FINACIAL APPRAISAL OF

MAHINDRA &
MAHINDRA
(SWARAJ DIVISION)

A training report submitted in partial fulfillment of the requirement for the degree of

MASTERS OF BUSINESS ADMINISTRATION

MBA
(2008-2010)

Submitted by:-
JIMMY SARAF
MBA - 2
Roll No. .

1
MAHINDRA & MAHINDRA
LTD.
SWARAJ DIVISON

2
 HAMARA SWABHIMAAN

SWARAJ...
CONTENTS

CHAPTER-I INDIAN TRACTOR INDUSTRY

-An Overview

CHAPTER –II M&M LTD -SWARAJ DIVISION

-A Company Profile

CHAPTER –III OBJECTIVES OF THE STUDY &

Executive summary

CHAPTER –IV FINANCIALSTATEMENT

ANALYSIS OF SWARAJ DIVISION
METHODS OF ANALYSIS
 PROFITABILITY ANALYSIS
 WORKING CAPITAL MANAGEMENT
 CAPITAL STRUCTURE ANALYSIS
 MARKET PERFORMANCE
 INVESTMENT PATTERN

CHAPTER –V CONCLUSIONS AND

RECOMMENDATIONS

3
 CHAPTER -VI REFERENCES

PREFACE

For management career, it is important to develop managerial skills. In order to

achieve positive and concrete results, along with theoretical concepts, the exposure of
real life situation existing in corporate world is very much needed. To fulfill this
need, this practical training is required.

I took training in fast growing company M & M SWARAJ DIVISION located in

MOHALI. It was my fortune to get training in a very healthy atmosphere. I got ample
opportunity to view the overall working of the company.

This report is the result of my seven weeks of summer training in M & M LTD
-SWARAJ DIVISION, as a part of M.B.A. The subject of my report is- Financial
Appraisal of M & M LTD -Swaraj Division.

In the forthcoming pages, an attempt has been made to present a comprehensive

report covering different aspects of my training.

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 ACKNOWLEDGEMENT

To test the student’s academic knowledge in practical conditions of life, six-

eight weeks summer training has been included in the M.B.A course. I express my
gratitude to PROF. R.K. GAUTAM AND Ms. SHIVINDER PHULKA
DEPARTMENT (M.B.A.), PUNJABI UNIVERSITY REGIONAL CENTRE OF
MANAGEMENT & INFORMATION TECHNOLOGY, MOHALI for allowing
me to undergo summer training in Mahindra & Mahindra ltd - Swaraj Division.

I have the honor to express my sincere thanks to the management of Swaraj

Division for providing me the opportunity to pursue my training in their esteemed
organization. I place on record my thanks to Mr. Mahesh Gupta (Manager - Finance)
and Mr. Rajnath Singh (Asst Manager - Finance) for giving me every sort of help
and guidance.

My summer training has added to my practical knowledge and build

up my confidence. I thank once again all the staff members of Swaraj Division with
the active support of whom I was able to complete my project report successfully.

(JIMMY SARAF)

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 EXECUTIVE SUMMARY
Study Topic:
Financial statement analysis of M &M Ltd - Swaraj Division

Objectives: -

1) To evaluate the financial performance of SWARAJ DIVISION, a private sector

undertaking.
2) To find out the shortcomings because of which Swaraj Division could not become
the market leader.
3) To suggest remedial measures.

Time Span:
A period of five year i.e. 2004-2008 has been taken.

Study instrument:
Annual Reports and other official documents of the unit.

Methodology:
To achieve the objectives the technique of ratio analysis is adopted.
Liquidity ratios used to analyzed the short term financial performance. For
financial performance in the long run profitability and solvency ratios are used.
To calculate various ratios, the annual reports of the selected units are
extensively studied. In addition to this, interviews with the financial manager are
made to have information on various aspects of the project.

6
Scheme of Presentation:
First of all I give the overview of Indian Tractors industry. Then the report
presents a general profile of M&M LTD -Swaraj Division where the summer training
has been undertaken.

Financial performance of SWARAJ DIVISION is covered in the third part in which

covers profitability analysis, working capital management, market performance,
capital structure analysis and investment pattern of SWARAJ DIVISION.

Chapter-I
INDIAN TRACTOR INDUSTRY
AN OVERVIEW

7
 BACKGROUND

Earlier in 1950’s, the India people was engaged in agriculture and for
irrigation mainly depend upon rains except a few isolated pockets being irrigated
through canals and tube wells. Very few people used chemicals and pesticides and
even the major agricultural operations life ploughing, planking, etc. were carried
down by bullocks. As a result, India could not produce enough to feed its people so
heavy expenditure was incurred on import of food grains. It results in scarce foreign
exchange reserves of our country. All this initiated Indian government to give highest
priority to development of agriculture in its five year plan programmed.

Irrigation, being the key operation in agriculture. A stress was laid on the
improvement in agricultural output through use of advanced technology. Extensive
use of effective and improved equipments was made by importing tractors. Our
Government encouraged manufacturing of tractors in India to save its foreign
currency reserves. As a result, a few plants were set up but Indian technology at that
time was not in a position to design and manufacture indigenous tractors. So the
plants were mainly set up for manufacturing tractors with the help of some foreign
collaboration.

8
HISTORY: INDIAN TRACTOR INDUSTRY

THE BEGINNING: Indian Tractor Industry took birth in 1959-60 when the first
tractor manufacturing unit was established. However, this industry found a firm
footing only after the turbulent period of 1968-74, during which the acceleration
which should have emerged from the upsurge in demand generated by the Green
Revolution was navigated by large-scale imports of fully built tractors. By 1973-74
when imports were banned, 22 manufacturers remained. It is in an environment of
intense competition between 22 manufacturers that our tractor industry has grown
during the last 30 years. During this period, it has become not only a major segment
of our engineering industry but with a population of 1, 30,000 tractors in 1990, our
country became the second largest tractor producer in the world.

The development of tractors industry from the very beginning i.e. 1959-60 Till
date can be divided into the following four phases:-

1. First phase of development (1959-68)

In late sixties demand for tractors
was low. After 1967, demand of tractors started multiplying at an annual rate of
nearly 50% because government policies in respect of the development of tractor
industry to promote mechanization of agriculture encouraging local manufacturer of
tractors along with the import of tractors from Eastern Europe. At the same time,

9
government protected the interests of the farmers by making tractors available to
them at reasonable prices. Tractors manufacturing units came up in this decade:
Escher Tractors Ltd. (1959)
Tractors and Farm Equipment Ltd. (1963)
Tractors and Builders Ltd. (1964)
International Tractors Ltd. (1965)

2. Second phase of development:

The government’s decision to freely invite
new entrepreneurs to tractor manufacture in 1968 backed by Green Revolution, led to
the establishment of six more units in this industry. They were:
Escorts Tractors Ltd. (1971)
Hindustan Machine Tools Ltd. (1971)
Kirloskar Tractors Ltd. (1974)
Punjab Tractors Ltd. (1974)
Pittie tractors Ltd. (1974)
Harsha Tractors. Ltd. (1975)
The combined output of 11 units has risen to 32,000 by
1975. Government de-licensed the tractor industry in 1968 and then banned import of
fully built tractors in 1974. There was expansion in rural branches of banks and rural
lending increased. The pace of irrigation facilities also increased and government
extended full support to old and new manufacturers to speedily establish them.

3. Third phase of development:

Banning of imports and increased competition
due to increase in number of tractor manufacturers led to the growth in local
production. The boom in the tractor industry in the late seventies led to the setting up
of two more units for the manufacture of tractors. These were:
Auto Tractors Ltd. (a U.P. Government enterprise) (1981)
Partap Steel Rolling Mills Ltd. (Tractor Division) (1983)

10
The tractor industry saw a rapid growth of 6% from 1982-87.

4. Fourth Phase of development:

After 1987 the tractor industry further picked up
Government gave priority to agriculture and exempt the excise duty on tractors below
1800cc in 1986 and repayment period was increased from 7 to 9 years. After this,
average growth of 15% was experienced for 1988-92 which was due to green
revolution. After six years (1987-92) of rapid growth, demand for tractors showed a
decline of 4% in 1992-93 and 3.8% in 1994-95. Sales dropped from 1.51 lacs in
1991-92 to 1.38 lacs in 1993-94. The decline was due to the following factors:-
Land development bank, an important source of finance, collapsed.
Depression in market due to credit squeeze.
Decrease in production of cash crops.
Political uncertainty.
But after that tractor industry again started growing and tractor sales went to
1.64 lacs in 1995 and further in 1996-97.

