A STUDY OF FINANCIAL STATEMENT OF DABUR INDIA LTD.

Submitted by
Name Anirudh Pendse Kaushik Kopalle Krunal Shah Neha Badlani Sumit Jain Roll no 808 827 830 838 862

A report submitted to the Institute in partial fulfillment of the requirement for the award of eMBA-Insurance for the year08-09.

Under the guidance of Prof. L.N.Chopde

MET

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CERTIFICATE

This is to certify that project titled DABUR INDIA Ltd. is based on the original study conducted by,

Name Anirudh Pendse Kaushik Kopalle Krunal Shah Neha Badlani Sumit Jain

Roll no 808 827 830 838 862

Under my guidance and this has not formed a basis for the award of any other degree of this institute/university.

Place: - MUMBAI Date . .. Facultys sign Mumbai Education Trust

PREFACE
. In todays hi-tech competitive world of real business, finance and accounting have assumed critical importance. Accounting is not merely a reckoning of debit or credit or a narration of the profit and loss of an organisation. It is much more. In any business venture, correct analyses of the financial indicators are crucial to successful decision making. This is only possible if the accounts are maintained and recorded well, properly verified, are up-to-date and accurate, and the financial information is presented neatly and without confusion. Even a small error in the presentation of a report could sometimes lead to a wrong business decision. In this project we have attempted to provide comprehensive and clear report of the company.

Much of the attractiveness of the presentation and layout of the project is due to untiring effort done by us.

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ACKNOWLEDGEMENT
The Research on Financial Statement of Dabur India Ltd. has been given to me as part of the curriculum in the First Semester of the 2-Years Masters Degree in Business Administration. We have tried our best to present this information as clearly as possible using basic terms that we hope will be comprehended by the widest spectrum of researchers, analysts and students for further studies. We have completed this study under the able guidance and supervision of Prof L.N.Chopde. We will be failed in my duty if we do not acknowledge the esteemed scholarly guidance, assistance and knowledge; we have received from them towards fruitful and timely completion of this work.

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EXECUTIVE SUMMARY

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CONTENTS

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A Study of Financial Statement of HERO HONDA MOTORS Ltd.

Company background
Hero Honda Motors Ltd (HHML), established in 1984, is a joint venture between Hero Group, the worlds largest bicycle manufacturers and the Honda Motor Company of Japan. Today it is the worlds largest two-wheeler manufacturer. Hero Group belongs to the Munjal family and came into existence in 1956. It manufactured bicycle components in the early 1940s and later became the worlds largest bicycle manufacturer.
HHML manufactures a range of motorcycles with brands like CD Dawn, Splendor, Passion, CBZ, Karizma and Ambition. It is the market leader in two-wheelers and its Splendor range of bikes is the largest selling motorcycle in the country.

Industry scenario
The two-wheeler industry thrives in developing countries especially in densely populated countries like India. With income levels rising, customers are opting for entry-level motorcycles than scooters. The two-wheeler industry grew 11.6% yoy to 5.64mn units in FY04 from 5.05mn units in FY03. The share of motorcycles in total two- wheeler sales continues to improve (76.6% from 74.4% in 2002-03).

In terms of volumes, two-wheelers constitute nearly 80% of the vehicles produced in India. However, in value terms, they account for 25% approximately of the total vehicle production. HHML is the market leader followed by Bajaj Auto and TVS Motors, in that order.

Table: Market share in motorcycles

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(%)

HHML Bajaj Auto TVS Motor Yamaha Others

FY04 48 24 16 6 6

FY03 44 24 18 8 6

In two-wheelers, HHMLs market share stood at 37% during FY04. In the premium segment, the company enjoyed a 14% market share for the same period.

Higher volumes, lower realizations

HHML registered a 13.7% yoy growth in net sales to Rs58.3bn in FY04, similar to the growth rate achieved in FY03. The key difference however, was the significant fall in realizations in FY04 compared to FY03. While volumes increased by 23.4% yoy in FY04, net realizations declined by 7.4% yoy during the same period.

