A STUDY ON CAPITAL STRUCTURE OF TATA MOTORS

Submitted in partial fulfillment for the award of the degree of

MASTER OF BUSINESS ADMINISTRATION

Submitted By

MOHAMMED SHAFEA

H.T No: 1415-21-672-017

Under the guidence of

Ms. Zipporah
PENDEKANTI INSTITUTE OF MANAGEMENT
Vasavi College of Engineering Campus, 9-5-81,

Ibrahimbagh, Hyderabad-500031

2021-2023

1
DECLARATION

I MOHHAMED SHAFEA, HT. No:1415-21-672-017 hereby declare that this project

titled “Capital structure of TATA MOTORS” is an original work carried out by me,
under the guidance of Ms. Zipporah. The report submitted by me is a bonafide work
carried by me of my own effort and it has not submitted to any other university or
published any time before.

Date: MOHAMMED SHAFEA

Place: Hyderabad H.T. No.1415-21-672-017

2
 ACKNOWLEDGEMENT

I take immense pleasure to acknowledge the efforts of the following people who
helped me to make this project a reality. I express my gratitude for their
suggestions, guidance and intellectual influence.
My sincere thanks to honorable principal Prof.S. Kasturi Rangan, and my project
guide Ms. Zipporah for the kind encouragement and constant support extended in
completion of this project work from the bottom of my heart.
I am also thankful to all those who have incidentally helped me, through their
valued guidance, co-operation and unstinted support during my project.

Signature

3
 CHAPTER-I

INTRODUCTION

4
 1.1 INTRODUCTION

CAPITAL STRUCTURE:

The capital structure decision can affect the value of the firm either by changing the expected

earnings or the cost of capital or both.

The objective of the firm should be directed towards the maximization of the value of the

firm capital structure, or average, decision should be examined from the point of view of its

impact on the value of the firm

If the value of the firm can be affected by capital structure or financing decision a firm would

like to have a capital structure which maximizes the market value of the firm. The capital

structure decision can affect the value of the firm either by changing the expected earnings or

the cost of capital or both.

A mix of company’s longterm debt, a specific short-term debt, common equity and preferred

equity. The capital structure is how a firm finances its overall operations and growth by using

different souces of funds.

Debts comes in the forn of bond issues or long-term notes payable, while equity is classified

as common stock, preferred stock or retained earnings. Short-term debt such as working

capital requirements is also considered to be part of the capital structure.

The phrase “capital structure” can mean different things to different people. At its simplest,

capital structure reflects the equity and debt of the company. A privately held company that

plans to share equity with employees and raise outside capital generally as atleast two classes

of stock; common for founders and employees, and preferred for investors. A company has a

5
finite amount of equity to exchange for the financial and talent resources necessary to execute

your plan successfully. Great care should be taken when planning the allocation of equity.

The assets of a company can be financed either by increasing the owners claim or the

creditors claim. The owners claims increase when the form raises funds by issuing ordinary

shares or by retaining the earnings, the creditors’ claims increase by borrowing.

The various means of financing represents the “financial structure” of an enterprise .The

financial structure of an enterprise is shown by the left hand side (liabilities plus equity) of

the balance sheet. Traditionally, short-term borrowings are excluded from the list of methods

of financing the firm’s capital expenditure, and therefore, the long term claims are said to

form the capital structure of the enterprise .The capital structure is used to represent the

proportionate relationship between debt and equity .Equity includes paid-up share capital,

share premium and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It

influences the shareholders returns and risk consequently; the market value of share may be

affected by the capital structure decision. The company will have to plan its capital structure

initially at the time of its promotion.

6
1.2 NEED AND IMPORTANCE OF CAPITAL STRUCTURE:

The value of the firm depends upon its expected earnings stream and the rate used to

discount this stream. The rate used to discount earnings stream it’s the firm’s required rate of

return or the cost of capital. Thus, the capital structure decision can affect the value of the

firm either by changing the expected earnings of the firm, but it can affect the reside earnings

of the shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting

opinions have been expressed on this issue. In fact, this issue is one of the most continuous

areas in the theory of finance, and perhaps more theoretical and empirical work has been

done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum

capital structure would be obtained at that combination of debt and equity that maximizes the

total value of the firm or minimizes the weighted average cost of capital. The question of the

existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the

following words.

Given that a firm has certain structure of assets, which offers net operating earnings of

given size and quality, and given a certain structure of rates in the capital markets, is there

some specific degree of financial leverage at which the market value of the firm’s securities

will be higher than at other degrees of leverage?

The existence of an optimum capital structure is not accepted by all. These exist two

extreme views and middle position. David Durand identified the two extreme views the net

income and net operating approaches.

7
 1.3 SCOPE OF THE STUDY:

A study of the capital structure involves an examination of long term as well as short

term sources that a company taps in order to meet its requirements of finance. The scope of

the study is confined to the sources that TATA MOTORS LTD tapped over the years under

study i.e. 2018-2022.

8
 1.4 OBJECTIVES OF THE STUDY:

The project is an attempt to seek an insight into the aspects that are involved in the capital

structuring and financial decisions of the company. This project endeavors to achieve the

following objectives.

1. To Study the capital structure of TATA MOTORS LTD through EBIT-EPS analysis

2. To Study the effectiveness of financing decision on EPS and EBIT of the firm.

3. To examining the leverage analysis of TATA MOTORS LTD.

4.To examining the financing trends in the TATA MOTORS LTD. For the period of .

2018-2022.

5. To study debt/equity ratio of TATA MOTORS LTD will be estimated for . 2018-2022.

9
1.5 RESEARCH METHODOLOGY AND RESEARCH DESIGN:

Data relating to TATA MOTORS LTD. Has been collected through

SECONDARY SOURCES:

● Drawn from the annual reports of the company during the period of . 2018-2022

● Detailed discussion with vice-president

● Discussions with the finance manager and other members of the finance department

RESEARCH DESIGN

The collected data has been processed using the tools of

● Ratio Analysis

● Graphical Analysis

● Year-Year Analysis

These tools access in the interpretation and understanding of the Existing scenario of the

Capital Structure.

10
LIMITATION

1.EPS is one of the mostly widely used measures of the company’s performance in practice.

2.As a result of this, in choosing between debt and equity in practice, sometimes too much

attention is paid on EPS, which however, has serious limitations as a financing-decision

criterion.

3.The major short coming of the EPS as a financing-decision criterion is that it does not

consider risk; it ignores variability about the expected value of EPS.

4. The belief that investors would be just concerned with the expected EPS is not well

founded.

5. Investors in valuing the shares of the company consider both expected value and

variability.

11
 CHAPTER-II
REVIEW OF LITERATURE

12
 THEORETICAL FRAMEWORK

FINANCIAL LEVERAGE AND THE SHAREHOLDERS RISK

Financial leverage magnifies the shareholders earnings we also find that the

variability of EBIT causes EPS to fluctuate within wider ranges with debt in the capital

structure that is with more debt EPS raises and falls faster than the rise and fall in EBIT. Thus

financial leverage not only magnifies EPS but also increases its variability.

The variability of EBIT and EPs distinguish between two types of risk-

operating risk and financial risk. The distinction between operating and financial risk was

long ago recognized by Marshall in the following words.

OPERATING RISK: -

Operating risk can be defined as the variability of EBIT (or return on total assets). The

environment internal and external in which a firm operates determines the variability of

EBIT. So long as the environment is given to the firm, operating risk is an unavoidable risk.

A firm is better placed to face such risk if it can predict it with a fair degree of accuracy

THE VARIABILITY OF EBIT HAS TWO COMPONENT

1. Variability of sales

2. Variability of expenses
1. VARIABILITY OF SALES:

The variability of sales revenue is in fact a major determinant of operating

risk. Sales of a company may fluctuate because of three reasons. First the changes in general
economic conditions may affect the level of business activity. Business cycle is an economic
phenomenon, which affects sales of all companies. Second certain events affect sales of
company belongings to a particular industry for example the general economic condition may
be good but a particular industry may be hit by recession, other factors may include the
availability of raw materials, technological changes, action of competitors, industrial
relations, shifts in consumer preferences and so on. Third sales may also be affected by the
factors, which are internal to the company. The change in management the product market

13
decision of the company and its investment policy or strike in the company has a great
influence on the company’s sales.
2. VARIABILITY OF EXPENSES: -
Given the variability of sales the variability of EBIT is further affected by the
composition of fixed and variable expenses. Higher the proportion of fixed expenses relative
to variable expenses, higher the degree of operating leverage. The operating leverage affects
EBIT. High operating leverage leads to faster increase in EBIT when sales are rising. In bad
times when sales are falling high operating leverage becomes a nuisance; EBIT declines at a
greater rate than fall in sales. Operating leverage causes wide fluctuations in EBIT with
varying sales. Operating expenses may also vary on account of changes in input prices and
may also contribute to the variability of EBIT.
FINANCIAL RISK: -
For a given degree of variability of EBIT the variability of EPS and ROE increases
with more financial leverage. The variability of EPS caused by the use of financial leverage is
called “financial risk”. Firms exposed to same degree of operating risk can differ with respect
to financial risk when they finance their assets differently. A totally equity financed firm will
have no financial risk. But when debt is used the firm adds financial risk. Financial risk is this
avoidable risk if the firm decides not to use any debt in its capital structure.

MEASURES OF FINANCIAL LEVERAGE: -

The most commonly used measured of financial leverage are:

1. Debt ratio: the ratio of debt to total capital, i.e.,

Where, D is value of debt, S is value of equity and V is value of total capital D

and S may be measured in terms of book value or market value. The book value of equity is
called not worth.

2. Debt-equity ratio: The ratio of debt to equity, i.e.,

3. Interest coverage: the ration of net operating income (or EBIT) to interest charges, i.e.,

14
 The first two measures of financial leverage can be expressed in terms of book or
market values. The market value to financial leverage is the erotically more appropriate
because market values reflect the current altitude of investors. But, it is difficult to get
reliable information on market values in practice. The market values of securities fluctuate
quite frequently.

There is no difference between the first two measures of financial leverage in

operational terms. They are related to each other in the following manner.

These relationships indicate that both these measures of financial leverage will rank
companies in the same order. However, the first measure (i.e., D/V) is more specific as its
value ranges between zeros to one. The value of the second measure (i.e., D/S) may vary
from zero to any large number. The debt-equity ratio, as a measure of financial leverage, is
more popular in practice. There is usually an accepted industry standard to which the
company’s debt-equity ratio is compared. The company will be considered risky if its debt-
equity ratio exceeds the industry-standard. Financial institutions and banks in India also focus
on debt-equity ratio in their lending decisions.

The first two measures of financial leverage are also measures of capital gearing.
They are static in nature as they show the borrowing position of the company at a point of
time. These measures thus fail to reflect the level of financial risk, which inherent in the
possible failure of the company to pay interest repay debt.

The third measure of financial leverage, commonly known as coverage ratio, indicates the
capacity of the company to meet fixed financial charges. The reciprocal of interest coverage
that is interest divided by EBIT is a measure of the firm’s incoming gearing. Again by
comparing the company’s coverage ratio with an accepted industry standard, the investors,
can get an idea of financial risk .however, this measure suffers from certain limitations. First,

15
to determine the company’s ability to meet fixed financial obligations, it is the cash flow
information, which is relevant, not the reported earnings. During recessional economic
conditions, there can be wide disparity between the earnings and the net cash flows generated
from operations. Second, this ratio, when calculated on past earnings, does not provide any
guide regarding the future risky ness of the company. Third, it is only a measure of short-
term liquidity than of leverage.

FINANCIAL LEVERAGE AND THE SHARE HOLDER’S RETURN:

The primary motive of a company in using financial leverage is to magnify the
shareholder’s return under favorable economic conditions. The role of financial leverage in
magnifying the return of the shareholders is based under assumption that the fixed charges
funds (such as the loan from financial institutions and other sources or debentures) can be
obtained at a cost lower than the firm’s rate of return on net assets. Thus, when the difference
between the earnings generalized by assets financed by the fixed charges funds and cost of
these funds is distributed to the shareholders, the earnings per share (EPS) or return on equity
increase. However, EPS or ROE will fall if the company obtains the fixed charges funds at a
cost higher than the rate of return on the firm’s assets. It should, therefore, be clear that EPS,
ROE and ROI are the important figures for analyzing the impact of financial leverage.

16
 COMBINED EFFECT OF OPERATING AND FINANCIAL LEVERAGES

Operating and financial leverages together cause wide fluctuations in EPS for
a given change in sales. If a company employs a high level of operating and financial
leverage, even a small change in the level of sales will have dramatic effect on EPS. A
company with cyclical sales will have a fluctuating EPS; but the swings in EPS will be more
pronounced if the company also uses a high amount of operating and financial leverage.

The degree of operating and financial leverage can be combined to see the
effect of total leverage on EPS associated with a given change in sales. The degree of
combined leverage (DCL) is given by the following equation:

Yet another way of expressing the degree of combined leverage is as follows:

Since Q (S-V) is contribution and Q (S-V)-F-INT is the profit after interest but
before taxes, Equation 2 can also be written as follows:

17
CAPITAL STRUCTURE DEFINED:

The assets of a company can be financed either by increasing the owners claim or the
creditors claim. The owners claims increase when the form raises funds by issuing ordinary
shares or by retaining the earnings, the creditors’ claims increase by borrowing .The various
means of financing represents the “financial structure” of an enterprise .The financial
structure of an enterprise is shown by the left hand side (liabilities plus equity) of the balance
sheet. Traditionally, short-term borrowings are excluded from the list of methods of financing
the firm’s capital expenditure, and therefore, the long term claims are said to form the capital
structure of the enterprise .The capital structure is used to represent the proportionate
relationship between debt and equity .Equity includes paid-up share capital, share premium
and reserves and surplus.

