REPORT ON JK TYRE

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JK TYRE  Report Transcript

INTRODUCTION AND THEORETICAL FRAMEWORK The introductory part deals with financial analysis and financial strengths and weaknesses of the firm. The theoretical framework speaks of financial statements analysis and the various methods used in analysis. INTRODUCTION Financial analysis is done to identify the strengths weaknesses of the firm by the way of properly establishing relationships between the items of balance sheet and the profit and loss account. The study was conducted in order to enable J K Industries Ltd.

To identify its financial strengths weaknesses through ratio analysis and comparative balance sheet. The study mainly comprises of time series analysis, cross sectional analysis and industries analysis i.e. to compare the performance of the company with its own past performance, to make a comparison with the performance of company with industrial average.

The time series analysis is done for years 2001-2007. This involves seven financial years. The cross sectional analysis of J K Industries Ltd. Is done between another major player of the industries i.e. MRF Tyres. For this purpose various financial ratios are used in order to analyze liquidity, profitability, performance and leverage position of the company. THEORETICAL FREMWORK “Financial statement analysis is largely a study of relationship among the various financial factors in a business, as disclosed by a single set of statements, and a study of trends of these factors, as shown in a series of statements.” Financial statements are major means through which firms present their financial situation to creditors,

stockholders and general public .the majority of firms include extensive financial statements in their annual reports, which receive wide distribution. NATURE OF FINANCIAL STATEMENTS The key features of the financial statements are as under:- ? They relate to past period and are historical in nature. ? They are financial in nature and are expressed in monetary terms. ? They indicate financial position and profitability. AIMS AND OBJECTIVES The primary objectives include judging the earning capacity or profitability of the firm , short term and long term solvency , the performance of the company as compared to its past and making inter firm comparisons . The secondary objectives are to suggest for changes that could be implemented in order to improve future performance. PARTIES INTERESTED IN FINANCIAL STATEMENTS The information given in financial statements is of much interested of external parties. They include investors, lenders, suppliers, trade creditors, potential investors, employees and trade unions, customers, government and their agencies, public, taxation authorities, stock exchange etc.

METHODOLOGY TECHNIQUE Techniques of analysis of financial statements are broadly classified into three categories i.e. cross sectional analysis, time series analysis, and cross sectional cum time series analysis. By cross sectional analysis financial characteristics of an enterprise of a given accounting period are analyzed with reference to financial characteristics of one or more similar or comparable enterprise. Time series analysis is used to depict the trends of financial characteristics of an enterprise over the year. Cross sectional cum series analysis is a most effective approach of financial statement analysis. ANALYTICAL TOOLS USED IN THE STUDY The tools used for the purpose of analysis are:- • Ratio analysis • Year to year change or horizontal analysis • Common size or vertical analysis •Cross sectional analysis ANALYSIS SIGNIFICANCE OF FINANCIAL ANALYSIS: ? It judges the earning capacity or profitability of the concern. ? It judges the managerial efficiency and areas of inefficiency. ? It judges the short term and long term solvency of the concern. ? A comparative study may be under taken for comparing various firms or various points of view. ? It helps a great deal in making forecast and preparing budgets. SOURCES OF FINANCIAL INFORMATION The primary source is data provided by the firm itself in its annual report and required disclosures. Besides this information such as markets prices of securities of publicity traded companies can be found. CONCLUSIONS ? There has been a drastic decrease in profit after tax (PAT). It showing a decreasing trend in 2006 as compared to 2007. This decrease has been mainly due to increase in employees, freight and transportation cost and increase in cost of borrowing.

Current ratio has decreased to 1.32 which is lower than the normal standard which is 1.5:1 for manufacturing industry, which is showing that the ability of J.K. Tyre industry to meets its current obligation, is not good. ? Profit margin of the tyre industry is higher than the J.K. Tyre is not much efficient in its production, selling, financial and tax management comparing with other player in the industry. ? The ROE is very less. This show that the profit available to equity shareholders is very less and is very less preferred by investors. ? The receivable turnover ratio is showing a declining trend in past and now improve in receivable turn over ratio but is not showing a healthy position. It indicates that debts are not collected quickly. ? The Assets turn over ratio is showing an increase trend. It states that the assets are use efficiently. ?