Chart: HHML sale volumes and growth

2,500 2,000 1,500 1,000
500 762

2,070 1,678 1,425 1,030

50 40 30 20 10 0

FY00

FY01

FY02

FY03
Growth in sales

FY04

Volumes ('000's)

LHS Volumes in 000s, RHS Volume growth (%) Source: Company data

The company launched 5 new models in FY04 to increase its share in the motorcycle market. CD Dawn in April 2003, Karizma in May, Passion Plus in September 2003, Splendor+ in October 2003 and Ambition 135 in January 2004. The company sold over a million units of its Splendor range and 0.5mn units of CD Dawn in FY04. The company enjoys a customer base of nearly 10mn.

FY04 witnessed export growth of 72% yoy mainly led by success of new models. CD Dawn, Splendor+ and Passion Plus led to increase in exports by 87%. Besides providing support services to Sri Lanka, Bangladesh and Columbia, the company established its presence in new markets like Sierra Leone and Philippines for motorcycles and components respectively.

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Operating profit growth 14.9%, OPM at 16.6%

The company was able to marginally improve its operating margins by 7bps to 16.6% in FY04 in spite of increase in steel prices and other input costs. The 104bps increase in raw material cost was offset by a 108bps decline in other expenditure. The lower other expenditure was due to reduction in advertising and revenue spends by the company in FY04, which declined by 12.3% yoy. In contrast, raw material cost increase was a result of a 7.3% yoy rise in cost of steel sheets and 15.3% yoy rise in cost of components in FY04. Change in sales mix too contributed to higher raw material cost.

Significant additions to investment portfolio

HHML added Rs3.7bn to its investment portfolio in FY04, a 31.2% yoy growth from FY03. This has been the trend for the company in the last few years. HHML has been adding over Rs4bn on an average in the last three years, witnessing a CAGR of 78.8% from FY01 to FY04.

Table: HHMLs Investment portfolio (As on March 31, 2008)

(Rs mn) Non-trade
FY04 FY03

Unquoted
MF Debt
MF MIP

MF Liquid

550 5,961 926 738

18

1,940 105 -

Quoted
MF Equity

Quoted Equity shares Unquoted Equity shares Quoted Bonds

Trade

1,613

Unquoted Equity shares

35

35

The company recorded 67.2% yoy increase in its other income, which stood at Rs1.8bn in FY04 compared to Rs1.1bn in FY03. Investments in mutual funds and quoted bonds resulted in the high other income component for the company. Other income accounted for an EPS of Rs9 before tax during the period under review. This resulted in high incremental PBIDT growth of 20.8% yoy.

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Another year of net interest earnings

HHML continues being a zero debt company in FY04. The company has unsecured loans to the tune of Rs1.7bn on account of sales tax deferment from the State Government of Haryana, which resulted in an interest payment of Rs17mn in FY04. The company earned a net interest of Rs13.5mn compared to Rs10.2mn in FY03.

Capacity expansion and R&D expenses

HHML added to its gross fixed assets at a higher rate compared to sales growth. The company utilized Rs500mn for expansion of its manufacturing facilities in FY04. Depreciation charged for the year was marginally on the higher side as the company follows a straight-line method of depreciation.

Table: HHMLs capacity and production information

FY04

FY03

Installed capacity (Units) Actual production (Units) Utilization rates (%)

2,250,000 2,064,698
91.8

1,800,000 1,680,277
93.3

Motorized two-wheelers with 350cc engine capacity

The company has two plants, one at Dharuhera and the other at Gurgaon. The Dharuhera plant manufactures CD 100, CD 100ss and CD Dawn motorcycles while the Gurgaon plant manufactures the others. Splendor is manufactured at both the plants.

Chart: HHMLs productivity index (Units)

350 288 300 250 200 150 100 50 0
FY00 FY01 FY02 FY03 Gurgaon FY04 168 202

233 192 175

150

119

124

131

Dharuhera FY99 Base year (100)

By making additional investments in flexible CNC machines and automation, the capacity at these plants is now in a position to increase its production levels

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Table: HHMLs R&D spend

(Rs mn) FY04 FY03
yoy (%)

Capital Recurring
Total

74.3 93.3 167.6

15.6 69.7 85.3

376.3 33.9 96.5

Efficient working capital management

During the year, the company initiated a new receivables policy, which helped bring down the debtor levels. Debtors declined by 69% yoy to Rs438mn in FY04, resulting in debtor days falling to 2.7 days during the same period compared to 10.1 days in FY03. Inventories declined by 6.3% yoy to Rs1,882mn, which resulted in lower inventory days at 11.8 days in FY04, compared to 14.4 days in FY03. This follows the companys trend of consistently lowering the proportion of inventories in total assets over the years, shown in the chart below.