The financing or capital structure decision is a significant managerial decision .It

influences the shareholders returns and risk consequently; the market value of share may be
affected by the capital structure decision. The company will have to plan its capital structure
initially at the time of its promotion.

18
 FACTORS AFFECTING THE CAPITAL STRUCTURE:
● LEVERAGE: The use of fixed charges of funds such as preference shares, debentures and
term-loans along with equity capital structure is described as financial leverage or trading on.
Equity. The term trading on equity is used because for raising debt.

DEBT /EQUITY RATIO-Financial institutions while sanctioning long-term loans

insists that companies should generally have a debt –equity ratio of 2:1 for
medium and large scale industries and 3:1 indicates that for every unit of equity
the company has, it can raise 2 units of debt. The debt-equity ratio indicates the
relative proportions of capital contribution by creditors and shareholders.
● EBIT-EPS ANALYSIS-In our research for an appropriate capital structure we need to
understand how sensitive is EPS (earnings per share) to change in EBIT (earnings before
interest and taxes) under different financing alternatives.
The other factors that should be considered whenever a capital structure decision is
taken are
● Cost of capital
● Cash flow projections of the company
● Size of the company
● Dilution of control
● Floatation costs

FEATURES OF AN OPTIMAL CAPITAL STRUCTURE:

An optimal capital structure should have the following features,

1. PROFITABILITY: - The Company should make maximum use of leverages at a
minimum cost.
2. FLEXIBILITY: - The capital structure should be flexible to be able to meet the
changing conditions .The company should be able to raise funds whenever the need arises
and costly to continue with particular sources.
3. CONTROL: - The capital structure should involve minimum dilution of control of the
company.

19
4. SOLVENCY: - The use of excessive debt threatens the solvency of the company. In a
high interest rate environment, Indian companies are beginning to realize the advantage of
low debt.

CAPITAL STRUCTURE AND FIRM VALUE:

Since the objective of financial management is to maximize shareholders wealth, the

key issue is: what is the relationship between capital structure and firm value? Alternatively,
what is the relationship between capital structure and cost of capital? Remember that
valuation and cost of capital are inversely related. Given a certain level of earnings, the value
of the firm is maximized when the cost of capital is minimized and vice versa.
There are different views on how capital structure influences value. Some argue that
there is no relationship what so ever between capital structure and firm value; other believe
that financial leverage (i.e., the use of debt capital) has a positive effect on firm value up to a
point and negative effect thereafter; still others contend that, other things being equal, greater
the leverage, greater the value of the firm.

20
 CHART 1-CAPITAL STRUCTURE DIAGRAM

The Capital Structure Decision Process

21
 CAPITAL STRUCTURE AND PLANNING:

Capital structure refers to the mix of long-term sources of funds. Such as

debentures, long-term debt, preference share capital including reserves and surplus (i.e.,
retained earnings) The board of directors or the chief financial officer (CEO) of a company
should develop an appropriate capital structure, which are most factors to the company. This
can be done only when all those factors which are relevant to the company’s capital structure
decision are properly analyzed and balanced. The capital structure should be planned
generally keeping in view the interests of the equity shareholders, being the owners of the
company and the providers of risk capital (equity) would be concerned about the ways of
financing a company’s operations. However, the interests of other groups, such as employees,
customers, creditors, society and government, should also be given reasonable consideration.
When the company lays down its objective in terms of the shareholder’s wealth maximization
(SWM), it is generally compatible with the interests of other groups. Thus while developing
an appropriate capital structure for its company, the financial manager should inter alia aim at
maximizing the long-term market price per share. Theoretically, there may be a precise point
or range within an industry there may be a range of an appropriate capital structure with in
which there would not be great differences in the market value per share. One way to get an
idea of this range is to observe the capital structure patterns of companies’ vis-à-vis their
market prices of shares. It may be found empirically that there are not significant differences
in the share values within a given range. The management of a company may fix its capital
structure near the top of this range in order to make maximum use of favorable leverage,
subject to other requirements such as flexibility, solvency, control and norms set by the
financial institutions, the security exchange Board of India (SEBI) and stock exchanges.

FEATURES OF AN APPROPRIATE CAPITAL STRUCTURE: -

The board of Director or the chief financial officer (CEO) of a company should
develop an appropriate capital structure, which is most advantageous to the company. This
can be done only when all those factors, which are relevant to the company’s capital structure
decision, are properly analyzed and balanced. The capital structure should be planned
generally keeping in view the interest of the equity shareholders and financial requirements
of the company. The equity shareholders being the shareholders of the company and the
providers of the risk capital (equity) would be concerned about the ways of financing a
company’s operation. However, the interests of the other groups, such as employees,
customer, creditors, and government, should also be given reasonable consideration. When
the company lay down its objectives in terms of the shareholders wealth maximizing (SWM),
it is generally compatible with the interest of the other groups. Thus, while developing an
appropriate capital structure for it company, the financial manager should inter alia aim at
maximizing the long-term market price per share. Theoretically there may be a precise point
of range with in which the market value per share is maximum. In practice for most
companies with in an industry there may be a range of appropriate capital structure with in

22
 which there would not be great differences in the market value per share. One way to get an
idea of this range is to observe the capital structure patterns of companies’ Vis-a Vis their
market prices of shares. It may be found empirically that there is no significance in the
differences in the share value within a given range. The management of the company may fit
its capital structure near the top of its range in order to make of maximum use of favorable
leverage, subject to other requirement (SEBI) and stock exchanges.

A SOUND OR APPROPRIATE CAPITAL STRUCTURE SHOULD HAVE

THE FOLLOWING FEATURES

1) RETURN: the capital structure of the company should be most advantageous, subject to the
other considerations; it should generate maximum returns to the shareholders without adding
additional cost to them.
2) RISK: the use of excessive debt threatens the solvency of the company. To the point debt
does not add significant risk it should be used other wise it uses should be avoided.
3) FLEXIBILITY: the capital structure should be flexibility. It should be possible to the
company adopt its capital structure and cost and delay, if warranted by a changed situation. It
should also be possible for a company to provide funds whenever needed to finance its
profitable activities.
4) CAPACITY: -The capital structure should be determined within the debt capacity of the
company and this capacity should not be exceeded. The debt capacity of the company
depends on its ability to generate future cash flows. It should have enough cash flows to pay
creditors, fixed charges and principal sum.
5) CONTROL: The capital structure should involve minimum risk of loss of control of the
company. The owner of the closely held company’s of particularly concerned about dilution
of the control.

APPROACHES TO ESTABLISH APPROPRIATE CAPITAL STRUCTURE:

23
 The capital structure will be planned initially when a company is incorporated .The
initial capital structure should be designed very carefully. The management of the company
should set a target capital structure and the subsequent financing decision should be made
with the a view to achieve the target capital structure .The financial manager has also to deal
with an existing capital structure .The company needs funds to finance its activities
continuously. Every time when fund shave to be procured, the financial manager weighs the
pros and cons of various sources of finance and selects the most advantageous sources
keeping in the view the target capital structure. Thus, the capital structure decision is a
continues one and has to be taken whenever a firm needs additional Finances.

The following are the three most important approaches to decide about a firm’s
capital structure.

❖ EBIT-EPS approach for analyzing the impact of debt on EPS.

❖ Valuation approach for determining the impact of debt on the shareholder’s value.

❖ Cash flow approached for analyzing the firm’s ability to service debt.

In addition to these approaches governing the capital structure decisions, many other factors
such as control, flexibility, or marketability are also considered in practice.

EBIT-EPS APPROACH:

We shall emphasize some of the main conclusions here .The use of fixed cost sources
of finance, such as debt and preference share capital to finance the assets of the company, is
know as financial leverage or trading on equity. If the assets financed with the use of debt
yield a return greater than the cost of debt, the earnings per share also increases without an
increase in the owner’s investment.

The earnings per share also increase when the preference share capital is used to acquire the
assets. But the leverage impact is more pronounced in case of debt because

1. The cost of debt is usually lower than the cost of performance share capital and

2. The interest paired on debt is tax deductible.

Because of its effect on the earnings per share, financial leverage is an

important consideration in planning the capital structure of a company. The companies with
high level of the earnings before interest and taxes (EBIT) can make profitable use of the
high degree of leverage to increase return on the shareholder’s equity. One common method

24
of examining the impact of leverage is to analyze the relationship between EPS and various
possible levels of EBIT under alternative methods of financing.

The EBIT-EPS analysis is an important tool in the hands of financial manager to get an
insight into the firm’s capital structure management .He can considered the possible
fluctuations in EBIT and examine their impact on EPS under different financial plans of the
probability of earning a rate of return on the firm’s assets less than the cost of debt is
insignificant, a large amount of debt can be used by the firm to increase the earning for share.
This may have a favorable effect on the market value per share. On the other hand, if the
probability of earning a rate of return on the firm’s assets less than the cost of debt is very
high, the firm should refrain from employing debt capital .it may, thus, be concluded that the
greater the level of EBIT and lower the probability of down word fluctuation, the more
beneficial it is to employ debt in the capital structure However, it should be realized that the
EBIT EPS is a first step in deciding about a firm’s capital structure .It suffers from certain
limitations and doesn’t provide unambiguous guide in determining the capital structure of a
firm in practice.

RATIO ANALYSIS: -

The primary user of financial statements are evaluating part performance and
predicting future performance and both of these are facilitated by comparison. Therefore the
focus of financial analysis is always on the crucial information contained in the financial
statements. This depends on the objectives and purpose of such analysis. The purpose of
evaluating such financial statement is different form person to person depending on its
relationship. In other words even though the business unit itself and shareholders, debenture
holders, investors etc. all under take the financial analysis differs. For example, trade
creditors may be interested primarily in the liquidity of a firm because the ability of the
business unit to play their claims is best judged by means of a through analysis of its
l9iquidity. The shareholders and the potential investors may be interested in the present and
the future earnings per share, the stability of such earnings and comparison of these earnings
with other units in thee industry. Similarly the debenture holders and financial institutions
lending long-term loans maybe concerned with the cash flow ability of the business unit to
pay back the debts in the long run. The management of business unit, it contrast, looks to the
financial statements from various angles. These statements are required not only for the
management’s own evaluation and decision making but also for internal control and overall

25
performance of the firm. Thus the scope extent and means of any financial analysis vary as
per the specific needs of the analyst. Financial statement analysis is a part of the larger
information processing system, which forms the very basis of any “decision making” process.
The financial analyst always needs certain yardsticks to evaluate the efficiency
and performance of business unit. The one of the most frequently used yardsticks is ratio
analysis. Ratio analysis involves the use of various methods for calculating and interpreting
financial ratios to assess the performance and status of the business unit.
It is a tool of financial analysis, which studies the numerical or quantitative relationship
between with other variable and such ratio value is compared with standard or norms in order
to highlight the deviations made from those standards/norms. In other words, ratios are
relative figures reflecting the relationship between variables and enable the analysts to draw
conclusions regarding the financial operations.
However, it must be noted that ratio analysis merely highlights the potential areas of
concern or areas needing immediate attention but it does not come out with the conclusion as
regards causes of such deviations from the norms. For instance, ABC Ltd. Introduced the
concept of ratio analysis by calculating the variety of ratios and comparing the same with
norms based on industry averages. While comparing the inventory ratio was 22.6 as
compared to industry average turnover ratio of 11.2. However on closer sell tiny due to large
variation from the norms, it was found that the business unit’s inventory level during the year
was kept at extremely low level. This resulted in numerous production held sales and lower
profits. In other words, what was initially looking like an extremely efficient inventory
management, turned out to be a problem area with the help of ratio analysis? As a matter of
caution, it must however be added that a single ration or two cannot generally provide that
necessary details so as to analyze the overall performance of the business unit.
In order to arrive at the reasonable conclusion regarding overall performance of the
business unit, an analysis of the entire group of ratio is required. However, ration analysis
should not be considered as ultimate objective test but it may be carried further based on the
out come and revelations about the causes of variations. Sometimes large variations are due
to unreliability of financial data or inaccuracies contained therein therefore before taking any
decision the basis of ration analysis, their reliability must be ensured.

Similarly, while doing the inter-firm comparison, the variations may be due to
different technologies or degree of risk in those units or items to be examined are in fact the
comparable only. It must be mentioned here that if ratios are used to evaluate operating

26
performance, these should exclude extra ordinary items because there are regarded as non-
recurring items that do not reflect normal performance.

Ratio analysis is the systematic process of determining and interpreting the numerical
relationship various pairs of items derived from the financial statements of a business.
Absolute figures do not convey much tangible meaning and is not meaningful while
comparing the performance of one business with the other.