THE PRESENT
Sales peaked to 2.73 lacs in 1999-2000. In the year 2000-01 and
2001-02 the sales decline to 2.53 and 2.18 lacs because of fall in the rural income
virtually all over country and due to rising competition. It reached 1.69 lacs in 2002-
03. The industry saw an upward trend volume touching 3.51 lacs in 2006-07 and to
3.46 lacs in 2007-08. During the current FY 2007-08, around 3, 02,000 tractors were
sold in India and 44,000 tractors were exported.
The industry has now discovered channel-exports to ensure that the sales of tractors
do not drop. In fact, exports have now become a thrust area.
Five major manufacturers are in the race for tractor market today, account for 78% of
the total market share. They are offering products of different HP’s. They include
below 20HP, 21-30HP, and 41-50HP and above.

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CRITICAL PARAMENTERS FOR GROWTH OF
TRACTOR INDUSTRY

* AGRICULTURE INDUSTRY
Nearly 90-95% tractors are purchased with the help of bank credit. It plays an
important role in determining the demand for tractors.

* PRICING OF TRACTORS.
The financial inability of the Indian farmers makes the pricing a critical parameter.
Companies that managed to keep their costs low are the ones that managed to survive
during the reversionary period.

* MONSOONS AND CROP PRICES.

The farmers have to pay 15% of the total price of the tractor, in cash, at the
booking stage; consequently, if the farmer is faced with bad monsoons and low crop
prices, he will not be able to make the initial down payments.

* GOVERNMET POLICIES
To enable a farmer to purchase a tractor against these odds, the government
introduced subsidies in this sector. In the budget of 2004 all the tractors were
exempted from excise duty.

* IMPORTS
The industry reduce its dependence on imports, they have indigenized their
inputs, which were earlier imported and priority is given to Research and

12
Development. All tractor manufacturing units, except the Swaraj Division, were
initially set up with foreign collaboration, tractor industry has been on its own for the
last decade.

* WIDENING RANGE FOR CUSTOMER CHOICE

Competition in tractor industry led to increase in the variety of models for
farmers to choose from. Industry today offers more than 43 models, and special
variants to suit regional needs and special usage are often available in many models.

TRACTOR MARKET – A CYCLICAL

TREND

Table below provides the industry picture for 2007-08, geographically & segment

wise:

GEOGRAPHICALLY

Territory %age of Domestic Sales

North (Punjab, Haryana & Uttar Pradesh) 29%

Central (Madhya Pradesh & Rajasthan) 18%

East (Bihar, West Bengal, Orissa & Assam) 9%

West (Gujarat & Maharashtra) 18%

South (Andhra Pradesh, Tamil Nadu, Karnataka & Kerala) 26%

SEGMENTWISE
HP Range %age of Domestic Sales
Up to 30 HP 18%

31 - 40 HP 37%

Above 40 HP 45%

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 Chapter –II
MAHINDRA & MAHINDRA -SWARAJ
(A COMPANY PROFILE)

14
 PRICE QUALITY

MOTTO OF
M&M
SWARAJ
DIVISION

SERVICE

PROMOTION OF SWARAJ
M&M LTD -Swaraj Division (SWARAJ DIVISION)
was joint sector company of the Punjab Government, which went into commercial
promotion in the early seventies. It is promoted by Punjab State Industrial
Development Corporation (PSIDC) in 1974 which was set up by Punjab Government
for setting up new projects.
In 1965 when the entire industrial growth of India relied
upon foreign technology and know-how for setting up industrial ventures in India, the
Central Mechanical Engineering Research Institute (CMERI, Durgapur), a national
Laboratory of the Government of India, took the bold step of taking up the design and
development of totally Indian know how for 26.5 H.P. agricultural tractors.

15
 In August 2008, the PUNJAB
TRACTORS LIMITED was taken by MAHINDRA & MAHINDRA LIMITED &
PTL becomes Pvt. Limited Company. So PTL is now a part of M & M Group

PUNJAB TRACTORS LTD -SWARAJ IS NOW

M&M LTD - SWARAJ DIVISION.
Punjab Tractors Ltd. to merge with Mahindra & Mahindra
Ltd., PTL’s Swaraj brand will continue to exist

The Board of Directors of M&M and PTL today unanimously approved a scheme of
amalgamation of Punjab Tractors Limited (PTL), an M&M subsidiary, with Mahindra
& Mahindra Ltd. M&M Ltd. along with its subsidiary Mahindra Holdings and
Finance Ltd. agreed to acquire the stake from Actis Group. Mahindra owns a majority
stake in Punjab Tractors Limited and had earlier acquired 63.33% stake in PTL in
July 2007. MHFL, a wholly owned subsidiary of M&M, currently holds 1.31% of
PTL, and is also in the process of being merged into M&M.

Under this amalgamation scheme, pursuant to provisions of Sections 391 to 394 and
other relevant provisions of the Companies Act, 1956, PTL will be merged into
M&M and all its assets and liabilities will be transferred to M&M at book values.
The appointed date under this scheme is 1st August 2008. Upon the scheme becoming
effective, M&M will transfer all the equity shares held by it in PTL to a Trust, of
which M&M is the beneficiary. M&M will issue its shares to PTL shareholders as on
record date, based on the swap ratio determined by independent valuers.

Anand Mahindra, Vice-Chairman and Managing Director, Mahindra Group, said,

‘PTL is a strategic fit for M&M and its amalgamation with M&M will significantly
add to shareholder value. Bringing these two businesses under a single entity will also
result in a common management focus, help achieve greater integration benefits and
reduce overall administrative costs.’

However, M&M has said that PTL’s Swaraj brand will continue to exist even after
the company's merger with automotive major Mahindra & Mahindra. ‘Swaraj brand
of Punjab Tractors will continue to exist after the amalgamation of PTL with

16
Mahindra & Mahindra as this brand is an important asset to us and we will like it to
further excel,’ said Anjani Kumar Choudhari, President - Farm Equipment Division,
M&M.
An independent valuation exercise has been conducted jointly by Ernst & Young and
N. M. Raiji & Company. Based on this exercise, the share exchange ratio for the
amalgamation has been arrived at. Equity shares of M&M will be issued to the
shareholders of PTL in the ratio of one equity share of Rupees 10 each of M&M for
every three equity shares of Rupees 10 each held in PTL.
The Scheme as approved by the Board is subject to such consents and approvals, as
may be required including that of the shareholders and the High Courts of Bombay
and Punjab & Haryana.

LOCATION

The plant of M&M LTD -Swaraj Division is located in Mohali Focal Point Estate
near Chandigarh on Chandigarh-Ludhiana Highway (Phase IV, Sahibzada Ajit Singh
Nagar, Mohali (Punjab) on a campus of 17 hectares. The land was allotted by Punjab
Govt. in the developing Mohali to make it a progressive Industrial Centre. The
location of plant is very suitable because it is quite near to the capital of Punjab. This
fact has been advantageous to the company in its initial stage of growth. However the
inadequacy of railway facilities is a serious drawback to the location of the plant.

QUICK FACTS

17
Year of
1970
Establishment
Business Group Swaraj Enterprise
Listings & its NSE: PUNJABTRAC; BSE: 500344;
codes Reuters: PTRA.BO
Registered Office Phase IV, Industrial Area
+ Works S.A.S. Nagar (Mohali), Punjab
Corporate Office S.C.O. 204-205, Sector 34-A
Chandigarh. 160022
Tel.: +(91)-(172)-2647700 to 10
Fax: +(91)-(172)-2615111
Website www.swarajenterprise.com

EMERGING MARKETS

Swaraj Domestic territorial market share for 2007-

08 dealer networks at the year – end emerges as:
DOMESTIC TERRITORIAL MARKET SHARE AND DEALER
NETWORK (YEAREND)

Territory Swaraj No. of Dealers

Market as on 31-03-
Share 08
North (Punjab, Haryana & Uttar Pradesh) 10.1% 203

Central (Madhya Pradesh & Rajasthan) 4.9% 114

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East (Bihar, West Bengal, Orissa & Assam) 8.3% 68

West (Gujarat & Maharashtra)

11.7% 88
South (Andhra Pradesh, Tamil Nadu, Karnataka &
Kerala) 9.3% 93
Total 9.1% 566

SEGMENTWISE
HP Range No. of %age of Swaraj Share
Models Swaraj Sales in Segment
Up to 30 HP 5 17% 9%

31 - 40 HP 1 50% 12%

Above 40 HP 3 33% 7%

“CORE BELIEFS”
1. WE HAVE A LONG – STANDING RELATIONSHIP WITH THE FARM &
FARMING COMMUNITY THE NATIONAL HERTAGE AS WELL AS THE
NATIONAL AGENDA, WHICH PROVIDES US WITH IMMENSE GROWTH
OPPORTUNITES.

2. OUR STRENGTH IS THE INVOLVEMENT OF OUR PEOPLE, TEAM

SPIRIT, AND THEIR INTEGRITY ABIDING LOYALITY & LIFE TIME
COMMITMENT TO THE SWARAJ ENTERPRISE.

3. WE SEEK COPRPORATE EXCELLENCE AND PROFITS THROUGH

ETHICS PASSION AND PERSERVERANCE.