Chart: HHMLs inventory trend

2,050 2,000 1,950 1,900 1,850 1,800 1,750 1,700 1,650 5.0 0.0

30.0 25.0 20.0 15.0 10.0

FY01

FY02

FY03

FY04

Value (Rs mn)

% of total assets

LHS Inventory (Rs mn), RHS Inventory as % of total assets (%)

The only anomaly was the increased levels of loans and advances during the year. FY04 witnessed huge increase in loans and advances by 117.4% yoy to Rs2.4bn compared to a 20.7% yoy decline in FY03. These were on account of advances recoverable to the tune of Rs2,246.6mn, which increased from the previous year level of Rs981.4mn. This was partly on account of inter-corporate deposits given by the company during the year. Creditor days increased to 68.5 days in FY04 compared to 54.3 days in FY03. Creditors grew by 44.2% yoy to Rs10.9bn in FY04 due to the healthy reputation enjoyed by the company. On account of this, the company continued to enjoy a negative working capital during the year.

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Healthy cash flow from operations

HHMLs cash from operations rose by 29% yoy to Rs10.7bn in FY04 compared to Rs8.3bn in FY03. The company funds their expansion from this cash and does not need to raise any external loans for the purpose. The net profit margin increased to 12.5% during FY04, higher by 110bps compared to FY03.

Chart: HHMLs rising net profit margin (NPM)

8,000 7,000 6,000 5,000 4,000 3,000 2,000 FY01 FY02 Net Profit 13.0 12.0 11.0 10.0 9.0 8.0 7.0

FY03
NPM

FY04

LHS Net profit (Rs mn), RHS NPM (%)

Dividend percentage hiked once again

Continuing with the trend of increasing the dividend percentage paid each year, HHML declared 500% final dividend to add to the 500% interim dividend during the year. This took the total dividend tally to 1000% in FY04, which translates into Rs20 per equity share for the year.

Table: HHMLs dividend record

FY01

FY02

FY03

FY04

Total dividend# (Rs mn) Dividend (%)

Payout ratio (x)
# Including corporate dividend tax Source: Company data, India Infoline Ltd

660 150 27

3,497
850 76

4,055
900 70

4,505 1,000
62

Key ratios
ROCE (%) RONW (%) EVA (Rs mn)* FY00 45.1 43.3
FY01 FY02

FY03

54.5 39.2

86.7 67.5

Market Capitalization (Rs mn)

WACC (%)**
* Economic Value Added Weighted Average Cost of Capital

1,190 38,740
17.5

1,550 28,160
15.9

3,740 66,700
12.3

89.0 67.4 4,810 37,580

11.3

FY04 81.8 64.0

5,690 97,970
13.9

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Outlook
During the year, HHML renewed its technical collaboration with Honda Motor Corporation of Japan for another 10 years up to 2014. This will give HHML access to Hondas technology for another 10 years for developing new products. HHML plans to launch two motorcycles in FY05 and a scooter with the technology provided by Honda. Growing competition, price undercutting, rising steel prices and other input costs continue to pose a threat. Reduction in import duties for imports could also pose a threat for the higher end bikes. The company mentions in the annual report that the next three years for the two- wheeler industry are positive but volatile. The company is planning to further increase its capacity to meet the growing demand for motorcycles. It is considering setting up a third plant for its products.

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Income statement
Period to (Rs in mn) Net Sales Operating expenses Operating profit Other income PBIDT Interest Depreciation Profit before tax (PBT) Tax Profit after tax (PAT) FY01 (12) 31,687 (27,670) 4,017 221 4,238 (25) (443) 3,770 (1,301) 2,469 FY02 (12) 44,627 (38,009) 6,617 852 7,469 (15) (510) 6,944 (2,315) 4,629 FY03 (12) 50,976 (42,560) 8,415 1,082 9,497 (17) (634) 8,846 (3,038) 5,808 FY04 (12) 58,310 (48,644) 9,667 1,809 11,475 (17) (733) 10,725 (3,441) 7,283