It is very important that the base (or denominator) selected for each ratio is
relevant with the numerator. The two must be such that one is closely connected and is
influenced by the other

CAPITAL STRUCTURE RATIOS

Capital structure or leverage ratios are used to analyze the long-term solvency or
stability of a particular business unit. The short-term creditors are interested in current
financial position and use liquidity ratios. The long-term creditors world judge the soundness
of a business on the basis of the long-term financial strength measured in terms of its ability
to pay the interest regularly as well as repay the installment on due dates. This long-term
solvency can be judged by using leverage or structural ratios.
There are two aspects of the long-term solvency of a firm:-
1. Ability to repay the principal when due, and
2. Regular payment of interest, there are thus two different but mutually dependent and
interrelated types of leverage ratio such as:

THE CAPITAL STRUCTURE CONTROVERSY:

The value of the firm depends upon its expected earnings stream and the rate used to
discount this stream. The rate used to discount earnings stream it’s the firm’s required rate of
return or the cost of capital. Thus, the capital structure decision can affect the value of the
firm either by changing the expected earnings of the firm, but it can affect the reside earnings
of the shareholders. The effect of leverage on the cost of capital is not very clear. Conflicting
opinions have been expressed on this issue. In fact, this issue is one of the most continuous
areas in the theory of finance, and perhaps more theoretical and empirical work has been
done on this subject than any other.

If leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the total
value of the firm or minimizes the weighted average cost of capital. The question of the

27
existence of optimum use of leverage has been put very succinctly by Ezra Solomon in the
following words.

Given that a firm has certain structure of assets, which offers net operating earnings of
given size and quality, and given a certain structure of rates in the capital markets, is there
some specific degree of financial leverage at which the market value of the firm’s securities
will be higher than at other degrees of leverage?
The existence of an optimum capital structure is not accepted by all. These exist two
extreme views and middle position. David Durand identified the two extreme views the net
income and net operating approaches.

1. Net Income Approach:

Under the net income approach (NI), the cost of debt and cost of equity are assumed
to be independent to the capital structure. The weighted average cost of capital declines and
the total value of the firm rise with increased use of leverage.

2. Net Operating Income Approach:

Under the net operating income (NOI) approach, the cost of equity is assumed to
increase linearly with average. As a result, the weighted average cost of capital remains
constant and the total value of the firm also remains constant as leverage is changed.

3. Traditional Approach:
According to this approach, the cost of capital declines and the value of the
firm increases with leverage up to a prudent debt level and after reaching the optimum point,
coverage cause the cost of capital to increase and the value of the firm to decline.

Thus, if NI approach is valid, leverage is significant variable and financing decisions

have an important effect on the value of the firm. On the other hand, if the NOI approach is
correct then the financing decisions should not be a great concern to the financing manager,
as it does not matter in the valuation of the firm.

Modigliani and Miller (MM) support the NOI approach by providing logically
consistent behavioral justifications in its favor. They deny the existence of an optimum
capital structure between the two extreme views; we have the middle position or intermediate
version advocated by the traditional writers.

Thus these exists an optimum capital structure at which the cost of capital is minimum. The
logic of this view is not very sound. The MM position changes when corporate taxes are

28
assumed. The interest tax shield resulting from the use of debt adds to the value of the firm.
This advantage reduces the when personal income taxes are considered.

Capital Structure Matters: The Net Income Approach:

The essence of the net income (NI) approach is that the firm can increase its value or
lower the overall cost of capital by increasing the proportion of debt in the capital structure.
The crucial assumptions of this approach are:

1.The use of debt does not change the risk perception of investors; as a result, the equity
capitalization rate, kc and the debt capitalization rate, kd, remain constant with changes in
leverage.
2.The debt capitalization rate is less than the equity capitalization rate (i.e. kd<ke)
3.The corporate income taxes do not exist.

The first assumption implies that, if ke and kd are constant increased use by debt by
magnifying the shareholders earnings will result in higher value of the firm via higher value
of equity consequently the overall or the weighted average cost of capital ko, will decrease.
The overall cost of capital is measured by equation: (1)

It is obvious from equation 1 that, with constant annual net operating income (NOI), the
overall cost of capital would decrease as the value of the firm v increases. The overall cost of
capital ko can also be measured by
KO = Ke - (Ke - Kd) D/V

As per the assumptions of the NI approach Ke and Kd are constant and Kd is

less than Ke. Therefore, Ko will decrease as D/V increases. Equation 2 also implies that the
overall cost of capital Ko will be equal to Ke if the form does not employ any debt (i.e. D/V
=0), and that Ko will approach Kd as D/V approaches one.

NET OPERATING INCOME APPROACH

According to the met operating income approach the overall capitalization rate and the cost of
debt remain constant for all degree of leverage.

rA and rD are constant for all degree of leverage. Given this, the cost of equity can be
expressed as.

29
 The critical premise of this approach is that the market capitalizes the firm as a whole
at discount rate, which is independent of the firm’s debt-equity ratio. As a consequence, the
decision between debt and equity is irrelevant. An increase in the use of debt funds which are
‘apparently cheaper’ or offset by an increase in the equity capitalization rate. This happens
because equity investors seek higher compensation as they are exposed to greater risk arising
from increase in the degree of leverages. They raise the capitalization rate rE (lower the price
earnings ratio, as the degree of leverage increases.

The net operating income position has been \advocated eloquently by David
Durand. He argued that the market value of a firm depends on its net operating income and
business risk. The change in the financial leverage employed by a firm cannot change these
underlying factors. It merely changes the distribution of income and risk between debt and
equity, without affecting the total income and risk which influence the market value (or
equivalently the average cost of capital) of the firm. Arguing in a similar vein, Modigliani
and Miller, in a seminal contribution made in 2058, forcefully advanced the proposition that
the cost of capital of a firm is independent of its capital structure.

COST OF CAPITAL AND VALUATION APPROACH

The cost of a source of finance is the minimum return expected by its

suppliers. The expected return depends on the degree of risk assumed by investors. A high
degree of risk is assumed by shareholders than debt-holders. In the case of debt-holders, the
rate of interest is fixed and the company is legally bound to pay dividends even if the profits

30
are made by the company. The loan of debt-holders is returned within a prescribed period,
while shareholders will have to share the residue only when the company is wound up.

This leads one to conclude that debt is cheaper source of funds than equity. This is generally
the case even when taxes are not considered. The tax deductibility of interest charges further
reduces the cost of debt. The preference share capital is also cheaper than equity capital, but
not as cheap as debt. Thus, using the component, or specific, cost of capital as criterion for
financing decisions and ignoring risk, a firm would always like to employ debt since it is the
cheapest source of funds.
CASH FLOW APPROACH:

One of the features of a sound capital structure is conservatism does not mean
employing no debt or small amount of debt. Conservatism is related to the fixed charges
created by the use of debt or preference capital in the capital structure and the firm’s ability to
generate cash to meet these fixed charges. In practice, the question of the optimum
(appropriate) debt –equity mix boils down to the fir’s ability to service debt without any
threat of insolvency and operating inflexibility. A firm is considered prudently financed if it
is able to service its fixed charges under any reasonably predictable adverse conditions.

The fixed charges of a company include payment of interest, preference

dividend and principal, and they depend on both the amount of loan securities and the terms
of payment. The amount of fixed charges will be high if the company employs a large
amount of debt or preference capital with short-term maturity. Whenever a company thinks of
raising additional debt, it should analyze its expected future cash flows to meet the fixed
charges. It is mandatory to pay interest and return the principal amount of debt of a company
not able to generate enough cash to meet its fixed obligation; it may have to face financial
insolvency. The companies expecting larger and stable cash inflows in to employ fixed
charge sources of finance by those companies whose cash inflows are unstable and
unpredictable.

It is possible for high growth, profitable company to suffer from cash shortage if the liquidity
(working capital) management is poor. We have examples of companies like BHEL, NTPC,
etc., whose debtors are very sticky and they continuously face liquidity problem in spite of
being profitability servicing debt is very burdensome for them.

31
 One important ratio which should be examined at the time of planning the
capital structure is the ration of net cash inflows to fixed changes (debt saving ratio). It
indicates the number of times the fixed financial obligation are covered by the net cash
inflows generated by the company.

EPS VARIABILITY AND FINANCIAL RISK: -

The EPS variability resulting from the use of leverage is called financial risk.
Financial risk is added with the use of debt because of

(a) The increased variability in the shareholders earnings and

(b) The threat of insolvency. A firm can avid financial risk altogether if it does not
employ any debt in its capital structure. But then the shareholders will be deprived of the
benefit of the financial risk perceived by the shareholders, which does not exceed the benefit
of increase EPS. As we have seen, if a company increase its debt beyond a point the expected
EPS will continue to increase but the value of the company increases its debt beyond a point,
the expected EPS will continue to increase, but the value of the company will fall because of
the greater exposure of shareholders to financial risk in the form of financial distress. The
EPS criterion does not consider the long-term perspectives of financing decisions. It fails to
deal with the risk return trade-off. A long term view of the effects of the financing decisions,

32
 will lead one to a criterion of the wealth maximization rather that EPS maximization. The
EPS criterion is an important performance measure but not a decision criterion.

Given limitations, should the EPS criterion be ignored in making financing decision?
Remember that it is an important index of the firm’s performance and that investors rely
heavily on it for their investment decisions. Investors do not have information in the
projected earnings and cash flows and base their evaluation and historical data. In choosing
between alternative financial plans, management should start with the evaluation of the
impact of each alternative on near-term EPS. But management’s ultimate decision making
should be guided by the best interests of shareholders.

Therefore, a long-term view of the effect of the alternative financial plans on the value of the
shares should be taken, o management opts for a financial plan which will maximize value in
the long run but has an adverse impact in near-term EPS, and the reasons must be
communicated to investors. A careful communication to market will be helpful in reducing
the misunderstanding between management and Investors.

COMPOSITION AND OBSERVATION

The sources tapped by TATA MOTORS LTDIndustries Ltd. Can be classified into:

● Shareholders’ funds resources

● Loan fund resources
SHAREHOLDER FUND RESOURCES:
Shareholder’s fund consists of equity capital and retained earnings.
EQUITY CAPITAL BUILD-UP
1.From 2095, the Authorized capital is Rs.450 lacs of equity shares at Rs.10 each. The issued
equity capital is RS.1922.93 lacs at Rs.10 each for the period 2002-2019 and subscribed and
paid-up capital is Rs. 1922.93 lacs at Rs.10 each for the period of 2004-2019.
3.There is an increase of 1.38% in the equity from 2005-2021.
RETAINED EARNINGS COMPOSITION
This includes…
● Capital Reserve

33
● Share Premium Account
● General Reserve
● Contingency Reserve
● Debentures Redemption Reserve
● Investment Allowance Reserve
● Profit & Loss Account

1. The profit levels, company dividend policy and growth plans determined. The amounts
transferred from P&L A/c to General Reserve. Contingency Reserve and Investment
Allowance Reserve.

2. The Investment Allowance Reserve is created for replaautomobile of long term leased assets
and this reserve was removed from books because assets pertaining to such reserves ceased to
exist. The account was transferred to investment allowance utilized.

Capital structure describes how a corporation has organized its capital—how it obtains the
financial resources with which it operates its business. Businesses adopt various capital
structures to meet both internal needs for capital and external requirements for returns on
shareholders investments. As shown on its balance sheet, a company's capitalization is
constructed from three basic blocks:

1 Long-term debt. By standard accounting definition, long-term debt includes obligations

that are not due to be repaid within the next 12 months. Such debt consists mostly of
bonds or similar obligations, including a great variety of notes, capital lease obligations,
and mortgage issues.

2 Preferred stock. This represents an equity (ownership) interest in the corporation, but one
with claims ahead of the common stock, and normally with no rights to share in the
increased worth of a company if it grows.

3 Common stockholders' equity. This represents the underlying ownership. On the

corporation's books, it is made up of: (I) the nominal par or stated value assigned to the
shares of outstanding stock; (2) the capital surplus or the amount above par value paid the
company whenever it issues stock; and (3) the earned surplus (also called retained
earnings), which consists of the portion of earnings a company retains after paying out
dividends and similar distributions. Put another way, common stock equity is the net

34
worth after all the liabilities (including long-term debt), as well as any preferred stock,
are deducted from the total assets shown on the balance sheet. For investment analysis
purposes, security analysts may use the company's market capitalization—the current
market price times the number of common shares.

2.2 ARTICLES:

Article : 1

Title : capital Structure Ownership Structure

Authors : Boodhoo Roshan

Source :The journal of online education, new work January-2009

Abstract : There have always be controversies among finance scholars when it comes to
the subject of the capital structure. So far, researches have not at reached a consensus in
the optimal structure of firms by simultaneously dealing with the agency problem.

Article : 2

Title :Dynamic capital structure. A comparative analysis between ICT and NON ICT
firms

Authors : Dany Aoun And Junseok Hwang

Source :ICFAI journals of industrial economic may-2007

35
Abstract :This paper develops a model of dynamic capital structure based on a simple of
NASDAQ listed firms and estimated the unobservable optimal capital structure using a
wide range of observable determinants.

Article : 3

Title : Determinants of capital structure : A case study of listed companies of Nepal

Authors : Keshar j, baral.phd.

Sources : The journal of Nepalese business

Abstract : In this paper an attempt has been made to examine the determinants of capital
Structure size, business risk growth rate, earnings rate, dividend payout, debt service
capacity and degree of operating leverage of the companies listed to Nepal Stock
Exchange Ltd. As of July-17-2003.

36
 CHAPTER-III
INDUSTRY PROFILE
&
COMPANY PROFILE

37
Automobile industry in India

The cumulative production data for April-March 2012 shows production growth of 13.83
percent over same period last year. In March 2012 as compared to March 2011, production
grew at a single digit rate of 6.83 percent. In 2011-12, the industry produced 20,366,432
vehicles of which share of two wheelers, passenger vehicles, three wheelers and commercial
vehicles were 76 percent, 15 percent, 4 percent and 4 percent respectively.