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4. WE CONSIDER OUTSELVES CUSTODIANS AND TRUSTERS OF ALL
OUR CONSTITUENCIES – OUR CUSTOMERS, EMPLOYEES, BUSINESS
ASSOCIATES, SHAREHOLERDRS AND SOCITY AND PURSUE THE
RESPONSIBILITY ROR CREATION OF WEALTH FOR THEM WITH
MISSIONARY ZEAL.

MAHINDRA &MAHINDRA LIMITED

SWARAJ DIVISION

BOARD OF DIRECTORS

 P.D. NARANG (Chairman)

 S.K. TUTEJA
 DONALD PECK
 STEVEN ENDERBY
 N. MOHANRAJ
 M. RAGHAVENDRA
 HARDEEP SINGH
 DALJIT MIRCHANDANI

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  P. SIVARAM (Chief Operating Officer)
 A.M. SAWHNEY (Director – Marketing)

MEMBERS OF THE EXECUTIVE BOARD

 P.L. SHARMA
 R.K. MANRAO
 P.K. NANDA

VICE PRESIDENT –

FINANCE & COMPANY SECRETARY

 M.N.KAUSHAL.

AUDITORS

M/S. S. TANDON & ASSOCIATES,

(CHARTERED ACCOUNTANT)

BANKERS
 INDIAN OVERSEAS BANK
 CANARA BANK

 STATE BANK OF INDIA

BACKGROUND

M&M LTD -Swaraj Division plant is situated at S.A.S. Nagar (Mohali) where
production commenced in the year 1974. Initially, PSIDC contributed 42% equity
capital against the total paid up capital of Rs.140.00 lacs. The facility was initially
created to manufacture 5000 nos., tractors and the capital cost at that time was Rs.321
lacs.

21
The production capacity of tractors has increased to 60000 nos., from the level of
5000 nos. The company, over the years, has also promoted two companies, namely,
Swaraj Mazda Limited (manufacture of Light Commercial Vehicles) & Swaraj
Engines Ltd. (manufacture of Diesel Engines in collaboration with Kirloskar Ltd and
it has also promoted Swaraj Automotives. The present stake of SWARAJ DIVISION
in these is 14% in Swaraj Mazda, 33% in Swaraj Engines and 24% in Swaraj
Automotives.

MISSION, VISION & OBJECTIVES

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OBJECTIVES OF SWARAJ

1) QUALITY
a. Continually improves satisfaction level of our
customers.

b. Continually improve performance & reliability of

our products & services

c.Provide to you delivery of products & services to meet

customers requirements.

d. To reduce the break down of equipment.

2) ENVIRONMENT, HEALTH AND SAFETY.

a. Control and reduce emission & discharge in the
company

b. Optimum Utilization of natural resources

c.Control & Reduce accidents and provide Safety to the

employees working in the organization.

3) PEOPLE’S EXCELLENCE.

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 a. Continually improve Education and Training to
employees and their overall development.

SWARAJ DIVISION: BRAND NAME ‘SWARAJ’

The word SWARAJ in Indian language means ‘freedom from bondage’. Since
SWARAJ DIVISION was the first large scale project in India based totally on Indian
know how and technology, Swaraj was appropriately chosen as its brand name. With
more than 5 Lac tractors and harvest combines operating in Indian farms, now Swaraj
is also an internationally recognized name in the developing world Viz. East Africa,
West Africa, Middle East and South East Asia, etc.

SWARAJ - STAGES OF GROWTH

PERIOD (1970-74)
This project for manufacture of 5000 tractors per year was set up at an outlay
of Rs. 3.70 crores during November 1972- March 1974. The engineers for Swaraj
tractors were procured from M/s Kirloskar Oil Engines Ltd., a pioneer in Indian
Engineering Industry. SWARAJ DIVISION went into commercial production with
the introduction of its first Model Swaraj 724 in April 1974.

PERIOD (1974-78)
In 1974 competitive market conditions prevailing where well known
international brands such as Ford, Massey, Ferguson, etc were available, it was
difficult to establish a new tractor. Thus to establish Swaraj against this severe
competition, the following strategy was adopted.
Intensive and close marketing.
District - wise distribution.
Limited introduction and slow extension of distribution network.
SWARAJ DIVISION’s own serving group.
Strict uniformity of product performance and quality.

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SWARAJ DIVISION’s first launch SWARAJ 724 received quite favorable response
and encouraged by this response and also by taking into account the preference of
large segments of farmers for higher HP tractor, development work on a 35 HP
tractor was started in January 1975. SWARAJ DIVISION introduced its second
model SWARAJ 735 in November 1975 which is now the most popular tractor. Then
a low cost tractor SWARAJ 720 was introduced in 1978 for small farmers.

THE EXPANSIONS (1978-82)

SWARAJ DIVISION started growing and increased its production capacity to 12,000
tractors at a capital outlay of Rs. 9.2 crores. During this time SWARAJ DIVISION
became multi-divisional by installing Swaraj Foundry Division for manufacturing
castings. This division started supplying casting to SWARAJ DIVISION in 1980. In
1983, SWARAJ DIVISION introduced SWARAJ 855 and became the first
manufacturing organization to have the widest product range.

2. BREAK PERIOD (1982-86)

With encouraging past records PTL decided to increase its production to 24000 per
annum. But the RBI’s credit squeeze policy affected the tractor industry, as more than
95% of the tractor sales are through banks. SWARAJ DIVISION’s sale dipped from
10000 tractors to around 5500 tractors in 1982-83. During 1982-86, SWARAJ
DIVISION’s efforts were directed towards training its work force, reducing wastage,
cutting down scrap, inventory control, up gradation of quality, expanding dealer
network in new areas and widening product variants. Thus SWARAJ DIVISION
worked on ‘man’ rather than ‘machines’

STAGE OF GROWTH SINCE 1987.

There is goodwill create in the mind of the people regarding brand SWARAJ, market
since 1987 has been showing growth trend. The demand for Swaraj has increased
tremendously. Now consumers are ready to wait and pay the entire amount in

25
advance to buy a Swaraj tractor rather than buying any other tractor. Production
capacity had increased presently to 33000 tractors per year and will further increase
to 36000 tractors per year by 2000.

THE DECADE OF NINETIES

The decade of 90’s has been a rewarding one for all the constituents of Swaraj
enterprise - through generation of wealth for its customers, its business associates, its
employees, its shareholders and the society.

 Nomination by the Economic Times - ‘best company of the year

1998’.

 Listed by FII in ‘the jewels of Asia’ category 1999.

 Nomination of UTI institute of Capital Markets for excellence in
corporate governance.
 Listed by Hong Kong based ‘Asia Money’ among top 5 best
managed companies in India 1999.
 Listed by “Business Today’ among top 3 Economics value
generators in India.

26
Evolving Journey of SWARAJ DIVISION

Govt. of India's research institute (CMERI) at Durgapur initiates design and

1965
development of SWARAJ tractor based on indigenous know-how.
1970 Punjab Govt. through PSIDC acquires SWARAJ tractor's design from CMERI
and establishes Punjab Tractors Ltd. (SWARAJ DIVISION) for its
commercialization.
1971- SWARAJ DIVISION sets up SWARAJ Project for 5,000 tractors per annum
73 at a capital outlay of Rs. 37.0 million with an equity base of Rs 11.0 million.
1974 Swaraj 724 (26.5 HP) tractor commercially introduced.
1975 2nd tractor model SWARAJ 735(39 HP) developed by own R&D,
commercially introduced.
1978 3rd Tractor model SWARAJ 720 (19.5 HP) developed by own R&D,
commercially introduced.

Maiden equity divided declared.

1980 Guided by social concerns and responsibility, SWARAJ DIVISION takes
over PSIDC's sick scooters unit - Punjab Scooters Ltd. (subsequently
renamed as SWARAJ Automotives Ltd.)

India's first Self propelled Harvester Combine - SWARAJ 8100 developed

by own R&D, commercially introduced.

SWARAJ Foundry Division set up in Backward area.

1981 Issue of maiden Bonus Shares (2:5), paid-up equity moves to Rs 15.4 million.
1983 4th Tractor Model - SWARAJ 855 (55 HP) developed by own R&D,
commercially introduced.

Expansion of annual capacity to 12,000 tractors per annum at Plant 1.

1984 SWARAJ MAZDA Ltd. promoted in technical and financial collaboration
with Mazda Motor Corpn. & Sumitomo Corpn. Japan for manufacture of
Light Commercial Vehicles. SWARAJ DIVISION's equity participation is Rs.
30.4 million (29%) and that of Mazda and Sumitomo's Rs. 27.0 million (26%).
1985 SWARAJ Industrial Forklift Trucks developed by own R&D, commercially
introduced.
1986 SWARAJ ENGINES Ltd. promoted in technical and financial collaboration
with Kirloskar Oil Engines Ltd.(KOEL) for manufacture of diesel engines.
SWARAJ DIVISION's equity participation is Rs. 6.9 million (33%) and that
of KOEL's Rs 3.6 million (17%).
1989 1st Right Issue (1:1) at a premium of Rs 50/- per share (plus reservation of 200
Shares per employee) paid up equity moves to Rs 31.6 million.
1990 2nd Right Issues (1:2) at a premium of Rs 60/- per share (plus reservation of
200 Shares per employee) paid-up equity moves to Rs 50.6 million.
1992 2nd issue of Bonus Shares (1:1) paid up capital moves to Rs. 101.2 million.
1993 Annual tractor capacity expanded to 24,000 per annum at Plant 1.
1995 Setup of tractor Plant II at Village Chappercheri with annual capacity of
12,000 per annum.
1996 3rd issue of Bonus Shares (1:1), paid up equity moves to Rs. 202.5 million.

