 4,49 4,77 4,79 5,78
Property, Plant & Equipment 7 5 1 3 6
12 38 23 38 68
Intangible Assets 9 7 9 5 7
33 10 19 16 20
Capital-Work in Progress 1 4 0 0 5
32 19 11 18 18
Intangible Assets under Development 3 4 6 8 7
94 1,02 1,16 1,70 2,09
Investment 5 5 0 6 8
87 54 96 1,32 1,61
Financial Assets 6 5 4 8 9
7 99 95 1,53 44
Other Non-Current Assets 4 1 4 2 3

15 | P a g e Group 11 | Section: E
 6,58 7,74 8,39 10,09 11,02
Total Non-Current Assets 5 1 5 1 5
           
Current Assets          
3,24 4,54 5,59 3,17 4,70
Current Investments 9 4 1 4 9
76 70 96 1,25 1,28
Inventories 2 9 3 0 2
1,28 1,55 1,42 2,74 1,51
Trade Receivables 2 2 7 5 2
17 19 23 30 43
Cash, Bank & Cash Equivalents 9 5 8 4 5
61 57 78 94 71
Other Current Assets 5 1 4 1 0
6,08 7,57 9,00 8,41 8,64
Total Current Assets 7 1 2 3 9
12,67 15,31 17,39 18,50 19,67
TOTAL ASSETS 2 2 7 4 4

Profit & loss account:

Particulars 2016 2017 2018 2019 2020
30,87 30,98 33,10 33,97 29,25
Revenue from Operations 2 4 1 2 5
38 52 52 68 73
Other Income 9 2 3 7 1
31,26 31,50 33,62 34,65 29,98
Total Income 1 6 4 9 6
           
Expenses          
19,31 19,11 21,88 23,44 19,83
Raw Material 3 6 6 4 1
2,25 2,37 64
Excise Duty 8 3 3 1 1
1,34 1,43 1,58 1,77 1,88
Employee Costs 3 2 4 8 9
3,57 3,48 3,66 3,73 3,47
Other Expenses 5 6 4 0 3
26,49 26,40 27,77 28,95 25,19
Total Expenses 0 8 6 4 4
           
4,77 5,09 5,84 5,70 4,79
EBITDA 1 8 8 5 1
44 50 57 62 84
Depreciation & Amortization 7 2 5 4 6
4,32 4,59 5,27 5,08 3,94
EBIT 4 6 3 1 6
1 2 3 3 4
Finance Expenses 2 7 1 7 7
4,31 4,56 5,24 5,04 3,89
PBT before profits of JVs 2 8 2 4 9
3 27 5 6 3
Add: Share of Profits of JVs 9 9 1 1 5
4,35 4,84 5,29 5,10 3,93
PBT & Exceptional Items 2 7 4 4 4
Exceptional Items         67

16 | P a g e Group 11 | Section: E
 7
4,35 4,84 5,29 5,10 4,61
PBT 2 7 4 4 1
1,26 1,33 1,57 1,63 95
Tax 2 9 0 8 2
3,09 3,50 3,72 3,46 3,65
PAT 0 8 4 6 9
( (3 2 2
Less: Share of Minority Interest 4) 8) 2 3 1
3,09 3,54 3,72 3,44 3,63
PAT for Equity Shareholders 4 6 2 4 8
1,39 1,73 1,69 1,89 1,93
Dividend 8 7 8 7 7

Ratio analysis:

  2018 2019 2020

Profitability Ratios      

EBITDA Margin 16.10% 14.80% 13.90%

PAT Margin 11.10% 10.00% 12.20%

Leverage & Coverage Ratios      

Debt / Equity 0.02 0.02 0.01

Net Debt / EBITDA 0 0 -0.05

Interest Service Coverage Ratio 171.2 136.7 84.6

Liquidity & Turnover Ratio      

Current Ratio 2.01 1.91 2.02

Trade Receivable Days 16 29 19

Inventory Days 13 16 19

Trade Payable Days 56 54 58

Return & Shareholders Ratios      

ROE 31.10% 26.20% 25.30%

EPS 186.39 172.4 182.13

DPS 85 94.99 96.97

Dividend Pay-out Ratio 46.00% 55.00% 53.00%

17 | P a g e Group 11 | Section: E
EBITDA Margin saw a decrease from the previous year which shows less earning margin.
Debt to equity ratio saw a decrease from the previous year which shows less debt the
company owes.
Current ratio saw an increase which shows an increase in current assets or a decrease in
current liabilities.