Domestic Sales

The growth rate for overall domestic sales for 2011-12 was 12.24 percent amounting to
17,376,624 vehicles. In the month of only March 2012, domestic sales grew at a rate of 10.11
percent as compared to March 2011.

Passenger Vehicles segment grew at 4.66 percent during April-March 2012 over same period
last year. Passenger Cars grew by 2.19 percent, Utility Vehicles grew by 16.47 percent and
Vans by 10.01 percent during this period. In March 2012, domestic sales of Passenger Cars
grew by 19.66 percent over the same month last year. Also, sales growth of total passenger
vehicle in the month of March 2012 was at 20.59 percent (as compared to March 2011). For
the first time in history car sales crossed two million in a financial year.

38
The overall Commercial Vehicles segment registered growth of 18.20 percent during April-
March 2012 as compared to the same period last year. While Medium & Heavy Commercial
Vehicles (M&HCVs) registered a growth of 7.94 percent, Light Commercial Vehicles grew
at 27.36 percent. In only March 2012, commercial vehicle sales registered a growth of 14.82
percent over March 2011.

Three Wheelers sales recorded a decline of (-) 2.43 percent in April-March 2012 over same
period last year. While Goods Carriers grew by 6.31 percent during April-March 2012,
Passenger Carriers registered decline by (-) 4.50 percent. In March 2012, total Three
Wheelers sales declined by (-) 9.11 percent over March 2011.

Total Two Wheelers sales registered a growth of 14.16 percent during April-March 2012.
Mopeds, Motorcycles and Scooters grew by 11.39 percent, 12.01 percent and 24.55 percent
respectively. If we compare sales figures of March 2012 to March 2011, the growth for two
wheelers was 8.27 percent.

Exports

During April-March 2012, the industry exported 2,910,055 automobiles registering a growth
of 25.44 percent. Passenger Vehicles registered growth at 14.18 percent in this period.
Commercial Vehicles, Three Wheelers and Two Wheelers segments recorded growth of
25.15 percent, 34.41 percent and 27.13 percent respectively during April-March 2012. For
the first time in history car exports crossed half a million in a financial year.

In March 2012 compared to March 2011, overall automobile exports registered a growth of
17.81 percent.

Automobile industry in India

The automobile industry in India is the ninth largest in the world with an annual production
of over 2.3 million units in 2008 In 2009, India emerged as Asia's fourth largest exporter of
automobiles, behind Japan, South Korea and Thailand.

Following economic liberalization in India in 1991, the Indian automotive industry has
demonstrated sustained growth as a result of increased competitiveness and relaxed
restrictions. Several Indian automobile manufacturers such as Tata Motors, Maruti Suzuki

39
and Mahindra and Mahindra, expanded their domestic and international operations. India's
robust economic growth led to the further expansion of its domestic automobile market which
attracted significant India-specific investment by multinational automobile manufacturers. In
February 2009, monthly sales of passenger cars in India exceeded 100,000 units.

bryonic automotive industry emerged in India in the 1940s. Following the independence, in
1947, the Government of India and the private sector launched efforts to create an automotive
component manufacturing industry to supply to the automobile industry. However, the
growth was relatively slow in the 1950s and 1960s due to nationalization and the license raj
which hampered the Indian private sector. After 1970, the automotive industry started to
grow, but the growth was mainly driven by tractors, commercial vehicles and scooters. Cars
were still a major luxury. Japanese manufacturers entered the Indian market ultimately
leading to the establishment of Maruti Udyog. A number of foreign firms initiated joint
ventures with Indian companies.

In the 1980s, a number of Japanese manufacturers launched joint-ventures for building

motorcycles and light commercial-vehicles. It was at this time that the Indian government
chose Suzuki for its joint-venture to manufacture small cars. Following the economic
liberalization in 1991 and the gradual weakening of the license raj, a number of Indian and
multi-national car companies launched operations. Since then, automotive component and
automobile manufacturing growth has accelerated to meet domestic and export demands.

HISTORICAL INDUSTRY DEVELOPMENTS:

Indian is the second largest manufacturer and producer to two wheelers in the World.
It stands next only to Japan and China in terms of the number of V produced and domestic
sales respectively. This destination was achieved due to variety of reason like restrictive
policy followed by the government of India towards the passenger bike industry, rising
demand for personal transport, inefficiency in the public transportation system etc. The
Indian two-wheelers industry made a small beginning in the early 50s when Automobile
products of India (API) started manufacturing scooters in the country. Until 1958, API and
Enfield were the sole producers.
The two –wheelers market was opened were opened to foreign competition in the
mid-80s. And the then market leaders-Escorts and Enfield – were caught unaware by the
onslaught of the 100cc bikes of the four Indo- Japanese joint ventures. With the availability

40
of fuel-efficiency low power bikes, demand swelled, resulting in Hero Honda –then the only
producer of four stroke bikes (100cc category), gaining a top slot.

The first Japanese motorcycles were introduced in the early eighties. TVS Suzuki and
Hero Honda brought in the first two-stroke and four-stroke engine motorcycles respectively.
These two players initially started with assembly of CKD Kits, and later on progressed to
indigenous manufacturing.

The industry had a smooth ride in the 50s, 60s and 70s when government prohibited
new entries and strictly controlled capacity expansion. The industry saw a sudden growth in
the 80s. The industry witnessed a steady of 14% leading to a peak volume of 1.9 mn vehicles
in 1990.

In 1990 the entire automobile industry saw a drastic fall in demand. This resulted in a
decline of 15% in 1991 and 8% in 1992, resulting in a production loss of 0.4mn vehicles.
Barring Hero Honda, all the major producers suffered from recession in FY93 and FY94.
Hero Honda showed a marginal decline in 1992.

The reason for recession in the sector were the incessant rise in fuel prices, high input
costs and reduced purchasing power due to significant like increased production in 1992, due
to new entrants coupled with recession in the industry resulted in companies either reporting
losses or a fall in profits.

The two-wheelers market has had a perceptible shift from a buyers market to a sellers
market with a variety of choice, players will have compete on various fronts viz. pricing,
technology product design, productivity after sale service, marketing and distribution. In the
short term, market shares of individual manufacturers are going to be sensitive to capacity,
product acceptance, pricing and competitive pressures from other manufacturers.

As incomes grow and people grow and people feel the need to own a private means of
transport, sales of two-wheelers will rise. Penetration is expected to increase to
approximately to more than 25% by 2005.

The motorcycle segment will continue to lead the demand for two-wheelers in the
coming years. Motorcycle sale is expected to increase by 20% yoy as compared to 1%
growth in the scooter market and 3% by moped sales respectively for the next two years.

41
The four-stroke scooters will add new dimension to the two-wheeler segment in the coming
future.

The Asian continent is that largest user of the two-wheelers in the world. This is due to poor
road infrastructure and low per capita income, restrictive policy on bike industry. This is due
to oligopoly between top five players in the segment, compared to thirsty manufacturers in
the bike industry.

Exports

India has emerged as one of the world's largest manufacturers of small cars. According to
New York Times, India's strong engineering base and expertise in the manufacturing of low-
cost, fuel-efficient cars has resulted in the expansion of manufacturing facilities of several
automobile companies like Hyundai Motors, Nissan, Toyota, Volkswagen and Suzuki.

In 2008, Hyundai Motors alone exported 240,000 cars made in India. Nissan Motors plans to
export 250,000 vehicles manufactured in its India plant by 2011. Similarly, General Motors
announced its plans to export about 50,000 cars manufactured in India by 2011.

In September 2009, Ford Motors announced its plans to setup a plant in India with an annual
capacity of 250,000 cars for US$500 million. The cars will be manufactured both for the
Indian market and for export. The company said that the plant was a part of its plan to make
India the hub for its global production business. Fiat Motors also announced that it would
source more than US$1 billion worth auto components from India.

According to Bloomberg L.P., in 2009 India surpassed China as Asia's fourth largest exporter
of cars.

Indian automobile companies

Notable Indian automobile manufacturers

● Ashok Leyland
● Chinkara Motors: Beachster, Hammer, Roadster 1.8S, Rockster, Jeepster, Sailster.
● Force Motors
● Hindustan Motors: Ambassador.

42
 ● Mahindra: Major, Xylo, Scorpio.
● Maruti Suzuki: 800, Alto, WagonR, Estilo, AStar, Ritz, Swift, Swift DZire, SX4,
Omni, Versa, Gypsy
● Premier: Sigma, Roadster, RiO.
● San Motors: Storm
● Tata Motors: Nano, Indica, Indigo, Sumo, Safari, TL.Aria

Electric car companies in India

● Ajanta Group
● Mahindra
● Hero Electric REVA
● Tara International
● Tata Motors

Notable Multi-national automobile manufacturers

Locally manufactured Automobiles of Multi-national Companies

● Audi: A4, A6.

● BMW: 3 Series, 5 Series.
● Chevrolet: Spark, Beat, Aveo U-VA, Aveo, Optra, Cruze, Tavera.
● Fiat: Palio, Grande Punto, Linea.
● Ford: Ikon, Fiesta, Fusion, Endeavour, Figo
● Honda: Jazz, City, Civic, Accord.
● Hyundai: Santro, i10, Getz, i20, Accent, Verna, Hyundai , Sonata.
● Mercedes-Benz: C-Class, E-Class
● Mitsubishi: Lancer, Lancer Cedia.
● Nissan: Micra
● Renault: Logan
● Škoda: Fabia, Octavia, Laura.
● Toyota: Corolla, Innova, Fortuner
● Volkswagen: Jetta, Passat, Polo.

Cars sold in India as CBU (Completely Built Units)

43
● Audi: A8, TT, R8, Q5, Q7.
● Bentley: Arnage, Azure, Brooklands, Continental GT, Continental Flying Spur,
Mulsanne.
● BMW: 6 Series, 7 Series, X3, X5, X6, M3, M5, M6 and Z4.
● Chevrolet: Captiva
● Fiat: Nuova 500.
● Honda: Civic Hybrid, CR-V.
● Hyundai: Santa Fe.
● Jaguar: XF, XJ, XK.
● Lamborghini: Gallardo, Murciélago.
● Land Rover: Range Rover, Range Rover Sport, Discovery 4, Freelander 2.
● Maybach: 57 and 62.
● Mercedes-Benz: CL-Class, CLS-Class, S-Class, SL-Class, SLK-Class, M-Class,
Viano.
● Mitsubishi: Pajero, Montero, Outlander.
● Nissan: Teana, X-Trail, 307Z.
● Porsche: 911, Boxter, Panamera, Cayman, Cayenne.
● Rolls Royce: Ghost, Phantom, Phantom Coupé, Phantom Drophead Coupé.
● Škoda: Superb.
● Suzuki: Grand Vitara.
● Toyota: Camry, Land Cruiser, Land Cruiser Prado, Prius.
● Volkswagen: Beetle, Touareg.
● Volvo: S80, XC90.

44
COMPANY PROFILE
The Tata group comprises over 100 operating companies in seven business sectors:
communications and information technology, engineering, materials, services, energy,
consumer products and chemicals. The group has operations in more than 100 countries
across six continents, and its companies export products and services to 150 countries.

The total revenue of Tata companies, taken together, was $96.79 billion (around Rs527,047
crore) in 2012-13, with 62.7 percent of this coming from business outside India. Tata
companies employ over 540,000 people worldwide. The Tata name has been respected in
India for more than 140 years for its adherence to strong values and business ethics.

Every Tata company or enterprise operates independently. Each of these companies has its
own board of directors and shareholders, to whom it is answerable. There are 32 publicly
listed Tata enterprises and they have a combined market capitalisation of about $107.60
billion (as on January 30, 2014), and a shareholder base of 3.9 million. The major Tata
companies are Tata Steel, Tata Motors, Tata Consultancy Services (TCS), Tata Power, Tata
Chemicals, Tata Global Beverages, Tata Teleservices, Titan, Tata Communications and
Indian Hotels.

Tata Steel is among the top ten steelmakers, and Tata Motors is among the top five
commercial vehicle manufacturers, in the world. TCS is a leading global software company,
with delivery centres in the US, UK, Hungary, Brazil, Uruguay and China, besides
India. Tata Global Beverages is the second-largest player in tea in the world. Tata Chemicals
is the world’s second-largest manufacturer of soda ash and Tata Communications is one of
the world’s largest wholesale voice carriers.

45
In tandem with the increasing international footprint of Tata companies, the Tata brand is
also gaining international recognition. Brand Finance, a UK-based consultancy firm, valued
the Tata brand at $18.16 billion and ranked it 39th among the top 500 most valuable global
brands in their BrandFinance® Global 500 2013 report. In 2010, BusinessWeek magazine
ranked Tata 17th among the '50 Most Innovative Companies' list.

Founded by Jamsetji Tata in 1868, Tata’s early years were inspired by the spirit of
nationalism. It pioneered several industries of national importance in India: steel, power,
hospitality and airlines. In more recent times, its pioneering spirit has been showcased by
companies such as TCS, India’s first software company, and Tata Motors, which made
India’s first indigenously developed car, the Indica, in 1998 and recently unveiled the world’s
most affordable car, the Tata Nano.