27
1998 Commencement of expansion to 60,000 tractors (30,000 at each plant). Capital
outlay of Rs 1000 million, funded mainly through internal accruals.
1999 5th and 6th tractor models - SWARAJ 733 (34 HP) & SWARAJ 744 (48
HP) developed by own R&D, commercially introduced.

FY 1999's divided @ 250% was corporate India's highest.

2000 Expansion of annual tractor capacity to 60,000 completed.

4th issue of Bonus Shares (2:1) paid up equity moves to Rs 607.6 million.
2001 SWARAJ DIVISION won National Championship trophy in competition
organized by All India Management Association (AIMA) for young
managers.

Economic times and Boston Consulting Group selects SWARAJ DIVISION

as one of the India's finest 10 companies out of Economic times top 500
Companies.
2002 Cumulative tractor sales crosses 5, 00,000.
2003 PSIDC's disinvestment of its entire Equity holding (23.49%) in SWARAJ
DIVISION in favor of CDC Financial Services (Mauritius) Ltd. With this,
total holding of CDC & its associates in SWARAJ DIVISION stands at
28.48%.
2004 7th & 8th tractor models - Swaraj 939 (41 HP) & Swarj 834 (34 HP)
developed by own R&D, commercially introduced.
2005 SWARAJ DIVISION disinvested 15,73,000 equity shares of Rs. 10/- each of
Swaraj Mazda Ltd. (constituting approx. 15% of SML's paid up capital) in
favor of Sumitomo Corporation, Japan, a joint venture partner in Swaraj
Mazda Ltd. at a total consideration of Rs. 629.2 million
2007 CDC/Actis Group and Burman Family's disinvestment of their Equity holding
in SWARAJ DIVISION (43.3%) in favor of Mahindra Group (M&M).
M&M made open offer to shareholders for another 20% equity of the
Company.
Mahindra Group's equity holding in the Company stands at 64.6%
Cumulative Tractor Sales cross 600,000.
Swaraj Track Type Combine designed and developed by in-house R&D,
commercially launched

28
ASSOCIATE UNITS OF SWARAJ DIVISION

1. SWARAJ FOUNDARY DIVISION:

It was established in 1980 at a capital outlay of Rs. 1.80 crores to provide grey iron
castings to SWARAJ DIVISION. Initial production was 5000 MT/year. It is situated
in village Majari in Ropar district. In FY 2007-08, production of castings was 9,600
Metric Tonnes, representing a value of nearly Rs. 50.5 crores.

SWARAJ COMBINE DIVISION:

Punjab government requested SWARAJ DIVISION for the development and
manufacture of self propelled Harvester combines to curtail the harvesting season and
save the crops from natural calamities. As a result Swaraj Combine Division was set
up in 1980 at Chappercheri to produce 250 combines per annum at an initial
investment of Rs. 2.65 crores. In 1981, first SWARAJ 8100 rolled out. In 1985,
production of diesel fork lift also started in collaboration with KOMATSU Fork- Lift
Company of Japan. Over last 28 years, the company has sold nearly 3,150 combines
including 65 in 2007-08.

SWARAJ
DIVISION
PLANT –
PLANT- PLANT
2
1 -3

29
 EQUITY SHAREHOLDING PATTERN
AS ON 31st March, 2008

Share holding Pattern as on 31st March, 2008. SWARAJ

Mahindra group 64.64%

Financial institutions 0.09%

Mutual funds 2.37%

F.I.I 0.44%

Insurance Companies 22.65%

Public & others 9.81%

30
Investment Pattern (Utilization of Idle Funds)
Generally idle cash is invested in the shares and the debentures of subsidiaries
to achieve twin objective of profit & control. By investing money in the shares of
their subsidiary companies, manufacturers become able to exercise control on these
units. These investments are held for a period of time greater than one year and are
shown in the balance sheet at their original costs. Various investments made by
SWARAJ DIVISION are produced in the following lines

5 Yearly Investment Pattern of SWARAJ DIVISION. (Rs. In Lacs)

Year Investment in Group Outside Investment

Companies (IDBI + Mutual Funds)

2004 378.98 228.44 + 477.50

2005 378.98 228.44 + 477.50
2006 221.68 228.44 + 477.50

2007 221.68 221.36 + 0

2008 221.68 228.44 + 14998.21

31
 KEY PERFORMANCE INDICATORS
FOR LAST EIGTH YEARS
(Rs. Crores)
2000-
2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08
01
Market Share 18.1% 18.4% 14.1% 13.5% 12.3% 10.8% 8.6% 8.1%
Rank 2 2 3 2 4 4 5 5
Net Product Revenue 964.5 888.2 546.8 597.3 855.1 959.5 958.9 969.6
Operating Profit 186.0 169.4 89.3 75.6 113.9 126.1 110.6 97.0
Margin 19.3% 19.1% 16.3% 12.7% 13.3% 13.1% 11.5% 10.0%
Net Interest (0.1) 11.9 14.3 9.8 5.8 6.4 0.9 (14.6)
Cash Profit 186.1 157.5 75.0 65.8 108.1 119.7 109.7 111.6
Margin 19.3% 17.7% 13.7% 11.0% 12.6% 12.5% 11.4% 11.5%
Depreciation
– Fixed Assets 17.0 17.7 17.1 16.4 15.9 15.2 15.5 16.9
– Trade Invest 3.1 0.2 — — — —
PBT – Mainline 166.0 139.6 57.9 49.4 92.2 104.5 94.2 94.7
Margin 17.2 15.7% 10.6% 8.3% 10.8% 10.9% 9.8% 9.8%
Other Income 2.0 3.9 4.3 6.0 5.0 4.6 4.3 2.4
PBT – Corporate 168.0 143.5 62.2 55.4 97.2 109.1 98.5 97.1
Margin 17.4 16.1% 11.3% 9.2% 11.3% 11.3% 10.2% 10.0%
PBT – Total 168.0 143.5 62.2 55.4 97.2 170.4 109.5 97.1
PAT 112.5 100.0 43.1 42.0 62.9 129.3 78.0 65.2
Dividend
– Rate 75%* 70% 30% 45% 55% 105%# Nil 50%
–Outflow 45.6 42.5 18.2 27.3 33.4 63.8 Nil 30.4
– Payout Ratio 40.5% 42.5% 42.3% 65.0% 53.1% 49.3% Nil 46.6%
Retained Earnings 62.3 57.5 22.6 11.2 24.7 56.6 78.0 29.6
EPS (Rs.) 18.52* 16.46 7.10 6.92 10.35 21.29 12.84 10.73
Book Value (Rs.) 71.49* 74.72 78.43 80.27 84.34 93.66 106.49 109.43
Return on Avg Net
27.9% 22.5% 9.3% 8.7% 12.6% 23.9% 12.8% 9.9%
worth (ROANW)

UNAUDITED FINANCIAL RESULTS (PROVISIONAL)

32
FOR THE FIRST QUARTERENDED 30TH JUNE, 2008

In Crores
Un-audited Audited
Quarter Ended Year Ended
30.06.2008 30.06.2007 31.03.2008

Net Sales / Income form

Operations 314.10 173.90 969.59
Other Income 2.60 - 2.39
Total Income 316.70 173.90 971.98

Expenditure
a) (Increase) / Decrease in
Stock in Trade and W.I.P. (2.20) 9.40 (2.82)
b) Consumption of Raw
Materials 228.20 111.90 675.64
c) Purchase of Traded Goods 1.40 2.10 7.82
d) Employees Cost 33.20 25.10 107.99
e) Depreciation 4.40 4.10 16.92
f) Other Expenditure 25.00 18.90 83.90
Total Expenditure 290.00 171.50 889.45

Profit Before Interest & Tax 26.70 2.40 82.53

Net Interest (5.30) (2.00) (14.58)

Profit Before Tax 32.00 4.40 97.11

Tax Expenses - Current 10.50 1.60 36.03

- Fringe Benefit 0.26 0.23 1.18
- Deferred (1.20) (0.73) (5.27)
- Total 9.56 1.10 31.94

Profit After Tax 22.44 3.30 65.17

Paid-up Equity Share Capital

(Face Value Rs.10/-) 60.76 60.76 60.76
Reserves (excluding
Revaluation Reserves) -- -- 604.08