The performance of the company’s equity capital is poor. This is not favored to investors. Such as position very poor to attract new investors. ? Present asset turnover of the company has decreased in last two years. But now the ratio is increased so this is good sign in absolute terms. ? Return on Equity for the MRF Tyre is higher than JK Tyre, which conclude that JK Tyre has not employed it resources productively. ? The increase in Current Liabilities is more than that of Current Asset. ? There is decrease in sources of fund. This decrease has been contributed by decrease in loans (both secured and unsecured) and decrease in reserve and surpluses. The application of fund has been mainly done in acquiring assets, meeting current assets, loans and advances. ? The interest coverage ratio of J.K. Industries is very less as compared to its competitors. It indicates that the Margin of Safety for the lenders is very less as compared to the competitors. The reason being very low net profit before interest and very high interest paid. ? The company not maintained Debt-Equity ratio. The ideal ratio should be between 2:1 & 1:1, which has not maintained by the company. RECOMMENDATION v The company should bring down its Freight and Transportation cost. It should go in for more efficient logistics that are cost effective. v It should have a control on cost of borrowing. Cheaper source of funds should be arranged. v The company should reduce its level of current liabilities. v More liquid asset should be kept for fulfillment of short-term obligation without any default. v More care should be given to productive management to improve the profit margin of the company for the betterment of the shareholders. v The company should build on its quick assets. It should keep more of liquid assets. v It should have a control on incurred in consumption of raw material. The company should make efforts to collect debts at a faster pace.

It should control operating cost and increase its operational efficiency. v The Company can also think of reducing manpower. The company should make arrangements for better and efficient use assets. v Company should look up in to the matter of its financial requirements with proper strategy, show it can possible to reduce it cost of borrowing. AN OVERVIEW OF THE ORGANISATION CONTENTS CHAPTER -1 INTRODUCTION CHAPTER- 2 HISTORY OF THE ORGANIZATION CHAPTER -3 SPECIAL FEATURE CHAPTER -4 DIVISIONAL STUDY CHAPTER -5 PERFORMANCE APPERRAISAL SYSTEM CHAPTER -6 COMPETITORS DETAIL INTRODUCTION INDUSTRY PROFILE HIGHLIGHT • The tyre industry is a 12000 crore industry. • The fortune of this industry depends on agricultural And industrial performance of the economy, the transportation needs and the production of vehicles. • While the tyre industry is mainly dominated by the Organized sector, the unorganized sector holds sway in bicycle tyres. • In the last five year (1995-96 to 1999-2000), the industry managed to achieve a compounded annual growth of only 4.40 percent. However in the last fiscal the industry registered a growth of percent. • Natural rubber constitutes 25 percent of the total raw material cost of the tyres. • The ratio of natural rubber content to synthetic rubber content is 80:20 in India tyres, whereas world wide, the ratio of natural rubber to synthetic rubber is 30:70. SECTORE Ever since the first Indian tyre company, Dunlop Rubber Company (India) was incorporated in 1926, the tyre industry has grown rapidly and today its is a Rs.10000 crore industry. India has 2.61 lakh villages, connected by 6.23 lakh kms of metalled roads and 9.81 lakh kms of unmetalled roads. These villages are linked to small town and cities. There is a daily traffic of over 4.12 lakh trucks, 1.27 lakh buses, 7.23 lakh cars, and thousand of taxis, two-wheelers, three-wheelers tractors and animal-drawn vehicles on Indian roads.

There exists a vast potential for the tyre industry in India. The fortune of the tyre industry depends on the agriculture and industrial performance of the economy, the transportation needs and the production of vehicles. Hence, this is a very sensitive industry, which has to adapt to itself to a highly volatile environment. MARKET PROFILE While the tyre industry is mainly dominated by the organised sector, the unorganised sector holds sway in bicycles tyre. The major players in the organised tyre segment consist of MRF, Apollo tyres, Ceat and J.K. Industries, which account for 63 percent of the organised tyre market. The other key players include Modi Rubber, Kerosin Industries and Goodyear India with 11percent, 7 percent and 6 percent share respectively. Dunlop, Falcon, Tyre Corporation of India Limited (TCIP), TVS-Srichakra, Metro tyres and Balkrishan Tyre are some of the other players in the industry.

MRF the largest tyre manufacturer in the country has strong equity. Whiles it rules supreme in the industry, other player have created niche markets of their own. SECTORE SPECIFICS The tyre industry is a major consumer of the domestic rubber Production. Natural rubber constitutes 80 percent of the material content in India tyres. Synthetic rubber constitutes only 20percent of the rubber content of a tyre in India. Worldwide, the ratio of the natural rubber to synthetic rubber is 30:70. Apart from natural and synthetic rubber, rubber chemicals are also widely used in tyres. Most of the RSS-4 grade natural rubber required by the Indian tyre industry is domestically sourced, with only a marginal amount being imported. This is an advantage for the industry, since natural rubber constitutes 25 percent of the total raw materials cost of the year. The two types of synthetics rubber used in tyres are Poly Butadiene Rubber (PBR) and Styrene Butadiene Rubber (SBR). The former is used in most of the tyres, while the latter is mainly used in the passenger cars. Synthetic rubber accounts for 14 percent of the raw material cost. Unlike in the case of natural rubber, India imports 60 percent of its synthetic rubber requirement. Apart from rubber, major raw materials are nylon tyre cord and carbon black. The former is used to make the strong and tenacity to it. The latter is responsible for the colour of the tyre and also enhances the life of the tyre. Nylon tyre cord comprises 34 percent, while carbon black account for another 13 percent of the raw materials cost. In India, the carbon black is used is of the N660, N220 and N330 variety.