Tata companies have always believed in returning wealth to the society they serve. Two-
thirds of the equity of Tata Sons, the Tata promoter holding company, is held by
philanthropic trusts that have created national institutions for science and technology, medical
research, social studies and the performing arts. The trusts also provide aid and assistance to
non-government organisations working in the areas of education, healthcare and livelihoods.
Tata companies also extend social welfare activities to communities around their industrial
units.

Going forward, Tata is focusing on new technologies and innovation to drive its business in
India and internationally. The Nano car is one example, as is the Eka supercomputer
(developed by another Tata company), which in 2008 was ranked the world’s fourth fastest.
Anchored in India and wedded to traditional values and strong ethics, Tata companies are
building multinational businesses that will achieve growth through excellence and
innovation, while balancing the interests of shareholders, employees and civil society.

Tata Motors Limited is India's largest automobile company, with consolidated revenues of
INR 1,88,818 crores (USD 34.7 billion) in 2012-13. It is the leader in commercial vehicles in
each segment, and among the top in passenger vehicles with winning products in the
compact, midsize car and utility vehicle segments. It is also the world's fifth largest truck
manufacturer and fourth largest bus manufacturer.

46
The Tata Motors Group's over 60,000 employees are guided by the mission "to be passionate
in anticipating and providing the best vehicles and experiences that excite our customers
globally."

Established in 1945, Tata Motors' presence cuts across the length and breadth of India. Over
8 million Tata vehicles ply on Indian roads, since the first rolled out in 1954. The company's
manufacturing base in India is spread across Jamshedpur (Jharkhand), Pune (Maharashtra),
Lucknow (Uttar Pradesh), Pantnagar (Uttarakhand), Sanand (Gujarat) and Dharwad
(Karnataka). Following a strategic alliance with Fiat in 2005, it has set up an industrial joint
venture with Fiat Group Automobiles at Ranjangaon (Maharashtra) to produce both Fiat and
Tata cars and Fiat powertrains. The company's dealership, sales, services and spare parts
network comprises over 6,600 touch points.

Tata Motors, also listed in the New York Stock Exchange (September 2004), has emerged as
an international automobile company. Through subsidiaries and associate companies, Tata
Motors has operations in the UK, South Korea, Thailand, South Africa and Indonesia.
Among them is Jaguar Land Rover, acquired in 2008. In 2004, it acquired the Daewoo
Commercial Vehicles Company, South Korea's second largest truck maker. The rechristened
Tata Daewoo Commercial Vehicles Company has launched several new products in the
Korean market, while also exporting these products to several international markets. Today
two-thirds of heavy commercial vehicle exports out of South Korea are from Tata Daewoo.
In 2006, Tata Motors formed a 51:49 joint venture with the Brazil-based, Marcopolo, a global
leader in body-building for buses and coaches to manufacture fully-built buses and coaches
for India - the plant is located in Dharwad. In 2006, Tata Motors entered into joint venture
with Thonburi Automotive Assembly Plant Company of Thailand to manufacture and market
the company's pickup vehicles in Thailand, and entered the market in 2008. Tata Motors (SA)
(Proprietary) Ltd., Tata Motors' joint venture with Tata Africa Holding (Pty) Ltd. set up in
2011, has an assembly plant in Rosslyn, north of Pretoria. The plant can assemble, semi
knocked down (SKD) kits, light, medium and heavy commercial vehicles ranging from 4
tonnes to 50 tonnes.

Tata Motors is also expanding its international footprint, established through exports since
1961. The company's commercial and passenger vehicles are already being marketed in
several countries in Europe, Africa, the Middle East, South East Asia, South Asia, South

47
America, CIS and Russia. It has franchisee/joint venture assembly operations in Bangladesh,
Ukraine, and Senegal.

The foundation of the company's growth over the last 68 years is a deep understanding of
economic stimuli and customer needs, and the ability to translate them into customer-desired
offerings through leading edge R&D. With over 4,500 engineers, scientists and technicians
the company's Engineering Research Centre, established in 1966, has enabled pioneering
technologies and products. The company today has R&D centres in Pune, Jamshedpur,
Lucknow, Dharwad in India, and in South Korea, Italy, Spain, and the UK.

It was Tata Motors, which launched the first indigenously developed Light Commercial
Vehicle in 1986. In 2005, Tata Motors created a new segment by launching the Tata Ace,
India's first indigenously developed mini-truck. In 2009, the company launched its globally
benchmarked Prima range of trucks and in 2012 the Ultra range of international standard light
commercial vehicles. In their power, speed, carrying capacity, operating economy and trims,
they will introduce new benchmarks in India and match the best in the world in performance
at a lower life-cycle cost.

Tata Motors also introduced India's first Sports Utility Vehicle in 1991 and, in 1998, the Tata
Indica, India's first fully indigenous passenger car.

In January 2008, Tata Motors unveiled its People's Car, the Tata Nano. The Tata Nano has
been subsequently launched, as planned, in India in March 2009, and subsequently in 2011 in
Nepal and Sri Lanka. A development, which signifies a first for the global automobile
industry, the Nano brings the joy of a car within the reach of thousands of families.

Tata Motors is equally focussed on environment-friendly technologies in emissions and

alternative fuels. It has developed electric and hybrid vehicles both for personal and public
transportation. It has also been implementing several environment-friendly technologies in
manufacturing processes, significantly enhancing resource conservation.

Through its subsidiaries, the company is engaged in engineering and automotive solutions,
automotive vehicle components manufacturing and supply chain activities, vehicle financing,
and machine tools and factory automation solutions.

Tata Motors is committed to improving the quality of life of communities by working on four
thrust areas - employability, education, health and environment. The activities touch the lives
of more than a million citizens. The company's support on education and employability is

48
focused on youth and women. They range from schools to technical education institutes to
actual facilitation of income generation. In health, the company's intervention is in both
preventive and curative health care. The goal of environment protection is achieved through
tree plantation, conserving water and creating new water bodies and, last but not the least, by
introducing appropriate technologies in vehicles and operations for constantly enhancing
environment care.

2013

● Tata Motors’ Jamshedpur plant rolls out its two millionth truck
● Tata Power synchronises fifth 800MW unit and makes its first UMPP of
4,000MW, at Mundra, fully operational
● Tata Sons announces formation of the Group Executive Council
● Tata Technologies acquires Cambric, a premier US-based engineering services
company
● TCS acquires IT services firm Alti to help drive long-term growth in France
● Titan Industries is now Titan Company
● Tata Sons and Singapore Airlines to establish new airline in India
● Mount Everest Mineral Water (MEMW) to be merged with Tata Global
Beverages
● Jaguar Land Rover celebrates 1,000,000 vehicles built at Halewood operations
● Tata Toyo and Air International enter into a joint venture
● Titan Company celebrates retail milestone with 1,000 stores
2008

● Tata Motors unveils Tata Nano, the People’s Car, at the 9th Auto Expo in
Delhi on January 10, 2008
● Tata Motors acquires the Jaguar and Land Rover brands from the Ford Motor
Company
● Tata Chemicals acquires General Chemical Industrial Products Inc (now
known as Tata Chemicals North America)
2009

o Tata Motors announces commercial launch of the Tata Nano; delivers

first Tata Nano in the country in Mumbai

49
 o Tata Teleservices announces pan-India GSM service with NTT
DOCOMO
o TRF acquires Dutch Lanka Trailer Manufacturers (DLT), Sri Lanka, a
world-class trailer manufacturing company
o Jaguar Land Rover introduces its premium range of vehicles in India
o Tata Chemicals launches Tata Swach — the world’s most cost-
effective water purifier
● Tata Housing makes waves with its launch of low cost housing in Mumbai
2010

o TRF acquires UK-based Hewitt Robins International

o New plant for Tata Nano at Sanand inaugurated
o Advinus Therapeutics announces the discovery of a novel molecule — GKM-
001 — for the treatment of type II diabetes
o Tata Tea announces joint venture with PepsiCo for health drinks
o Tata Tea group rebrands itself as Tata Global Beverages, headquartered in
London
o Tata Chemicals acquires 100-per-cent stake in leading vacuum salt producer
British Salt, UK
o Tata Chemicals launches i-Shakti dals, India's first national brand of pulses
2011

o Tata Chemicals rebrands its global subsidiaries in the UK, the US and Kenya
under the Tata Chemicals corporate brand
o The Tata brand soars into the top 50 club of global brands
o Tata Medical Center, a comprehensive cancer care and treatment facility
established in Kolkata, was inaugurated by Tata Sons Chairman Ratan Tata
o The Tata Nano begins international journey in Sri Lanka and Nepal
o Jaguar celebrates 50 years of iconic E-Type car
o Tata Steel completes centenary of its first blast furnace
o Tata BP Solar becomes wholly owned Tata company (now known as Tata
Power Solar Systems)

50
2012

o Tata Global Beverages and Starbucks form joint venture to open Starbucks
cafés across India. First outlet launched in October in Mumbai
o Tata Communications completes world’s first wholly-owned cable network
ring around the world
o India’s first iodine plus iron fortified salt launched by Tata Chemicals
o Tata AIG Life Insurance Company to be now called Tata AIA Life Insurance
● Company
o Starbucks opens spectacular flagship store in Mumbai, honouring the dynamic
culture of India
o Tetley Tea celebrates 175th anniversary
o Tata Steel expands aerospace activities in China
o Cyrus P Mistry takes over as Chairman, Tata Sons from Ratan N Tata

Board of Directors

Mr. Mistry with the Safari Storme

Mr. Kant with the Ultra

Mr. Wadia with the Range Rover Evoque

Mr. Cyrus P. Mistry

Non-Executive Director and Chairman

Mr. Mistry was appointed as a Director of Tata Motors with effect from May 29, 2012, and as
Deputy Chairman of the Company with effect from November 7, 2012. Mr. Mistry took over
as Chairman from Mr. Ratan N. Tata on his retirement with effect from December 28, 2012.

Mr. Mistry was earlier Managing Director of the Shapoorji Pallonji group and was also
responsible for building the infrastructure development vertical in the Shapoorji Pallonji
group.

51
Mr. Mistry is a Graduate of Civil Engineering from the Imperial College London (1990) and
has an MSc in Management from the London Business School (1997). He was recently
bestowed with the Alumni Achievement Award by the London Business School.

Mr. Ravi Kant

Non-Executive Director and Vice Chairman

Mr. Kant has been with the Company since February 1999, joining as Senior Vice President
(Commercial Vehicles), and was inducted on the Board as an Executive Director in July 2000
and became the Managing Director in July 2005. Upon retiring from his Executive position
on June 1, 2009, Mr. Ravi Kant continues to be on the Company’s Board of Directors as
Vice-Chairman.

Prior to joining the Company, he was with Philips India Limited as Director of Consumers
Electronics business and prior to which with LML Ltd. as Senior Executive Director
(Marketing) and Titan Watches Limited as Vice President (Sales & Marketing).

Mr. Ravi Kant holds a Bachelor of Technology degree in Metallurgical Engineering from the
Institute of Technology, Kharagpur and a Master's degree in Science from the University of
Aston, Birmingham, UK.

Mr. Nusli N. Wadia

Non-Executive, Independent Director

Educated in the UK, Mr. Wadia is the Chairman of the Bombay Dyeing & Manufacturing
Company Limited and heads the Wadia Group. He is also the Chairman/ Trustee of various
charitable institutions and non-profit organisations.

Mr. Wadia has been on the Company’s Board since December 1998 as an Independent
Director.

Dr. Raghunath A. Mashelkar

Non-Executive, Independent Director

Dr. Mashelkar is an eminent chemical engineering scientist retired from the post of Director
General from the CSIR and is the President of Indian National Science Academy (INSA),
National Innovation Foundation, Institution of Chemical Engineers, UK and Global Research

52
Alliance. The President of India honoured Dr. Mashelkar with the Padmashri (1991) and the
Padmabhushan (2000). Dr. Mashelkar holds a Ph.D. in Chemical Engineering from the
Bombay University.

He was appointed as an Independent Director of the Company w.e.f. August 28, 2007.

2013

● Tata Nano becomes the first Auto Brand in India to cross 3 million fans on Facebook

● The Tata Indigo eCS enters Limca Book of Records

● Tata Motors' Jamshedpur plant rolls out its two millionth truck

● Tata Nano offered industry first phenomenon - Swipe your credit card and drive home a
Nano

● Tata Motors launches the world-class range of Tata PRIMA trucks in Sri Lanka

2012

● Tata Motors enters Bangladesh’s new car market

● Tata Ace races through the one-million mark in just 2,680 days

● Tata Safari Storme, the Real SUV, hits the road

● Launch of PT Tata Motors Indonesia

● Tata Motors plant at Dharwad comes on stream

● Tata Motors enters into distribution agreement in Myanmar

● Launch of Tata Ace in South Africa

2011

● Tata Venture launched

● Launch of Tata Divo Luxury Coach and Tata Starbus Ultra

● Launch of Tata Nano 2012

53
● Tata Sumo Gold introduced

● Range Rover Evoque launched in India

● New Tata Indica Vista launched

● Tata Magic IRIS and Tata Ace Zip launched

● Tata Indica eV2 introduced with 25 kmpl mileage

● Tata Pixel, a city car concept for Europe, displayed at the Geneva Motor Show

● Refreshed Tata Indigo Manza introduced

● Tata Prima ConsTruck range launched

● Tata Motors unveiled assembly plant in South Africa

● Tata Nano began international journey with Sri Lanka

● Tata Motors completes 50 years of its International Business

● Jaguar Land Rover inaugurated its vehicle assembly plant in Pune

● Tata Nano launched in Nepal

● HVTL amalgamates into HVAL renamed as TML Drivelines Ltd.