Basic / Diluted Earning Per Rs. 3.69 Rs. 0.54 Rs. 10.73

33
Share (not annualized)

Public Shareholding
- Number of Shares 2,14,85,535 6,07,55,700 2,14,85,535
- Percentage of Shareholding 35.4% 100.0% 35.4%

Key Financials of SWARAJ DIVISION

(Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008

Share 60 60 6 6 6076
capital 76 76 076 076
Reserve &
Surplus 42695 45167 50827 58624 60408
Sales 59735 85510 95855 95885 96959

Net Profit 4202 6290 12935 7798 6517

EPS 6.92 10.35 21.29 12.84 10.73

Dividend 45% 55% 105% Nil 50%

R & D
expenditure 1.46 0.73 0.79 0.89 0.96
(%) of sales

34
 SWOT ANALYSIS
STRENGTHS:
The company has an excellent distribution network.

Due to strong consumer preference and the potential for expansion, the industry in
bound to record growth.
The company mainly has medium horse power tractor in its product portfolio, which
holds a good growth potential thereby leading to an increase in the market share.
Strong Research and development set up.
Being a cash rich company, SWARAJ DIVISION should have no obstacle for further
expansions.
WEAKNESSES:
Being agro-based product, company’s fortune depends on the
vagaries of the monsoon.
The company is addressing this problem by going in for capacity expansion and
increasing dealer network.
The company has not leveraged its brand and product varies in the exports market.
Major market share in Punjab & Haryana could stagnate as the market mature.
OPPORTUNITIES:
The Company will have the advantage to synergize with M &
M, Farm Equipment Sector in the areas of sourcing, manufacturing, product
development and distribution.
Increased agri-focus of the Indian Government.
Good brand name, product quality and cost advantage to increase exports in low
value markets of Sri Lanka, Bangladesh and African countries.
THREATS:
The entry of international and new domestic players would intensify
competition significantly. This could put pressure on the sale growth and the merging
of the company.
Number of technically superior new models likely to be launched in the market in the
next two years.
The evitable increase in petroleum prices including diesel & other inputs, will
naturally bring down the spirit of a prospective tractor purchasers.

35
 Chapter-III

OBJECTIVES OF THE STUDY

1) To study the various components of financial statements of SWARAJ

DIVISION for 5 years and analyze them to identify the financial strength of
the company.
2) To analyze the effect of current assets on the company’s return.
3) To study the effect of current assets and current liabilities on the profitability
position of the company.
4) To analyze the working capital position of the company in previous 4 years.
5) To analyze the market performance of the SWARAJ DIVISION.
6) To help the management in financial planning of the organization.
7) To suggest remedial measures for the improvement of the company’s
performance

RESEARCH METHODOLOGY
The basic task of research is to generate accurate information for use in decision
making. Research can be defined as the systematic and objective process of gathering,
recording and analyzing data for aid in making business decisions.
As the project involves analyzing of financial structure, the research is exploratory in
nature, covering financial parameters and come of the important ratios to carry out
research.
There are basically two techniques adopted for obtaining information:
Primary Data.
Secondary Data.
Primary Data is gathered specifically for the project at hand through personal
interviews with the accounts officers.

36
 Secondary data is previously collected and assembled for some project other
than the one at hand. It is gathered and recorded by someone else prior to current
needs of the researcher. It is less expensive than the primary date.
Secondary data can be obtained from both external and internal sources.
External data may be collected from books and periodicals, government sources,
media and other commercial sources.
Internal data is that secondary data, which is created, recorded or generated by the
organization.
Secondary data is collected from the reports of the company, books, journals and
internet. Secondary data is gathered from annual reports, official records and standing
orders of the units.

RESEARCH PROCES
Step1:
Program
Planning

Step 6: Step 2:
Consultation & Start
review Survey

Research
Methodology
Step 3:
Step 5:
Survey
Development
Reporting

Step 4:

Data Analysis

37
WORKING OF SWARAJ DIVISION
(FINANCE PROCESS)

Store requirements-
receipt of MRS – Material
requisition slip
Procurement of raw
material
MRR- Material

Production Process
Raw FINISHED
Material W In P GOODS

BOM- Bill Of Material is

made by finance
department
Total Consumption of
R.M = BOM X No. of
Tractors

INSPECTION OF GOODS &

FIXATION OF PRICES

Total sale = Number of

units sold x MRP value

PAYMENTS FROM PARTIES in

Definite Period

38
 Chapter –IV
RESEARCH TOPIC - FINANCIAL STATEMENT
ANALYSIS OF SWARAJ

FINANCIAL STATEMENTS ANALYSIS

A financial statement is a systematic collection of data according to some logical and
consistent accounting procedures. Its purpose is to convey an idea about some
important financial aspects of a business firm. It may show a position at a moment of
time as in the case of the balance sheet, or may reveal a series of activities over a
given period of time as in the case of income statement.
The information contained in these financial statements is used by various interested
parties like management, creditors, investors, government and others to form
judgment about the operative performance and financial position of the firm. The
users of financial statements can get better insight about financial strengths and
weaknesses of the firm if they properly analyze the information given in these
statements.
The process of identifying the financial strengths and weaknesses of the firm by
properly establishing relationship between the items of balance sheet and profit and
loss account is called financial analysis. Such analysis is the starting point for making
effective plans. Forecasting, which is an important pre-requisite of effective planning,
requires understanding of the past to anticipate the future. Financial data can be used
to analyze a firm’s past performance and assess its present financial strength. The
nature of analysis will differ depending upon the purpose of the analyst. The present
analysis is undertaken to evaluate performance of SWARAJ.
We need some tools to evaluate or analysis the financial statements of the SWARAJ
Tools of Financial Statement Analysis
Following are the major tools which can be used to analyze a firm’s financial
position.
Financial statements.

39
Trend Analysis.
Funds and cash flow analysis.
Ratio analysis.
In the present study a combination of these tools has been used.

Types of Financial Analysis

There are some of the methods which can be adopted by an analyst to comment upon
the performance of a particular unit in comparison with its competitors or over a
given period of time. These are:

Time Series Analysis

The most common way to evaluate the performance of a firm is to compare its current
position with its past position. When financial position over a period of time is
compared, it is known as the tike series (or trend) analysis. It gives an indication of
the direction of the change and reflects whether the firm’s financial performance has
improved, deteriorated or remained constant over a period of time. The analyst should
first determine the change, and then he should try to find out the reasons for the
change. The change, for example, may be affected by mere changes in the accounting
policies, without a material change in the firm’s performance.
Profitability analysis.

Working capital management.

Capital structure analysis.

Market performance.

Investment pattern.

40
 PROFITABILITY ANALYSIS

Profit is the ultimate output of a company and the company will have no
future if it fails to make adequate profits. P.F. Ducker has rightly commented on
importance of profitability of a concern for its survival when he writes,” profits is a
condition of survival. It is the cost of future. It is the cost of staying in the business.”
If an undertaking does not earn profit it cannot expand or diversify, it cannot pay
handsome rewards to various factors of production and it is doomed to fail at last. In
fact, profit is a yardstick by which efficiency of a business unit is measured. The
higher the profit, the more efficient is the business considered. Though changes in
total profits may indicate changes in efficiency, they will not indicate true state of
efficiency of a business or profitability unless profits are related with the size of
investment. Therefore overall efficiency of the business can be measured in terms of
profits related to investments made in the business. The profitability is also evaluated
in terms of return on capital contributed by creditors and owners because if the
company is unable to earn a satisfactory return on investment, its very survival is
threatened. To comment on the overall financial performance of SWARAJ
DIVISION, following two important profitability ratios are calculated.
Profits in relation to sales.
Profits in relation to investments.
Relevant financial information which has been used for conducting profitability
analysis is as follows:

Profitability in relation to sales

A company should be able to produce adequate profit on each rupee of its sales. If
sales do not generate sufficient profits, it would be very difficult for the firm to cover
operating expenses and interest charges. To measure the profitability in relation to
sales, following ratios are calculated.
• Gross Profit Ratio
• Operating Ratio

41
 • Operating profit Ratio
• Expenses Ratio
• Net Profit Ratio
• Cash Profit Ratio

Gross Profit Ratio:

This ratio measures the relationship of gross profit to
net sales. It reflects the efficiency with which a firm produces its products. So as
higher the gross profit ratio better the result.

Gross Profit ratio= Gross Profit * 100

Net Sales
In crores
Particular 2004 2005 2006 2007 2008
Gross Profit 81.6 118.9 130.7 114.9 99.4
Net Sales 597.35 855.10 958.55 958.85 969.59
G.P. Ratio 13.7% 13.9% 13.6% 11.9% 10.3%

G/P Ratio of the company is decreasing from 2004 to 2008 which is due to increasing

input costs. But it is quite good i.e. 10.3% with the increasing inflation.

1200
1000
800
G.P
600
Net Sales
400
200
0
2004 2005 2006 2007 2008

42
 16.0%
14.0%
12.0%
10.0%
8.0% G.P. Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008

Operating Ratio:
This ratio establishes the relationship between cost of goods sold and other operating

expenses on the one hand and sales on the other hand. In other words, it measures the

cost of operations per rupee of sales.