Horizontal analysis:
Balance sheet:
Particulars 2016 2017 2018 2019 2020
Equity &
  Liabilities        
Equity Share Capital 0% 0% 0% 0% 0%
Other Equity 22% 30% 16% 10% 10%
Total Equity 22% 30% 16% 10% 10%
Non-Controlling Interest 189% 26% 38% 25% 21%
           
Non-Current Liabilities          
Borrowings 1117% 42% -28% -17% -65%
Deferred Tax Liabilities   106% 24% 5% -23%
Other Non-Current Liabilities 22% -37% 58% 1% 174%
Total Non-Current Liabilities 350% 53% 13% 1% -1%
           
Current Liabilities          
Short Term Borrowings -4% -52% 88% 144% -10%
Trade Payables 3% 17% 3% 2% -9%
Other Financial Liabilities     -43% 10% 31%
- Current Maturities' of LTB     -77% 0% -21%
Other Current Liabilities 9% -61% 65% -32% 23%
Total Current Liabilities 5% 0% 7% -2% -3%
TOTAL EQUITIES &
LIABILITIES 19% 21% 14% 6% 6%
  Assets        
Non-Current Assets          
Property, Plant & Equipment 37% 15% 6% 0% 21%
Intangible Assets 27% 199% -38% 61% 78%
Capital-Work in Progress 5% -69% 83% -16% 28%
Intangible Assets under Development -20% -40% -40% 61% -1%
Investment 15% 8% 13% 47% 23%
Financial Assets 21% -38% 77% 38% 22%
Other Non-Current Assets 22% 1245% -4% 61% -71%
Total Non-Current Assets 25% 18% 8% 20% 9%
           
Current Assets          
Current Investments 41% 40% 23% -43% 48%
Inventories -12% -7% 36% 30% 3%
Trade Receivables -7% 21% -8% 92% -45%

18 | P a g e Group 11 | Section: E
 Cash, Bank & Cash Equivalents -17% 9% 22% 28% 43%
Other Current Assets -3% -7% 37% 20% -24%
Total Current Assets 13% 24% 19% -7% 3%
TOTAL ASSETS 19% 21% 14% 6% 6%

Other non-current liabilities saw a huge increase in comparison to the previous year.
Intangible assets and borrowing also saw a big increase from the previous year, whereas,
other non-current assets saw a significant decrease from the previous year.

Profit & loss account:

Particulars 2016 2017 2018 2019 2020
Revenue from Operations 5.5% 0.4% 6.8% 2.6% -13.9%
Other Income -20.9% 34.1% 0.2% 31.3% 6.4%
Total Income 5.1% 0.8% 6.7% 3.1% -13.5%
           
Expenses          
Raw Material -2.0% -1.0% 14.5% 7.1% -15.4%
Excise Duty 31.5% 5.1% -72.9% -99.8% -4.3%
Employee Costs 13.9% 6.7% 10.6% 12.3% 6.3%
Other Expenses 8.6% -2.5% 5.1% 1.8% -6.9%
Total Expenses 2.3% -0.3% 5.2% 4.2% -13.0%
           
EBITDA 24.1% 6.8% 14.7% -2.4% -16.0%
Depreciation & Amortization -17.3% 12.4% 14.5% 8.6% 35.4%
EBIT 30.9% 6.3% 14.7% -3.7% -22.3%
Finance Expenses 1.5% 129.8% 12.9% 20.7% 25.4%
PBT before profits of JVs 31.0% 5.9% 14.8% -3.8% -22.7%
Add: Share of Profits of JVs 160.5% 607.1% -81.6% 18.1% -43.0%
PBT & Exceptional Items 31.6% 11.4% 9.2% -3.6% -22.9%
Exceptional Items          
PBT 31.6% 11.4% 9.2% -3.6% -9.7%
Tax 33.8% 6.1% 17.2% 4.3% -41.9%
PAT 30.7% 13.6% 6.1% -6.9% 5.6%
Less: Share of Minority Interest 295.2% 823.8% -104.7% 1180.2% -6.0%
PAT for Equity Shareholders 30.8% 14.6% 5.0% -7.5% 5.6%
Dividend 16.7% 24.3% -2.3% 11.8% 2.1%

Share of profits of JVs and tax rate saw large deceases in comparison to the previous year.
Other than that, there were small changes noticeable in various heads.