● Tata Motors (Lucknow) produced & dispatched the first Hybrid Chassis to Spain

● Tata Motors (Dharwad) rolled out the first Tata Ace Zip

● Tata 407 celebrated its silver jubilee year

● Jaguar celebrates 50 years of iconic E-Type

54
National interest
The Tata group is committed to benefit the economic development of the countries in which
it operates. No Tata company shall undertake any project or activity to the detriment of the
wider interests of the communities in which it operates.

A Tata company’s management practices and business conduct shall benefit the country,
localities and communities in which it operates, to the extent possible and affordable, and
shall be in accordance with the laws of the land.

A Tata company, in the course of its business activities, shall respect the culture, customs and
traditions of each country and region in which it operates. It shall conform to trade
procedures, including licensing, documentation and other necessary formalities, as
applicable.

 Financial reporting and records

A Tata company shall prepare and maintain its accounts fairly and accurately and in
accordance with the accounting and financial reporting standards which represent the
generally accepted guidelines, principles, standards, laws and regulations of the country in
which the company conducts its business affairs.

Internal accounting and audit procedures shall reflect, fairly and accurately, all of the
company’s business transactions and disposition of assets, and shall have internal controls to

55
provide assurance to the company’s board and shareholders that the transactions are accurate
and legitimate. All required information shall be accessible to company auditors and other
authorised parties and government agencies.There shall be no willful omissions of any
company transactions from the books and records, no advance-income recognition and no
hidden bank account and funds.

Any willful, material misrepresentation of and / or misinformation on the financial accounts

and reports shall be regarded as a violation of the Code, apart from inviting appropriate civil
or criminal action under the relevant laws. No employee shall make, authorise, abet or
collude in an improper payment, unlawful commission or bribing.

Competition
A Tata company shall fully support the development and operation of competitive open
markets and shall promote the liberalisation of trade and investment in each country and
market in which it operates. Specifically, no Tata company or employee shall engage in
restrictive trade practices, abuse of market dominance or similar unfair trade activities.

A Tata company or employee shall market the company’s products and services on their own
merits and shall not make unfair and misleading statements about competitors’ products and
services. Any collection of competitive information shall be made only in the normal course
of business and shall be obtained only through legally permitted sources and means.

Equal opportunities employer

A Tata company shall provide equal opportunities to all its employees and all qualified
applicants for employment without regard to their race, caste, religion, colour, ancestry,
marital status, gender, sexual orientation, age, nationality, ethnic origin or disability.

Human resource policies shall promote diversity and equality in the workplace, as well as
compliance with all local labour laws, while encouraging the adoption of international best
practices.

Employees of a Tata company shall be treated with dignity and in accordance with the Tata
policy of maintaining a work environment free of all forms of harassment, whether physical,
verbal or psychological. Employee policies and practices shall be administered in a manner
consistent with applicable laws and other provisions of this Code, respect for the right to

56
privacy and the right to be heard, and that in all matters equal opportunity is provided to those
eligible and decisions are based on merit.

Gifts and donations

A Tata company and its employees shall neither receive nor offer or make, directly or
indirectly, any illegal payments, remuneration, gifts, donations or comparable benefits that
are intended, or perceived, to obtain uncompetitive favours for the conduct of its business.
The company shall cooperate with governmental authorities in efforts to eliminate all forms
of bribery, fraud and corruption.

However, a Tata company and its employees may, with full disclosure, accept and offer
nominal gifts, provided such gifts are customarily given and / or are of a commemorative
nature. Each company shall have a policy to clarify its rules and regulations on gifts and
entertainment, to be used for the guidance of its employees.

Government agencies

A Tata company and its employees shall not, unless mandated under applicable laws, offer or
give any company funds or property as donation to any government agency or its
representative, directly or through intermediaries, in order to obtain any favourable
performance of official duties. A Tata company shall comply with government procurement
regulations and shall be transparent in all its dealings with government agencies.

Political non-alignment

A Tata company shall be committed to and support the constitution and governance systems
of the country in which it operates.

A Tata company shall not support any specific political party or candidate for political office.
The company’s conduct shall preclude any activity that could be interpreted as mutual
dependence / favour with any political body or person, and it shall not offer or give any
company funds or property as donations to any political party, candidate or campaign.

Health, safety and environment

57
A Tata company shall strive to provide a safe, healthy, clean and ergonomic working
environment for its people. It shall prevent the wasteful use of natural resources and be
committed to improving the environment, particularly with regard to the emission of
greenhouse gases, and shall endeavour to offset the effect of climate change in all spheres of
its activities.

A Tata company, in the process of production and sale of its products and services, shall
strive for economic, social and environmental sustainability.

Quality of products and services

A Tata company shall be committed to supply goods and services of world-class quality
standards, backed by after-sales services consistent with the requirements of its customers,
while striving for their total satisfaction. The quality standards of the company’s goods and
services shall meet applicable national and international standards.

A Tata company shall display adequate health and safety labels, caveats and other necessary
information on its product packaging.   

Corporate citizenship

A Tata company shall be committed to good corporate citizenship, not only in the compliance
of all relevant laws and regulations but also by actively assisting in the improvement of
quality of life of the people in the communities in which it operates. The company shall
encourage volunteering by its employees and collaboration with community groups.

Tata companies are also encouraged to develop systematic processes and conduct
management reviews, as stated in the Tata ‘corporate sustainability protocol’, from time to
time so as to set strategic direction for social development activity.

The company shall not treat these activities as optional, but should strive to incorporate them
as an integral part of its business plan.

Cooperation of Tata companies

A Tata company shall cooperate with other Tata companies including applicable joint
ventures, by sharing knowledge and physical, human and management resources, and by
making efforts to resolve disputes amicably, as long as this does not adversely affect its
business interests and shareholder value.

58
In the procurement of products and services, a Tata company shall give preference to other
Tata companies, as long as they can provide these on competitive terms relative to third
parties.

Public representation of the company and the Group

The Tata group honours the information requirements of the public and its stakeholders. In all
its public appearances, with respect to disclosing company and business information to public
constituencies such as the media, the financial community, employees, shareholders, agents,
franchisees, dealers, distributors and importers, a Tata company or the Tata group shall be
represented only by specifically authorised directors and employees. It shall be the sole
responsibility of these authorised representatives to disclose information about the company
or the Group.

Third party representation

Parties which have business dealings with the Tata group but are not members of the Group,
such as consultants, agents, sales representatives, distributors, channel partners, contractors
and suppliers, shall not be authorised to represent a Tata company without the written
permission of the Tata company, and / or if their business conduct and ethics are known to be
inconsistent with the Code.

Third parties and their employees are expected to abide by the Code in their interaction with,
and on behalf of, a Tata company. Tata companies are encouraged to sign a non-disclosure
agreement with third parties to support confidentiality of information.

Use of the Tata brand

The use of the Tata name and trademark shall be governed by manuals, codes and agreements
to be issued by Tata Sons. The use of the Tata brand is defined in and regulated by the Tata
Brand Equity and Business Promotion agreement. No third party or joint venture shall use the
Tata brand to further its interests without specific authorisation.

Group policies

A Tata company shall recommend to its board of directors the adoption of policies and
guidelines periodically formulated by Tata Sons.

59
Shareholders
A Tata company shall be committed to enhancing shareholder value and complying with all
regulations and laws that govern shareholder rights.The board of directors of a Tata company
shall duly and fairly inform its shareholders about all relevant aspects of the company’s
business, and disclose such information in accordance with relevant regulations and
agreements.

Ethical conduct

Every employee of a Tata company, including full-time directors and the chief executive,
shall exhibit culturally appropriate deportment in the countries they operate in, and deal on
behalf of the company with professionalism, honesty and integrity, while conforming to high
moral and ethical standards. Such conduct shall be fair and transparent and be perceived to be
so by third parties.

Every employee of a Tata company shall preserve the human rights of every individual and
the community, and shall strive to honour commitments.

Every employee shall be responsible for the implementation of and compliance with the Code
in his / her environment. Failure to adhere to the Code could attract severe consequences,
including termination of employment.

Regulatory compliance

Employees of a Tata company, in their business conduct, shall comply with all applicable
laws and regulations, in letter and spirit, in all the territories in which they operate. If the
ethical and professional standards of applicable laws and regulations are below that of the
Code, then the standards of the Code shall prevail.

Directors of a Tata company shall comply with applicable laws and regulations of all the
relevant regulatory and other authorities. As good governance practice they shall safeguard
the confidentiality of all information received by them by virtue of their position.

Concurrent employment

Consistent with applicable laws, an employee of a Tata company shall not, without the
requisite, officially written approval of the company, accept employment or a position of
responsibility (such as a consultant or a director) with any other company, nor provide

60
freelance services to anyone, with or without remuneration. In the case of a full-time director
or the chief executive, such approval must be obtained from the board of directors of the
company.

Conflict of interest

An employee or director of a Tata company shall always act in the interest of the company,
and ensure that any business or personal association which he / she may have does not
involve a conflict of interest with the operations of the company and his / her role therein. An
employee, including the executive director (other than independent director) of a Tata
company, shall not accept a position of responsibility in any other non-Tata company or not-
for-profit organisation without specific sanction.

The above shall not apply to (whether for remuneration or otherwise):

a) Nominations to the boards of Tata companies, joint ventures or associate companies.
b) Memberships / positions of responsibility in educational / professional bodies, wherein
such association will benefit the employee / Tata company.

) Nominations / memberships in government committees / bodies or organisations.

d) Exceptional circumstances, as determined by the competent authority.

Competent authority, in the case of all employees, shall be the chief executive, who in turn
shall report such exceptional cases to the board of directors on a quarterly basis. In case of the
chief executive and executive directors, the Group Executive Council shall be the competent
authority.

An employee or a director of a Tata company shall not engage in any business, relationship
or activity which might conflict with the interest of his / her company or the Tata group. A
conflict of interest, actual or potential, may arise where, directly or indirectly…
a) An employee of a Tata company engages in a business, relationship or activity with
anyone who is party to a transaction with his / her company.
b) An employee is in a position to derive an improper benefit, personally or to any of his / her
relatives, by making or influencing decisions relating to any transaction.
c) An independent judgement of the company’s or Group’s best interest cannot be exercised.

The main areas of such actual or potential conflicts of interest shall include the following:
a) An employee or a full-time director of a Tata company conducting business on behalf of

61
his / her company or being in a position to influence a decision with regard to his / her
company’s business with a supplier or customer where his / her relative is a principal officer
or representative, resulting in a benefit to him / her or his / her relative.
b) Award of benefits such as increase in salary or other remuneration, posting, promotion or
recruitment of a relative of an employee of a Tata company, where such an individual is in a
position to influence decisions with regard to such benefits.
c) The interest of the company or the Group can be compromised or defeated.

Notwithstanding such or any other instance of conflict of interest that exist due to historical
reasons, adequate and full disclosure by interested employees shall be made to the company’s
management. It is also incumbent upon every employee to make a full disclosure of any
interest which the employee or the employee’s immediate family, including parents, spouse
and children, may have in a family business or a company or firm that is a competitor,
supplier, customer or distributor of or has other business dealings with his / her company.

Upon a decision being taken in the matter, the employee concerned shall be required to take
necessary action, as advised, to resolve / avoid the conflict.

If an employee fails to make the required disclosure and the management of its own accord
becomes aware of an instance of conflict of interest that ought to have been disclosed by the
employee, the management shall take a serious view of the matter and consider suitable
disciplinary action against the employee.

Securities transactions and confidential information

An employee of a Tata company and his / her immediate family shall not derive any benefit
or counsel, or assist others to derive any benefit, from access to and possession of
information about the company or Group or its clients or suppliers that is not in the public
domain and, thus, constitutes unpublished, price-sensitive insider information.

An employee of a Tata company shall not use or proliferate information that is not available
to the investing public, and which therefore constitutes insider information, for making or
giving advice on investment decisions about the securities of the respective Tata company,
Group, client or supplier on which such insider information has been obtained.

Such insider information might include (without limitation) the following:

62
● Acquisition and divestiture of businesses or business units.
● Financial information such as profits, earnings and dividends.
● Announautomobile of new product introductions or developments.
● Asset revaluations.
● Investment decisions / plans.
● Restructuring plans.
● Major supply and delivery agreements.
● Raising of finances.
An employee of a Tata company shall also respect and observe the confidentiality of
information pertaining to other companies, their patents, intellectual property rights,
trademarks and inventions; and strictly observe a practice of non-disclosure.
Protecting company assets

The assets of a Tata company shall not be misused; they shall be employed primarily and
judiciously for the purpose of conducting the business for which they are duly authorised.
These include tangible assets such as equipment and machinery, systems, facilities, materials
and resources, as well as intangible assets such as information technology and systems,
proprietary information, intellectual property, and relationships with customers and suppliers.

Citizenship
The involvement of a Tata employee in civic or public affairs shall be with express approval
from the chief executive of his / her company, subject to this involvement having no adverse
impact on the business affairs of the company or the Tata group.

Integrity of data furnished

Every employee of a Tata company shall ensure, at all times, the integrity of data or
information furnished by him / her to the company. He / she shall be entirely responsible in
ensuring that the confidentiality of all data is retained and in no circumstance transferred to
any outside person / party in the course of normal operations without express guidelines from
or, the approval of the management.
Reporting concerns
Every employee of a Tata company shall promptly report to the management, and / or third-
party ethics helpline, when she / he becomes aware of any actual or possible violation of the
Code or an event of misconduct, act of misdemeanour or act not in the company’s interest.
Such reporting shall be made available to suppliers and partners, too.