Operating Ratio= Operating cost * 100

Net Sales in crores

Particular 2004 2005 2006 2007 2008

Operating Cost 521.5 741.4 833 848.6 872.6
Net Sales 597.35 855.10 958.55 958.85 969.59
Operating Cost
Ratio 87.3% 86.7% 86.9% 88.5% 90.0%

1200
1000
800
Operating Cost
600
Net Sales
400
200
0
2004 2005 2006 2007 2008

43
 91
90
89
88 Opearing Cost ratio
87
86
85
2004 2005 2006 2007 2008

Operating ratio
Operating ratio: Operating ratio indicates the percentage of net sales that is
consumed by operating cost. Higher the operating ratio, the less favorable it is,
because, it would have a small margin to cover interest, income tax, dividend and
reserves. There is no rule of thumb for this ratio as it may differ from firm to firm
depending upon the nature of its business and its capital structure. However, 75 to 85
percent may be considered to be good ratio in case of manufacturing undertaking. So
from the analysis of operating ratio of the company SWARAJ DIVISION, in every
FY from 2004 to 2008 the operating ratio is increasing and in the current year it
increases up to 90% shows only 10% margin left for other charges. It should increase
its operating efficiency.

Operating Profit Ratio:

This ratio is calculated by dividing operating profit by sales.

Operating Profit Ratio= Operating profit * 100

Sales

This ratio can also be calculated as:

Operating Profit Ratio= 100 - Operating Ratio

Operating Profit Ratio of SWARAJ DIVISION

Particular 2004 2005 2006 2007 2008

44
Operating
Profit 12.7% 13.3% 13.1% 11.5% 10.0%
Ratio
14.0%
12.0%
10.0%
8.0%
Operating Profit Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008

Net Profit Ratio:

This ratio establishes a relationship between net profit
and sales and indicates management’s efficiency in manufacturing and selling the
products. It is the overall measure of a firm’s ability to turn each rupee of sales into
net profit. This ratio also indicates the firm’s capacity to withstand in adverse
economic conditions. The following table shows the net profit margin ratio of
SWARAJ DIVISION.

Net Profit Ratio= Net profit after tax * 100

Net Sales
in crores
Particulars 2004 2005 2006 2007 2008
Net Profit 42.0 62.9 129.3 78.0 65.2
Sales 597.35 855.10 958.55 958.85 969.59
N. P. Ratio 7.03% 7.36% 13.49% 8.13% 6.72%

16.0%
14.0%
12.0%
10.0%
8.0% N.P.Ratio
6.0%
4.0%
2.0%
0.0%
2004 2005 2006 2007 2008

45
Cash Profit Ratio:
This ratio measures the relationship between cash generated from operations and the

net sales.

Cash Profit Ratio= Cash Profit * 100

Net Sales in crores

Particular 2004 2005 2006 2007 2008

Cash 65.8 108.1 119.7 109.7 111.6
profit
Net Sales 597.35 855.10 958.55 958.85 969.59
C. P.Ratio 11.0% 12.6% 12.5% 11.4% 11.5%

C.P. Ratio

13.0%
12.5%
12.0%
11.5% C.P ratio
11.0%
10.5%
10.0%
2004 2005 2006 2007 2008

46
ANALYSIS OF PROFITABILITY OF SWARAJ DIVISION

SWARAJ DIVISION has been able to maintain a soundly profitable position through
its focus on continuous improvement and capital efficiency. In profit there are little
fluctuations from the FY 2004 to 2008. However unprecedented stretch of poor
monsoons resulted into broad spectrum of depressed market environment of the
whole tractor industry. Clearly profitability of SWARAJ DIVISION’s has shown
continuous and steadiest growth. It is the result of notable improvement in both
volume and model mix in tractors underpinned by its traditional cost efficiencies.

Cost Break Down of SWARAJ DIVISION:

The raw material constitutes the major portion of the total expenditure in SWARAJ
DIVISION. It revolves around 79% of total expenditure as is given from the table
given below:

Cost Breakdown of SWARAJ DIVISION (%age of Total Expenditure)

Particulars 2004 2005 2006 2007 2008

Material
Consumption 72.64 81.72 82.33 79.54 78.97
Finance
Charges 1.80 0.76 0.75 0.11 (1.66)
Depreciation 3.00 2.09 1.78 1.79 1.93
Operating &
Adm. Exp. 22.56 15.43 15.14 18.56 20.76

47
PROFITABILITY IN RELATION TO INVESTMENTS

The profitability of the firm is also measured in relation to its investment. The
term investment may refer to capital employed in the business or the owner’s equity.
Accordingly, return on capital employed (ROCE) and return on Shareholders equity
(ROSE) are calculated to give a broad idea about the overall return on the funds
invested in the business.
Return on capital employed (ROCE) is the best tool which is used by the owners to
know how well the management has used the funds supplied by them and other
parties. A higher ratio will satisfy the owners that their funds earn a handsome return.
To get a true idea about the operating efficiency of a firm ROCE is calculated for a
number of years and the firm’s ratio should be compared with industry average.
ROCE is calculated by dividing net profit after tax and interest by total capital
employed i.e.

ROCE = Net Profit after Tax and Interest

Capital Employed

(Here capital employed = Fixed Assets + Trade Investments + Current Assets –

Current liabilities)

ROCE of SWARAJ DIVISION (Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008

Net Profit 5536.23 9717.12 17045.40 7798.23 6516.87

Net Capital 54763.42 58374.06 61061.61 68372.17 68394.68

Employed
ROCE 10.11% 16.64% 27.91% 11.41% 9.53%

48
 30.0%
25.0%
20.0%
15.0% ROCE
10.0%
5.0%
0.0%
2004 2005 2006 2007 2008

On seeing the return on capital employed of SWARAJ DIVISION, it will be found

that up to the year 2004 it shows a decreasing trend in its ROCE. This is due to severe
demand down- turn arousing from weakening farm fundamentals across major
markets. But the FY 2005-06 recorded the higher ROCE as 27.9% in comparisons of
last four years this is due to increase in net profit of the firm. But in the current and
last year it again decreases.

Return on Equity Analysis:

ROE is the relationship between net profits (after interest
and taxes) and the proprietors’ funds. As the primary objective of business is to
maximize its earnings, this ratio indicates the extent to which this primary objective
of business is being achieved. This ratio is of great importance to the present and
prospective shareholders as well as the management of the company. As this ratio
reveals how well the resources of the firm are being used, higher the ratio, better the
results.

5 Yearly Trends of ROE of SWARAJ DIVISION (Rs. In Lacs)

Particulars 2004 2005 2006 2007 2008

Shareholders 48761.60 51242.05 56901.65 64699.88 66483.51

Funds
Net Profit after 4202.41 6289.68 12933.66 7798.23 6516.87
tax
ROE 8.62% 12.27% 22.72% 12.05% 9.80%
.

49
 25.0%

20.0%

15.0%
ROE
10.0%

5.0%

0.0%
2004 2005 2006 2007 2008

As the table depicts, SWARAJ DIVISION s’ ROE (Net Worth) in FY 2005-06 is

highest amongst the other financial years which is 22.72% in 2006. Thus SWARAJ
DIVISION is very attractive company for the purpose of investment with lesser risk
of dilution of equity as well as lesser risk due to less debt equity ratio. But it further
decreases in the FY 2007-08 due to input costs inflation.

WORKING CAPITAL MANAGEMENT

Problems that arise in attempting to manage the current assets, the current
liabilities and the interrelationship that exists between them can be managed by
managing the working capital. The basic goal of working capital management is to
manage the current assets and current liabilities of a firm in such a way that a
satisfactory level of working capital is maintained, i.e. it is neither inadequate nor
excessive. This is so because both inadequate as well as excessive working capital
implies idle funds which earns no profit for the business and inadequacy of working
capital may lead the firm to insolvency. Working capital refers to the excess of
current assets over current liabilities. Working capital management policies of a firm
have great effect on its profitability, liquidity and structural health. A sound working
capital management policy is one which ensures lowest cost, adequate liquidity and
sound structural health of the organization.

Nature of Working Capital Requirements

The working capital requirements of a concern can be classified as:
1.) Permanent or fixed or regular working capital requirements.

50
2.) Temporary or variable working capital requirements.
Permanent working capital is that minimum amount which should always be needed
to carry the business operations without interruption and it is financed from the fixed
capital sources. Temporary working capital is that amount which is required for the
seasonal demands and some special exigencies such as rise in prices, strikes,
extensive advertisement to capture more markets, etc. It should be financed from
short term sources of capital.

FINANCING LONG TERM WORKING CAPITAL

1. Shares
2. Debentures
3. Public deposits
4. Retained Earnings
5. Loans from Financial institutions

Temporary/Variable working capital is financed through:

1. Commercial Banks
2. Trade Credit
3. Advances
4. Commercial Papers

In a nutshell, working capital is the life blood and controlling nerve centre of the
business. No business can be successfully run without an adequate amount of
working capital.