Vertical analysis:

19 | P a g e Group 11 | Section: E
Balance sheet:
  2018 2019 2020
Equity &
  Liabilities    
Equity Share Capital 0.23% 0.22% 0.20%
Other Equity 68.58% 70.69% 73.02%
Total Equity 68.81% 70.90% 73.22%
Non-Controlling Interest 0.54% 0.63% 0.71%
       
Non-Current Liabilities      
Borrowings 0.86% 0.67% 0.22%
Deferred Tax Liabilities 3.34% 3.31% 2.40%
Other Non-Current Liabilities 0.69% 0.65% 1.69%
Total Non-Current Liabilities 4.89% 4.64% 4.31%
       
Current Liabilities      
Short Term Borrowings 0.43% 0.99% 0.84%
Trade Payables 19.40% 18.58% 15.90%
Other Financial Liabilities 1.16% 1.21% 1.48%
- Current Maturities' of LTB 0.02% 0.02% 0.01%
Other Current Liabilities 4.74% 3.03% 3.51%
Total Current Liabilities 25.76% 23.83% 21.75%
TOTAL EQUITIES & 100.00
LIABILITIES 100% % 100.00%
  Assets    
Non-Current Assets      
Property, Plant & Equipment 27.43% 25.90% 29.41%
Intangible Assets 1.37% 2.08% 3.49%
Capital-Work in Progress 1.09% 0.86% 1.04%
Intangible Assets under Development 0.67% 1.02% 0.95%
Investment 6.67% 9.22% 10.67%
Financial Assets 5.54% 7.18% 8.23%
Other Non-Current Assets 5.48% 8.28% 2.25%
Total Non-Current Assets 48.25% 54.53% 56.04%
       
Current Assets      
Current Investments 32.14% 17.15% 23.94%
Inventories 5.53% 6.75% 6.52%
Trade Receivables 8.20% 14.83% 7.68%
Cash, Bank & Cash Equivalents 1.37% 1.64% 2.21%
Other Current Assets 4.51% 5.08% 3.61%
Total Current Assets 51.75% 45.47% 43.96%
100.00
TOTAL ASSETS 100% % 100.00%

• Total equity formed a large part of the total liabilities.

• Trade payables also had a big share in the total liabilities.
• Property, plant & equipment and current investments formed around 60% of the total
assets.

Profit & loss account:

20 | P a g e Group 11 | Section: E
 Particulars 2018 2019 2020
Revenue from Operations 100.00% 100.00% 100.00%
Other Income 1.60% 2.00% 2.50%
Total Income 101.60% 102.00% 102.50%
       
Expenses      
Raw Material 66.10% 69.00% 67.80%
Excise Duty 1.90% 0.00% 0.00%
Employee Costs 4.80% 5.20% 6.50%
Other Expenses 11.10% 11.00% 11.90%
Total Expenses 83.90% 85.20% 86.10%
       
EBITDA 17.70% 16.80% 16.40%
Depreciation & Amortization 1.70% 1.80% 2.90%
EBIT 15.90% 15.00% 13.50%
Finance Expenses 0.10% 0.10% 0.20%
PBT before profits of JVs 15.80% 14.80% 13.30%
Add: Share of Profits of JVs 0.20% 0.20% 0.10%
PBT & Exceptional Items 16.00% 15.00% 13.40%
Exceptional Items 0.00% 0.00% 2.30%
PBT 16.00% 15.00% 15.80%
Tax 4.70% 4.80% 3.30%
PAT 11.30% 10.20% 12.50%
Less: Share of Minority Interest 0.00% 0.10% 0.10%
PAT for Equity Shareholders 11.20% 10.10% 12.40%
Dividend 5.10% 5.60% 6.60%

• Raw material as an expense took around 65-70% of the revenue from operations.

Cost management system analysis:

Savings of costs:

LEAP has been launched for the optimization of fixed costs and has focused on material cost
reduction with the objective of ~50 bps of savings per year.

LEAP-II has now been launched Double target LEAP to ~100 bps targeting significant
savings.

Other cost-cutting initiatives include the optimization of fixed costs. Across the plant,
alternative sources for dies/moulds. Avoid duplication of tools and product design
Changes/refurbishments of old tools to name a few. Improvement of the margin is planned
through enterprises such as reinforced after sales/parts, accessories, and merchandise. Total
profitability, on-going programme, managing material and fixed costs, including under non-
operational activities are also helping them to achieve their goals.

21 | P a g e Group 11 | Section: E
There were a lot of green projects which yielded a lot of savings to the company. In order to
decrease costs and increase productivity, advanced cam grinding was introduced. Alternative
process of hobbling that is fine blanking was introduced by Hero MotoCorp. Technological
breakthrough was implemented for gear rolling which led to big reduction in costs. Alot of
innovative technologies were used to reduce various operational costs. To stop the increasing
cost pressure on Hero Motocorp as well as on its suppliers, ACE (achieving cost excellence)
was set up it optimized cost performance.

Limitations of the study:

Due to the ongoing pandemic, we were not able to visit Hero MotoCorp and do our analysis
with more sources. The research was limited as there were only online sources available to
us.

Conclusion:
Each member of the group had no prior knowledge on cost management system analysis or
sustainability analysis, so it was huge learning curve for each of us. We understood what
decisions the management takes to reduce their costs. It gave us a basic knowledge about that
aspect in the automobile sector.

22 | P a g e Group 11 | Section: E