63
Any Tata employee can choose to make a protected disclosure under the whistleblower
policy of the company, providing for reporting to the chairperson of the audit committee or
the board of directors or specified authority. Such a protected disclosure shall be forwarded,
when there is reasonable evidence to conclude that a violation is possible or has taken place,
with a covering letter, which shall bear the identity of the whistleblower.
The company shall ensure protection to the whistleblower and any attempts to intimidate
him / her would be treated as a violation of the Code.
Note:

The TCoC does not provide a full, comprehensive and complete explanation of all the rules
that employees are bound to follow. Employees have a continuing obligation to familiarise
themselves with all applicable laws, company policies, procedures and work rules.

All JVs could adopt TCoC or a joint code of conduct incorporating all elements of the TCoC.

This version of the TCoC supersedes all earlier versions and associated documents and stands
effective from October 1, 2013.

64
 CHAPTER-IV
DATA ANALYSIS

65
 TABLE 1
A. RETURN ON ASSETS
In this case profits are related to assets as follows

Return on assets = Net profit after tax

Total assets
TABLE 1; RETURN ON ASSETS
Rs: Crors
Particulars 2018 2019 2020 2021 2022

ROA = PAT 962.85 2082.77 2575.16 3531.64 4153.60

TOTAL ASSETS 4204.40 6087.50 6674.58 6673.44 19264.27
  23.06559 29.28575 38.5815 52.92083 25.41722

TABLE2
b). RETURN ON CAPITAL EMPLOYED
Here return is compared to the total capital employed. A comparison of this ratio with that of
other units in the industry will indicate how efficiently the funds of the business have been
employed. The higher the ratio the more efficient is the use of capital employed.

Return on capital employed = Net profit after taxes & Interest

Total capital employed
(Total capital employed = Fixed assets + Current assets–Current liabilities)
TABLE 2: RETURN OF CAPITAL EMPLOYED
particulars
2018 2019 2020 2021 2022
PAT
962.85 2082.77 2575.16 3531.64 4153.60
Total Capital Emp 204.99 25.33 120.89 203.30 304.80
ROC
4.697058 70.38206 21.65985 20.37877 15.56198

66
 YEAR 2017-2018
Performance of company (Amount in Rs. CR’S)

Gross Revenue 4939.44 Total Expenditure 3773.25

Profit (Loss) before tax 1196.20 Profit after tax 782.28
Earnings per share Rs. 1.69 Dividend ratio 10%

PERFORMANCE ANALYSIS OF 2017-2018

There has been an increase of over 20% sales when compared to cost year, which
resulted in Gross Profit of Rs.4939.44 Crs as against around 3697.54 crs in last year. Because
of decrease in Non-Operating expenses to the time of the Net profit has increased. It stood at
current year against previous year because of redemption of debenture and cost reduction. A
dividend of Rs.192 lacs was declared during the year at 10% on equity.

YEAR 2018-2019
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S )
Gross Revenue 5636.12 Total Expenditure 4162.48
Profit (Loss) before tax 1707.01 Profit after tax 1007.61
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2018-2019

1.The production and Sales has increased by 23%

2.Automobile turn over has increased by 6% as against fall in Sales realization by 17% last
year.
3.Automobile Boards Division has contributed 20% more than the previous year to the
PBDIT.
4.Perform Division realization has increased by 4% even the Turn over have came down to
845 lacs from 1209lacs in last year.
5.The profit After Tax has came down from 1007.61 crs to 782.28 crs in Current year
because of slope in Automobile Industry.

67
YEAR 2019-2020
PERFORMANCE OF COMPANY (AMOUNT IN RS.’ CR’S S)

Gross Revenue 6575.40 Total Expenditure 5215.94

Profit (Loss) before tax 1561.46 Profit after tax 977.02
Earnings per share Rs. 0.64 Dividend ratio 5%

PERFORMANCE ANALYSIS OF 2019-2020

The Automobile Industry has a successful year because of Govt. policies such
as infrastructure Development a Rural housing. There has been a small reduction in Gross
Sales and with the performance of prefab Division the Gross Profit gap has narrowed and
contributing to the EBIT. The Gross Profit has increased considerably from 6575.40 crs in
Last year to 5636.12 crs in Current year. The interest payment has increased by 423 crs in the
Current year and the Profit before Tax at 1561.46 crs when compared to 1707.01 crs in Last
year. The Net profit also increased from 977.02 in Last year in Current year.
The Director has recommended a 7.5% Dividend and in Last year it was at 5%.

YEAR 2020-2021
PERFORMANCE OF COMPANY (AMOUNT IN RS. CR’S)

Gross Revenue 7199.43 Total Expenditure 5585.29

Profit (Loss) before tax 1788.19 Profit after tax 1093.24
Earnings per share Rs. 1.55 Dividend ratio 10%

68
 PERFORMANCE ANALYSIS OF 2020-2021

In 2019-10 the company has performed well in all decisions because of high demand
and realizations. The Gross Profit Increased considerably and the interest payments have
Increased at about 7199.43 because of loans taken from the bank at a lesser rate of interest
and payment of loan funds for which the company is paying higher rate of interest. In the
previous year, the cash credit granted by UCO bank to the tune of Rs.5585.29 crs and losing
of loan funds borrowed from Vijaya Bank and Canara Bank factors, which can tribute to
increase in the Profit before Tax to the tune of Rs.1788.19 crs the company declared a
dividend of 10% on its equity to its shareholders when compared to 7.5% in the previous
year. The EPS of the company also increased considerably which investors in coming period.
The company has taken up a plant expansion program during the year to increase the
production activity and to meet the increase in the demand

YEAR 2021-2022
PERFORMANCE OF COMPANY (AMOUNT IN RS.CR’S)

Gross Revenue 15558.42 Total Expenditure 12082.74

Profit (Loss) before tax 2086.20 Profit after tax 1604.23
Earnings per share Rs. 2.10 Dividend ratio 17%

PERFORMANCE ANALYSIS OF 2021-2022

Company is operating in 3 segments, out of which automobile contributes about 55% of

turnover while the Boards and prefab segments contribute about 45%. Huge investment in the
industrial sector over the next 3 years is expected to lead to higher automobile off –take on
the back of strong GDP growth across the country. It is expected that the domestic
automobile consumption would grow at a CAGR of 8% for the next 5 ears. By FY 2022 the
domestic consumption is expected to grow to 209 million Tons from 156 million Tons
consumption FY2021. During the year 2021-20your company’s Gross sales increased.

69
Net sales increased by about 39% to Rs.1604.23 crs from Rs.1093.24 crs in FY 2021-20.
Improved sales from all the tree divisions particularly from prefab division contributed for
increased turnover

EBIT LEVELS
TABLE 3: EBIT LEVELS
Particulars 2018 2019 2020 2021 2022
Earnings Before
Interest & Tax 1196.20 1707.01 1561.46 1788.19 2086.20

Change 126.54 477.39 294.2 234.99 374.53

% Change 9.217979 3.176769 4.627668 6.758417 4.769171

DEGREE OF FINANCIAL LEVERAGE:

The higher the quotient, the

greater the leverage. In Ultra Tech
Industries case it is increasing because
of decrease in EBIT levels to 2021-2022.

The EBIT level is in a decreasing trend because of drastic decline in prices in Automobile
Industry during above period.

70
CHART 3

INTERPRETATION

The EBIT level in 2017 is at 1196.20 crs and is decreasing every year till 2018. Because of
slump in the Automobile Industry less realization. The EBIT levels in 2019 again started
growing and reached to 1707.01 crs and in 2021 were at 1788.56 crs and in 2022 were at
861.19, because of the sale price increase per bag and increase in demand. The infrastructure
program taken up by the A.P. Govt. in the field s of rural housing irrigation projects created
demand and whole Automobile Industries are making profits

71
 PERFORMANCE
TABLE 4: EPS ANALYSIS
Particulars 2018 2019 2020 2021 2022
Profit After Tax 962.85 2082.77 2575.16 3531.64 4153.60
Less: Preference
Dividend - - - - -
Amount of Equity share
holder 2063.78 2696.99 3602.10 4608.65 10666.04
No. OF equity share of
Rs.10/- each 19234825 19234825 19234825 19234825 19234825
EPS 1.69 0.64 0.79 1.55 2.1

CHART 4

EPS LEVELS

2.5

1.5
E
P
S

0.5

0
2006
20182019202020212022 2007 2008 2009 2010
YEARS

INTERPRETATION

The PAT is in an increasing trend from 2018-2019 because of increase in sale prices and also
decreases in the cost of manufacturing. In 2021 and 2022 even the cost of manufacturing has
increased by 5% because of higher sales volume PAT has increased considerably, which
leads to higher EPS, which is at 2.1 in 2022.

72
 EBIT – EPS CHART

One convenient and useful way showing the relationship between EBIT and
EPS for the alternative financial plans is to prepare the EBIT-EPS chart. The chart is easy to
prepare since for any given level of financial leverage, EPS is linearly related to EBIT. As
noted earlier, the formula for calculating EPS is

EPS = (EBIT - INT) (1 – T) = (EBIT - INT) (1 – T)

N N
We assume that the level of debt, the cost of debt and the tax rate are constant. Therefore in
equation, the terms (1-T)/N and INT (=iD) are constant: EPS will increase if EBIT increases
and fall if EBIT declines. Can also be written as follows

Under the assumption made, the first part of is a constant and can be represented by an EBIT
is a random variable since it can assume a value more or less than expected. The term (1 –
T)/N are also a constant and can be shown as b. Thus, the EPS, formula can be written as:
EPS = a + bEBIT
Clearly indicates that EPS is a linear function of EBIT.

FINANCING DECISION
Financing strategy forms a key element for the smooth running of any organization
where flow, as a rare commodity, has to be obtained at the optimum cost and put into the
wheels of business at the right time and if not, it would lead intensely to the shutdown of the
business.
Financing strategies basically consists of the following components:
● Mobilization
● Costing
● Timing/Availability
● Business interests

73
 Therefore, the strategy is to always keep sufficient availability of finance at
the optimum cost at the right time to protect the business interest of the company.
STRATEGIES IN FINANCE MOBILIZATION
There are many options for the fund raising program of any company and it is quite pertinent
to note that these options will have to be evaluated by the finance manager mainly in terms
of:
● Cost of funds
● Mode of repayment
● Timing and time lag involved in mobilization
● Assets security
● Stock options
● Cournand’s in terms of participative management and
● Other terms and conditions.
Strategies of finance mobilization can be through two sectors, that is, owner’s resources and
the debt resources. Each of the above category can also be split into: Securitized resources;
and non-securities resources. Securitized resources are those who instrument of title can be
traded in the money market and non-securities resources and those, which cannot be traded in
the market

74
CHART 5

THE FORMS OF FUNDS MOBILIZATION IS ILLUSTRATED BY A

CHART:

FUNDING MIX - SOURCES

OWNERS FUND BORROWED FUND

EQUITY RETAINED PREFERENCECONVENTIONALNON- CONVENTIONAL

CAPITAL EARNINGS CAPITAL SOURCES SOURCES

FINANCIAL SUPPLIERS CREDIT

INSTITUTION SHORT TERM
BANK BANK BORROWINGS
CASH CREDIT HIRE PURCHASE
DEBENTURES
FIXED DEPOSITS
ICD

75
 TATA MOTORS LTD. THE FUNDING MIX
TABLE 5:

Particulars 2017-18 2018-19 2019-20 2020-21 2021-22

Source of funds          

Share holders’ funds          

a) Share capital 2063.78 2696.99 3602.10 4608.65 10666.04

b) Reserves and surplus 1939.78 2571.73 3475.93 4482.20 10387.22

c)Deferred tax 560.26 542.35 722.93 830.73 2030.05

TOTAL (A) 3963.82 5811.07 7800.96 9921.55 22783.31
Loan Funds          
a) Secured Loans 1171.25 982.66 1205.80 854.20 2789.76

b) Unsecured Loans 427.38 757.84 965.83 750.33 1554.84

TOTAL (B) 1878.63 2040.5 2171.63 1904.52 4174.6
11826.0
TOTAL (A+B) 5542.45 7551.57 9942.59 7 26927.91
% of S H in total C.E 44.67 48 41.22 42.38 34.3
% of Loan Fund in total
C.E 55.33 52 58.78 57.62 65.69

INTERPRETATION

The shareholder fund is at 3125.8 constitutes 44.67% in total C.E and loan funds constitute
55.33% in 2017-2018. The Funding Mix on an average for 5 years will be 45% of
shareholders Fund and 55% of Loan Funds there by the company is trying to maintain a good
Funding Mix. The leverage or trading on equity is also good because the company affectively
utilizing the Loan Funds in the Capital Structure. So that it leads to higher profit increase of
EPS in 2019 at 0.79 to 2021 1.55

76
TERM LOANS
2017-18
TABLE 6
Particulars Rs. (in Lakhs)
TERM LOANS
IDBI 0.00
IFCI 0.00
0.00
HIRE PURCHASE LOANS
TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00
Non Convertible Debentures 677.75