To comment upon the working capital management in

SWARAJ, the technique of ratio analysis is adopted.
The following ratios have been calculated for the said purpose.
1) Current ratio.
2) Comparative debtors’ analysis.

3) Working capital turnover ratio.

4) Inventory Turnover analysis.
5) Creditor’s turnover.

51
Current Ratio:
The current ratio is an indicator of a firm’s short term solvency. A firm, to survive on
a continuing basis, should maintain sufficient liquidity. As a rule of thumb, 2:1 is
considered to be an ideal current ratio. The idea of having double the current assets as
to current liabilities is to provide a cushion against possible losses and to ensure a
smooth day to day functioning of the firm. There is, however, nothing very sacrosanct
about the 2:1 ratio. What is more important is the quality of current assets, how fast
and to what extent can they be converted into cash.

5 Yearly Trend of Current Ratio of SWARAJ DIVISION

Years Current Assets Current Ratio

Liabilities
2004 63484.12 18953.99 3.35:1times
2005 67392.42 21431.92 3.14:1times
2006 66579.18 16565.46 4.02:1times
2007 72458.42 13940.70 5.19:1times
2008 62323.63 18433.35 3.38:1times

The above table indicates that there are also fluctuations in the current ratio of
SWARAJ DIVISION. In FY 2004 it was 3.39:1 and then increases to 5.20:1 in FY
2007 and in FY 2008 it further decreases to 3.38:1. The reason of increment in the
current ratio because decrease in current liabilities and increase in current assets in the
FY 2007. In all the years it is above than the standard 2:1.

52
 80000
70000
60000
50000
Current Assets
40000
Current Liabilities
30000
20000
10000
0
2004 2005 2006 2007 2008

Debtors/Receivables Turnover Ratio:

Debtor’s turnover ratio indicates the velocity of debt collection of firm. In simple
words, it indicates the number of times the average debtors are turned over during a
year.
Debtors Turnover Ratio = Total sales
Debtors
Avg. collection period = No. of Months
D.T.R

5 Yearly Trend of Debtor Turnover Ratio of SWARAJ DIVISION

Years Sales Debtors D.T.R Collection
Period (months)
2004 59734 52126 1.15 10.43
2005 85510 53815 1.59 7.55
2006 95855 52776 1.82 6.61
2007 95885 50364 1.90 6.32
2008 96959 28135 3.45 3.48

Liquidity position of a company depends upon the quality of its debtors to a great
extent, two ratios i.e. Debtors Turnover Ratio and Average Collection Period are
calculated to judge the quality and liquidity of debtors of the company and comment
on efficiency.

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 A close analysis of this ratio of five years from 2004 to 2008 as given in chart
shows SWARAJ DIVISION has a very low turnover ratio of about 1.15 times in 2004
but it increasing Y-O-Y and it is highest in the current year i.e. 3.45. The reason is,
during the year, SWARAJ DIVISION has made special efforts to reduce dealer
outstanding by focusing attention on increasing retail sales and reducing dealer stocks
and thereby increase in collection from dealers.

Current Assets & Current Liabilities of SWARAJ DIVISION

in Period 2007-08

Current Assets Total %age

Inventories 11379.38 18.26

Sundry Debtors 28135.08 45.14

Cash & Bank 19883.14 31.90

Loans & Advances 2581.83 4.14

Other C. A. 344.20 0.56

TOTAL 62323.63 100

Current Liabilities Total %age

Sundry Creditors 8342.12 72.36

Acceptances 1331.06 11.55

Dividend Payable & 109.91 0.95

other
Interest Accrued 54.04 0.47

Other Liabilities 1690.89 14.67

TOTAL 11528.02 100

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Net Working Capital (C.A. - 50795.61
C.L.)

Working Capital Turnover Analysis:

The amount of working capital is
sometimes used as a measure of a firm’s liquidity. It is considered that between the
two firms, the one having the larger amount of working capital has the greater ability
to meet its current obligations. Working capital turnover analysis is, therefore, used to
measure the efficiency with which the firms are using their working capital. For this
purpose, working capital turnover ratio, which indicates the velocity of the utilization
of net working capital, is worked out.

Net Working Capital of SWARAJ DIVISION (Rs. In Lacs)

Year Current Assets Current Liabilities Net Working

Capital
2004 63484.12 15116.14 48367.98

2005 67392.42 16401.24 50991.18

2006 66579.18 11054.69 55524.49

2007 72458.42 13940.70 58517.72

2008 62323.63 18433.35 43890.28

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 70000
60000
50000
40000
Net Working Capital
30000
20000
10000
0
2004 2005 2006 2007 2008

Working Capital Turnover Ratio of SWARAJ DIVISION

Years Sales Net W. C. W.C. Turnover

Ratio
2004 59735 48367.98 1.24:1

2005 85510 50991.18 1.68:1

2006 95855 55524.49 1.73:1

2007 95885 58517.72 1.64:1

2008 96958 43890.28 2.21:1

An analysis of this table shows there is slight variation of the ratio from 2004 to 2007.
But it is quite high in 2008 in respect to other years. This no doubt indicates the
maximum use of working capital or quick turnover of current assets due to handsome
sales of its main products (tractors). To ensure maximum profitability, working
capital has to be managed skillfully to avoid situation of both, under and over trading.

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 2.5

1.5
W.C. Turnover Ratio
1

0.5

0
2004 2005 2006 2007 2008

Inventory Turnover Analysis:

Every firm has to maintain a certain level of inventory of finished products so as to be

able to meet the requirements of the business and ensure an uninterrupted production.
Inventory turnover ratio which is calculated by dividing sales by average inventory
indicates the number of times the stock has been turned over during the year. It also
evaluates the efficiency with which a firm is able to manage its inventory. A lower
inventory turnover is an indicator of higher efficiency in managing the inventory.

Inventory Turnover of SWARAJ DIVISION in 5 Years

Particulars 2004 2005 2006 2007 2008

Sales 59735 85510 95855 95885 96958

Inventory 8784.60 11194.10 8816.04 13426.61 11379.38

I. Turnover 6.80 7.64 10.87 7.14 8.52

Ratio

The above table shows SWARAJ DIVISION has the moderate inventory ratio during
this period. This indicates that the company has a good inventory management. In FY
2004 there is lowest inventory turnover. This is due to excessive inventory level than
required by its production and sales activities. The inventory turnover ratio should be
moderate because we can’t blindly accept very high inventory turnover ratio as
indicative of efficient inventory management as it may be due to very low levels of

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inventory which generally results into frequent stock outs. And frequent stock outs
may hamper production activities and may ultimately affect profits.

Creditors Turnover Analysis:

The analysis of creditor’s turnover is basically the same as of debtor’s

turnover ratio except that in place of trade debtors, the trades creditors are taken as
one of the components of the ratio and in place of average daily sales, average daily
purchases are taken as the other component of the ratio. It can be calculated as:

Creditors Turnover Ratio = Net Credit Annual Purchases

Average Trade Creditors

Average Payment Period Ratio = Average Trade Creditors

Average Daily Purchases
Creditors Turnover Analysis of SWARAJ DIVISION in 5 Years
Year Purchases Sundry Creditors Payment Period
Creditors Turnover (months)
2004 42079 13796 3.05 3.93

2005 64065 14615 4.38 2.74

2006 67384 9443 7.14 1.68

2007 72573 10272 7.06 1.70

2008 66368 8342 7.95 1.51

The average payment period ratio represents the avg. number of days taken
by the firm to pay its creditors. Generally lower the ratio better is the liquidity
position of the firm and higher the ratio less liquid is the position of the firm. From
the analysis, the payment period has been reduced from 3.93 in FY 2004 to 1.51 in
FY 2008 hence we can say SWARAJ DIVISION has better liquidity position.

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 CAPITAL STRUCTURE ANALYSIS

Capital structure of a company, is also known as its financial plan, refers to

the composition of long term sources of funds in its total capital. A properly planned
capital structure is most important to maximize the use of various funds and to be
able to adapt more easily to the changing conditions. The analysis of capital structure
shows the debt or equity raising capacity of various companies and the amount of risk
they bear.