Balance sheet
Period to (Rs mn) Sources Share Capital Reserves Net Worth Loan Funds Total Uses Gross Block Accd Depreciation Net Block Capital WIP Total Fixed Assets Investments Total Current Assets Total Current Liabilities Net Working Capital Miscellaneous expenditure Total FY01 (12) 399 5,893 6,292 665 6,957 6,147 (1,798) 4,349 190 4,539 2,882 3,792 (4,457) (665) 202 6,957 FY02 (12) 399 6,458 6,858 1,164 8,022 7,045 (2,235) 4,811 97 4,907 7,258 5,267 (9,512) (4,245) 102 8,022 FY03 (12) 399 8,211 8,610 1,343 9,953 FY04 (12) 399 10,989 11,388 1,747 13,135

7,863 9,169 (2,784) (3,458) 5,079 5,711 92 177 5,171 5,888 11,930 15,651 4,774 5,097 (11,929) (13,501) (7,155) (8,404) 7 9,953 13,135

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Cash flow statement

Period Year to (Rs mn) FY02 FY03
FY04

Net profit before tax and extraordinary items Depreciation Interest expense Operating profit before working capital changes Add: changes in working capital
(Inc)/Dec in

03/02 6,944
510 15

03/03 8,846
634 17

03/04

10,725 733
17

7,469

9,497

11,475

(Inc)/Dec in sundry debtors (Inc)/Dec in inventories Inc/(Dec) in sundry creditors Inc/(Dec) in other current liabilities Net change in working capital Cash from operating activities Less: Income tax Misc expenditure w/off Net cash from operating activities Cash Profit Cash flows from investing activities (Inc)/Dec in fixed assets (Inc)/Dec in Investments Net cash from investing activities Cash flows from financing activities Inc/(Dec) in debt Direct add/(red) to reserves Interest expense Dividends (Inc)/Dec in loans & advances Net cash used in financing activities Net increase in cash and cash equivalents
Cash at start of the year

(574) 202

(418) (226) 739

3,192 1,863 4,682 12,151 (2,315)

100

1,678 1,773
11,270

(3,038)
95

977 127 3,352 (1,780) 2,676 14,151 (3,441)

7

9,937 9,937
(879)

8,327 8,327
(897)

10,717 10,717 (1,451) (3,721) (5,172) 404

0 (17)

(4,376) (5,255)
500 (567) (15)

(4,672) (5,569)
178

(0)
(17)

(3,497)
(464)

(4,055)
290

(4,043)
639 451

(3,604)
(846)

1,090
243

Cash at end of the year

1,090

(4,505) (1,299) (5,417) 128 243 371

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Key ratios
FY01 FY02

(12)
Per share ratios EPS (Rs) 12.4 3.0 31.5 0.0 0.0 0.0 0.1 0.1

(12) 23.2 17.0 34.3 0.0 0.0 0.0 0.0 0.0

FY03 (12)

FY04

(12) 36.5 20.0 57.0 14.1 9.0 1.8 9.7 9.1

Div per share Book value per share

Valuation ratios

29.1 18.0 43.1

0.0 0.0 0.0 0.1 0.1

P/E P/BV EV/sales

EV/ PBIT EV/PBIDT Profitability ratios OPM (%)
PAT (%)

12.68
7.8 54.5 39.2 0.9 4.9 22.9 42.1
0.11

14.83
10.4 86.7 67.5 0.6 8.2 14.6 56.0

16.51
11.4

16.58
12.5 81.8 64.0 0.4 2.7 11.8 68.5

ROCE

RONW
Liquidity ratios

89.0 67.4
0.4

Current ratio
Debtors days Inventory days

Creditors days
Leverage ratios Debt / Total equity Component ratios

10.1 14.4 54.3 0.16 68.09 3.22 12.19 69.8

0.17
69.4 3.8 12.0 75.5

0.15 69.12 3.19

11.11 61.9

Raw material Staff cost Other expenditure

Payout ratios

109.5 5.2 19.6 26.7

Dividend Payout Ratio

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BIBLIOGRAPHY
http://news.infibeam.com/blog/news/2008/09/11/august_car_sales_go_downhill_two_wheele rs_continue_to_grow.html http://www.business-in-asia.com/countries/automotive_industry_india.html

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