To sum up, the tyre industry is highly raw materials intensive, with the raw material costs accounting for 70 percent of the cost production. Fortunately for the industry, the rubber carbon black prices have taken a beating recently, which means lower cost for the tyre industry. The export-import policy allows free import of all types of new tyres and tubes. However, import of retreated tyres, either foe use or reclamation of the rubber is restricted. This has led to use tyres being smuggled into the country under the label of the new tyres. Through tyre import and all raw materials for tyres except natural rubber are under open general license (OGL), only import of natural rubber from Sri Lanka is eligible under OGL. SECTOR TRENDS Cross ply tyres have been used in India for several decades. In these tyres, the ply cords run across each other or diagonally to the outer surface of the tyre. Rayon and Nylon tyre cords are used as the reinforcing medium. These tyres can be retreated twice during their lifetime and are hence preferred by Indian transport operators who normally overload their trucks. A vehicle with the normal carrying capacity of around 12 tones is a usually loaded with the double capacity. Moreover, one also has to contend with the suspensions and bad road conditions. No wonder, 95 percent of the tyres used in India are cross plies. Radial tyres have their cords running racially from at 90 degree angle to the rim or along the outer surface of the tyre. The reinforcing mediums used in these are polyester, nylon, fiberglass and steel. Hence, these tyres are 20 percent more expensive than the cross plies.

But they have a longer life and provide lower fuel consumption. The unhealthy condition of the Indian roads has resulted in radial tyres accounting for only 5 percent of the tyre industry as against a global trend of 60 percent. With two-third of the capacity of all the major tyre manufacturers being reserved for radials, this is a cause for concern. OUTLOOK Globally, the OEM segment constitutes only 30 percent of the tyre markets, exports 10 percent and the balance from the replacement markets. In India, the scenario is quite different. Nearly 85 percent of the total tyre demand in the country is the replacement. This anomaly has placed the retreads in a better position than the tyre manufactures. Retreating is looming over the tyre industry as a colossal threat. The Coimbatore based Elgy Tyres and Tread Ltd.,

the largest retreders in India, is giving the tyre barons sleep less nights. Simply put, re threading is replacing the worn out tread of the old tyre with a new one. The popularity of re threading stems from the fact that its costs only 20 percent of a new tyre but tyre increase its life by 70 percent to 80 percent. Most of the transporters in India retread their tyres twice during its lifetime, while a few fleet owners even retread thrice. In their zealousness to economize costs, they overlook the reality that re treading reduces the quality of the tyre.

It is highly popular in the South unlike in the earth where the transporters overload the trucks and have to ply their vehicles in a rough terrain an environment in which buying a new tyre is the best option. Though re treading has penetrated 25 percent of the tyre market, it has made much of a dent in the rapidly growing two-wheeler and passenger car segments. CONCLUTION The industry, already bogged by over capacity, is the facing a severe threat of dumping of cheap tyres by South Korea. Under the Bangkok agreement, signed between India and South Korea in 1976, import of tyres into India would attract a concessional duty of 33 percent as against the normal tariff of 40 percent. Two years ago, the industry estimated the growth in the passenger car radial demand at 20 percent per annum.

However, the auto recession has hit them badly. But South Korea made a killing by dumping cheap car radial tyres and walked away with percent of the tyre market. Another threat to the industry is the price of its raw materials, most of which are petroleum by-products. Carbon synthetic and nylon tyre cord are offshoots of petrochemicals. Thus, the future of the industry will swing with the supply of crude oil. The biggest threat, however, is yet to fully materialize. It will be from global major like Bridgestone and Michelin, which control 36 percent of the global tyre market. These players have set up their bases in Southeast Asia and the slump of the markets in this region,

coupled with the growth potential of the Indian market, is beckoning them towards India. Bridgestone has tied up with ACC for a 100 percent radial tyre unit and Michelin is also marketing and its products through retail outlets. The industry is driven more by volume than by margins and each of the big five in the global tyre industry Continental, Michelin, Goodyear, Pirelli and Bridgestone generate an annual tyre production equivalent to the total demand of the Indian market. These MNCs have deep pockets and can easily withstand losses for 2-3 years. Their financial muscles also permit them to invest in R & D, which is beyond the reach of the average Indian tyre manufacturer.