CASH CREDIT
Global Trust Bank 638.21
Vijaya Bank 56.57
694.78
1,372.53
UNSECURED LOANS
Deposits from public 602.17
Lease /Hire purchases 4.64
IFST Loan from Govt. of AP 0.00
Deferred sales tax loan 0.00
Deposits from stockiest &
2030.39
others
Inter corporate deposits 50.00
Others 201.04
TOTAL 2588.22

77
 TERM LOANS
2018-2019
TABLE 7

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
255.00
development agency ltd.
Non convertible debentur 509.61

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT

78
Global Trust Bank 583.41
Vijaya Bank 65.17
648.56
1,415.20
UNSECURED LOANS
Deposits from public 600.54
Lease /Hire purchases 21.25
Canara Bank factors ltd. 100.09
Deferred sales tax loan 0.00
Deposits from stockiest & others 1,239.02
Inter corporate deposits 0.00
Others 201.04
TOTAL 2191.94

TERM LOANS
2019-2020
TABLE 8

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
207.00
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT

79
Global Trust Bank 627.10
Vijaya Bank 204.12
Canara Bank Factors 178.98 960.20
1197.20
UNSECURED LOANS
Deposits from public 592.31
Deposits from stockiest & others 1900.68
Lease/Hire purchase 10.30
Others 201.04
TOTAL 3571.53

TERM LOANS
2020-2021
TABLE 9

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
779.20
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 410.17

80
UCO Bank 594.34
Canara Bank Factors 0.00 1004.49
1197.20
UNSECURED LOANS
Deposits from public 399.69
Deposits from stockiest & others 1053.83
Lease/Hire purchase 57.39
Others 201.04
TOTAL 3495.64

81
 TERM LOANS
2021-2022
TABLE 10

Particulars Rs. (in Lakhs)

TERM LOANS
Indian Renewable Energy
2532.16
development agency ltd.
Non convertible debentures 0.00

HIRE PURCHASE LOANS

TVS Lakshmi Credit Ltd 0.00 0.00
Haritha Finance Ltd 0.00 0.00
Funded interest 0.00 0.00

CASH CREDIT
Oriental Bank of Commerce 561.32
UCO Bank 306.54
Canara Bank Factors 403.46
UTI Bank Ltd 211.82 1683.16
4017.28
UNSECURED LOANS
Interest free from sales tax
192.40
deferment loan
Deposits from public 619.87
Deposits from stockiest & others 920.26
Lease/Hire purchase 54.25
Others 201.29
TOTAL 5969.35

CHART 6

82
 TERMS LOANS

7,000.00
6,000.00
5,000.00
4,000.00
IN
s.
R

A
K
H
S
L

3,000.00
2,000.00
1,000.00
0.00
20182019202020212022
2007 2008 2009 2010 2011

YEARS

INTERPRETATION

The Non-convertible debentures are being redeemed from 2016 and 2017 financial year
onwards and were completely repaid by 2021-2022. The cash credit assistance was
provided by Global Trust Bank and Vijaya Bank to the tune of Rs.696 lacs and Canara
bank factors to the tune Rs.178 lacs was completely repaid by taking cash credit
facility from Oriental Bank of Commerce and UCO Bank to the tune of Rs.1000 lacs.
The company is paying of deposits from public every year.
Deposits from public were stood at 727.76 lacs in 2017-2018 and in 2021-2022 it
came down to 399.69 lacs. The IRIDA has granted Rs.255 lacs term loan for
installation of energy saving equipment and the loan was again increased to 779.20
lacs in 2021-2022.

83
 YEAR 2017-2018

Position of Mobilization and Development of funds

(Amount in RS.)

Total liabilities 3902.67 Total assets 3902.67

Sources of funds
Paid u capital 124.49 Reserves & surplus 1939.29
Secured Loans 1171.25 Unsecured loans 427.38
Application of funds
Net fixed assets 3216.23 Investments 483.45
Net current assets 204.99 Misc. Expenditure ---
Accumulated losses

YEAR 2018 – 2019

Position of Mobilization and Development of funds

(Amount in RS. crs)

Total liabilities 4979.84 Total assets 4979.84

Sources of funds
Paid u capital 124.49 Reserves & surplus 2571.73
Deferred tax 542.35
Secured Loans 982.66 Unsecured loans 757.84
Application of funds
Net fixed assets 4783.61 Investments 200.90
Net current assets 25.33 Misc. Expenditure ---
Accumulated losses Nil

Financial leverage results from the presence of fixed financial charges in the firm
income stream. These fixed charges don’t vary with EBIT availability post payment
balances belong to equity holders.

Financial leverage is concerned with the effect of charges in the EBIT on the
earnings available to shareholders.

84
 YEAR 2019-2020
Position of Mobilization and Development of funds
(Amount in RS. crs)

Total liabilities 6466.66 Total assets 6466.66

Sources of funds
Paid u capital 124.49 Reserves & surplus 3475.93
Deferred tax 722.93
Secured Loans 1205.80 Unsecured loans 965.83
Application of funds
Net fixed assets 5312.97 Investments 1034.80
Net current assets 120.89 Misc. Expenditure ---
Accumulated losses Nil

YEAR 2020- 2021

Position of Mobilization and Development of funds (Amount in
RS. crs)
Total liabilities 7043.90 Total assets 7043.90
Sources of funds
Paid u capital 124.49 Reserves & surplus 4482.20
Deferred tax 830.73
Secured Loans 854.20 Unsecured loans 750.33
Application of funds
Net fixed assets 5201.05 Investments 1969.55
Net current assets 203.30 Misc. Expenditure ---
Accumulated losses Nil

85
 YEAR 2021 – 2022

Position of Mobilization and Development of funds

(Amount in RS. crs)

Total liabilities 19540.69 Total assets 19540.69

Sources of funds
Paid u capital 274.04 Reserves & surplus 10387.22
Deferred tax 2030.05
Secured Loans 2789.76 Unsecured loans 1554.84
Application of funds
Net fixed assets 12505.57 Investments 3730.32
Net current assets 304.80 Misc. Expenditure ----
Accumulated losses Nil

FINANCIAL LEVERAGE

INTRODUCTION:

Leverage, a very general concept, represents influence or power. In

financial analysis leverage represents the influence of a financial variable over same other
related financial variable.
Financial leverage is related to the financing activities of a firm. The sources from
which funds can be raised by a firm, from the viewpoint of the cost can be categorized
into:

● Those, which carry a fixed finance charge.

● Those, which do not carry a fixed charge.

The sources of funds in the first category consists of various types of long

term debt including loans, bonds, debentures, preference share etc., these long-term debts

carry a fixed rate of interest which is a contractual obligation for the company except in

the case of preference shares. The equity holders are entitled to the remainder of operating

profits if any.

86
 Financial leverage results from presence of fixed financial charges in eh firm’s
income stream. These fixed charges don’t vary with EBIT or operating profits. They have
to be paid regardless of EBIT availability. Past payment balances belong to equity holders.

Financial leverage is concerned with the effect of changes I the EBIT on

the earnings available to shareholders.

DEFINITION:
Financial leverage is the ability of the firm to use fixed financial charges to
magnify the effects of changes in EBIT on EPS i.e., financial leverage involves the use of
funds obtained at fixed cost in the hope of increasing the return to shareholder.
The favorable leverage occurs when the Firm earns more on the assets
purchase with the funds than the fixed costs of their use. The adverse business conditions,
this fixed charge could be a burden and pulled down the companies wealth

MEANING OF FINANCIAL LEVERAGE:

As stated earlier a company can finance its investments by debt/equity. The
company may also use preference capital. The rate of interest on debt is fixed, irrespective
of the company’s rate of return on assets. The company has a legal banding to pay interest
on debt .The rate of preference dividend is also fixed, but preference dividend are paid
when company earns profits. The ordinary shareholders are entitled to the residual income.
That is, earnings after interest and taxes belong to them. The rate of equity dividend is not
fixed and depends on the dividend policy of a company.

The use of the fixed charges, sources of funds such as debt and preference
capital along with owners’ equity in the capital structure, is described as “financial
leverages” or “gearing” or “trading” or “equity”. The use of a term trading on equity is
derived from the fact that it is the owners equity that is used as a basis to raise debt, that is,
the equity that is traded upon the supplier of the debt has limited participation in the
companies profit and therefore, he will insists on protection in earnings and protection in
values represented by owners equity’s

87
CHAPTER-V

88
 5.1 FINDINGS
1. There has been a small reduction in Gross Sales and with the performance of prefab
Division the Gross Profit gap has narrowed and contributing to the EBIT. The Gross
Profit has increased considerably from 520.99 Cr in Last year to 641.80 Cr in year.
The interest payment has increased by 51 Cr in the Current year and the Profit before
Tax at 520.99 when compared to 641.80 cr in Last year.

2. Perform Division realization has increased by 8% even the Turnover has come to
641.80 Cr from 400.09 Cr in last year.

3. The profit After Tax has came 315.92 Cr to 216.82Cr in Current year because of slope
in Automobile Industry.

4. The PAT is in an increasing trend from 2018-2019 because of increase in sale prices
and also decreases in the cost of manufacturing. In 2021 and 2022even the cost of
manufacturing has increased by 5% because of higher sales volume PAT has
increased considerably, which leads to higher EPS, which is at 83.80 in 2021.

5. The EBIT level in 2017 is at 1196.20 Cr and is increasing every year till 2021.
Because of Less realization in the Automobile Industry. The EBIT levels in 2021
again started growing and reached to 1788.19 Cr and in 2021 were at 1788.19Cr and
in 2022 were at 2086.20, because of the sale price increase per bag and increase in
demand. The infrastructure program taken up by the T.S. Govt. in the field s of rural
housing irrigation projects created demand and whole Automobile Industries are
making profits.
6. The EPS of the company also increased considerably which investors in coming
period. The company has taken up a plant expansion program during the year to
increase the production activity and to meet the increase in the demand
7. Because of decrease in Non-Operating expenses to the time of 216.82 Cr the Net
profit has increased. It stood at in current year increase because of redemption of
debenture and cost reduction. A dividend of Rs.45.74 Cr as declared during the year at
7.85% on equity

89
 5.2 SUGGESTIONS:

1. The company has to maintain the optimal capital structure and leverage so that in
coming years it can contribute to the wealth of the shareholders.

2. The mining loyalty contracts should be revised so that it will decrease the direct in the
production

3. The company has to exercise control over its outside purchases and overheads which
have effect on the profitability of the company.

4. As the interest rates in pubic Financial institutions are in a decreasing trend after
globalization the company going on searching for loan funds at a less rate of interest as in
the case of UCO Bank.

5. Efficiency and competency in managing the affairs of the company should be

maintained.

90
 5.4 CONCLUSION

Sales in 2018-2019 is at 7267.74 and in 2021-2022 12752.43 crs those in a decreasing

trend to the extent of 20% every year. On the other hand manufacturing expenses are at
8725.11 from 2019-2021. There has been significant increase in cost of production during
2018-2019 because of increase in Royalty.The interest charges were 492.21 in 2019 and
357.07in 2021 and 522.56 respectively shows that the company redeemed fixed interest
bearing funds from time to time out of profit from 2018-2019.

Debantures were partly redeemed with the help of debenture redemption reserve and other
references.The PAT (Profit After Tax) in 2021-2022 is at 340.78. The PAT has increased
in prices in whole Automobile industry during the above period. The profit has increased
almost 17% during the period 2019-2021.Debentures were redeemed by transfers to
D.R.R. in 2019-2021.A steady transfer for dividend during 2018-2019 from P&L
appropriation but in 2018 there is no adequate dividend equity Shareholders.The share
capital of the company remained in charge during the three-year period because of no
public issues made by the company.The secured loans have decreased consistently from
2018-2021 and slight increase in 2022.

91
 5.5 RECOMMENDATIONS ON AUTOMOBILE
INDUSTRY

For the development of the automobile industry ‘Working Group on

automobile Industry’ was constituted by the planning commission for the formulation
of Five Year Plan. The working Group has projected a growth rate of 10% for the
automobile industry during the plan period and has projected creation of additional
capacity of 40-62 million tones mainly through expansion of existing plants. The
working Group has identified following thrust areas for improving demand for
automobile;

⮚ Further push to housing development programmers;

⮚ Promotion of concrete Highways and roads; and
⮚ Use of ready-mix concrete in large infrastructure project.

Further, in order to improve global competitiveness of the Indian Automobile

Industry, the Department of Industrial policy & promotion commissioned a study on
the global competitiveness of the Indian industry through an organization of
international repute, viz.. The report submitted by the organization has made several
recommendations for making the Indian Automobile Industry more competitive in
the international market. The recommendations are under consideration.

92
 BIBLIOGRAPHY

BOOKS REFERED:
⮚ Khan, M Y and P K Jain, Financial Management, Tata McGraw-Hill Publishing
Co., New Delhi, 2007.
⮚ I M Pandey, Essentials of Financial Management, Vikas Publishing House Private
Ltd, New Delhi, 2095.
⮚ Ramesh, S and A Gupta, Venture Capital and the Indian Financial Sector, Oxford
university press, New Delhi, 2095.
⮚ Anthony, R N and J S Reece, Management Accounting Principles, Taraporewala,
Bombay.

JOURNALS
⮚ The journal of finance
⮚ International journal of finance & policy analysis
⮚ Journal of finance education.

NEWS PAPERS
⮚ Financial Express(December 2021)
⮚ Economic Times (December 2021)

WEB SITES
⮚ www.google.com

⮚ www.yahoo.com

⮚ www.tatamotors.com

93