Debt equity position of SWARAJ DIVISION:

This ratio indicates the relationship between the external equities or the outsider’s
funds and the internal equities or the shareholders funds. Thus,
Debt Equity Ratio = Outsiders funds
Shareholders funds
The ratio indicates the proportionate claims of owners and the outsiders against the
firm’s assets. As a general rule, there should be an approximate mix of owners’ funds
and outsiders’ funds in financing the firm’s assets. A low debt equity ratio is
considered as favorable from the long term creditors’ point of view because a high
proportion of owner’s funds provide a larger margin of safety to them. A high debt
equity ratio which indicates that the claims of outsiders are greater than those of
owners, may not be considered by creditors because it gives a lesser margin of safety
for them at the time of liquidation of the firm.
Debt Equity Position of SWARAJ DIVISION (Rs. In Lacs)
Year Net Worth Loans Debt Equity Ratio

2004 48770 5990 0.12:1

2005 51242 3938 0.07:1

2006 56902 1298 0.02:1

2007 64700 1074 0.02:1

2008 66483 404 0.006:1

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Here net worth includes share capital and reserve and surplus. Loans include both
secured and unsecured.
SWARAJ DIVISION is the very low debt company with a debt equity ratio 0.006:1
in the FY 2008 on account of repayment of loan and reducing interest costs. The
reserve and surplus also increased from Rs. 58624 lacs in FY 2007 to Rs. 60408 lacs
in FY 2008. In fact, bolstered by the notable improvement in both volume and model
mix of tractors underpinned by SWARAJ DIVISION’s traditional Cost efficiencies
and operations have generated this sizably enhanced surplus.
The lowest debt equity ratio as recorded by SWARAJ DIVISION maintains the
fact that company does not rely on the outside sources for its routine operations rather
it depends on its internal sources. This fact helps the company to win confidence of
its creditors, who, in turn can/will extend liberal credit.
SWARAJ DIVISION is a cash rich company and strong internal cash
generation is expected over the next few years and this will completely cover planned
capital expenditure, and thus reducing the fear of dilution.

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Market Performance
A constant increase in the installed capacity of major players in the tractor
industry is due to the tough competition given by the new entrants in the industry. A
host of new players such as Greaves, Bajaj Tempo, Larsen & Turbo etc., are leaping
in either alone or in collaboration with leading international tractor makers. Thus as
competition hoots up, the existing players are adding capacities, moving into new
segments and new markets and tapping the overseas markets.
TREND ANALYSIS

10 Yearly Sales Trend of SWARAJ DIVISION vs. Industry (1999-

2008) (No. of Tractors)
Year No. of Tractors No. of Tractors %age of Sales

sold by the Ind. sold by SWARAJ

DIVISION
1999 2,62,000 48336 18.4%
2000 2,73,000 50705 18.6%
2001 2,53,000 45712 18.5%
2002 2,18,000 40100 18.4%
2003 1,61,000 24200 15.1%
2004 1,89,000 25600 13.5%
2005 2,46,000 30330 12.3%
2006 2,91,000 31396 10.8%
2007 3,15,000 30045 8.6%
2008 3,46,000 28045 8.1%

20.0%

15.0%

10.0%
Marke t Share

5.0%

0.0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Market share:
In the table and graph analysis of last 10 years the market share of SWARAJ
DIVISION up to 2001-02 show an increasing trend. But after this period, its Market

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share shows decreasing pattern. In this period SWARAJ DIVISION also reduces the
number of tractors and the total no. of tractors produced by industry also goes down
due to many reasons like reduction in farm’s income, RBI’s credit policy etc.
Financial year 2006-07 sales of tractors showing improvement for company’s models
in the +30 HP range continuous to display strength. After seeing the trend of growth
in various segments, it can be concluded that highest growth recorded by SWARAJ
DIVISION was in 35 HP which accounted for 90% of Swaraj sales in 2003-04.
SWARAJ DIVISION’s share in its range will improve in the near future because of
its Rs. 100 crores expansion plan which has increased its capacity from 36000 to
60000 tractors per annum. On its strength of wide distribution network and proven
competitiveness, SWARAJ DIVISION is the only tractor company with a waiting
period for its product. For SWARAJ DIVISION, marketing was never a problem
rather its capacity constraints to increase its volumes were a problem. As a result of
capacity expansion and strategic move into higher HP tractors, SWARAJ DIVISION
can be expected to maintain higher than industry growth levels. Strong consumer
preference for SWARAJ DIVISION’s tractors is evident from company’s ability to
collect advances. This fact insulates SWARAJ DIVISION from any slow down in the
industry.

Capacity Utilization and Expansion Activities to Enhance Market

Share

In the tractor industry, many new foreign companies are coming with the new liberal
policy of the government. With most of new companies in the tractor market in over
drive, existing players are compelled to quickly move to protect their turf. There is
need for enhancement of production capacities on the part of tractor players to
progressively increase their market share and move into new segments. Almost all the
players have increased their production capacity over the years.

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With a host of new companies driving in, market leader M & M has also increased its
production capacity from 57,500 to 85,000 tractors by the end of 1999. Competitors
are meeting competition by stepping into the higher HP segment where as SWARAJ
DIVISION has expand its capacity in all segments. At present its annual installed
capacity is 60,000 tractors.

Big giant SWARAJ DIVISION that will get major benefit because of its pricing
strategy in the light of serving competition from foreign companies. It has planned to
produce 60,000 tractors per annum at the lowest capital cost per tractor (Rs. 34000).

Swaraj has also been focusing on development of overseas markets and is currently
making supplies to African/SAARC countries. A beginning has been made on export
of auto components.

Thus after analyzing the sales as well as production capacities of SWARAJ

DIVISION, it is clear that SWARAJ DIVISION is well established in the market.
Given its strong brand value, SWARAJ DIVISION is expected to increase market
share further in the coming financial years by making inroads into growing markets
of South and West India.

Chapter-V
CONCLUSIONS & RECOMMENDATIONS

RECOMMENDATIONS

1.) SWARAJ DIVISION should increase its capacity utilization. It should work at
full capacity to minimize its cost of production. With this increase in capacity
utilization, the total cost will spread over more units thereby decreasing per unit cost.

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2.) SWARAJ DIVISION must move into higher HP segment to capture more market.
SWARAJ DIVISION’s highest share is in the 35 HP segment (Approximately 19%)
Its contribution to higher HP segment is almost negligible because of which it can not
export its tractors to Africa and Middle East, where there is demand for 70 HP
tractors. It is therefore, suggested that in order to be competitive in the international
market also, SWARAJ DIVISION should reset to manufacturing after cutting out
many of the frills in its lower HP tractors.

3.) SWARAJ should increase the credit facilities provided to its consumers. Earlier,
it was selling its main product i.e. tractor either against advance payments or cash
payments

4.) SWARAJ DIVISION should undertake such activities that can add value to
Society. SWARAJ DIVISION, as a good corporate citizen, should sponsor
programmes related to environment protection, rural uplift-meant and welfare of
general public. It should spend a crunch of its profits on the social activities which
will further improve its image in the society.

5.) SWARAJ should take advantage of India’s second position in low and medium
HP tractor segment, in which SWARAJ DIVISION is a leader, by exporting its
product to Asian, African and to some extend Latin American Markets.
CONCLUSIONS

On the basis of financial performance of M&M LTD -Swaraj Division made in the
previous chapters, following conclusions are drawn:

General Profile: The plant of SWARAJ DIVISION is ideally located in the Mohali
Focal Point Estate near Chandigarh, the capital of Punjab, on a campus of 17
hectares. The working environment of the company is very healthy.
Indigenous Technology: SWARAJ DIVISION is the only tractor manufacturing
company based on purely indigenous technology. Swaraj was appropriately chosen as
the brand name as self reliance and building up of Indian Engineering capabilities

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Financial structure: SWARAJ DIVISION is a low debt company signifying its
dependence mainly on its internal accruals for its financial requirements. SWARAJ
DIVISION continues to strengthen its financial position by channelising these
internal accruals to fund its expansion programmes.
Working results: SWARAJ DIVISION has registered a handsome and constant
growth in its profits because of a brisk demand for Swaraj Tractors. None of the other
players has shown such a steady growth.
Marketing Performance: SWARAJ DIVISION is ranked at number five so far as
its marketing performance is concerned. While its competitors are meeting
competition by stepping into the higher HP segment, SWARAJ DIVISION has
decided to expand capacities in all segments.
Social Performance: SWARAJ DIVISION’s contribution towards industry and
research and technology has received national recognition. However, it has not
sponsored any programmed or established any educational or medical institution for
the general public or its employees. No housing facility is provided to the employees.
Though SWARAJ DIVISION has not done much for the welfare of the general
public, but still the farmers have a craze for Swaraj tractors mainly due to its
promising quality and reasonable price.
Excellent financial performance exhibited by SWARAJ DIVISION is the result
of an efficient and responsible management which establishes the fact that
performance of a company depends on the caliber of its managers and not on the
nature of sector to which it belongs.

BIBLIOGRAPHY

# Books
PANDEY I.M. “Financial Management”
GUPTA SHASHI K.GUPTA
SHARMA R.K., “Management Accounting and Business Finance

# JournalsC
Annual Reports of PUNJAB TRACTORS LTD. (From 2003-2008)

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# INTERNET WEB SITES
www.swarajenterprise.com
www.investorwords.com

Web Pages
http://www.swarajenterprise.com/
http://www.swarajenterprise.com/Swaraj Division_index.htm
http://www.swarajenterprise.com/Swaraj Divisionannualreport.asp
http://www.swarajenterprise.com/Swaraj Division_shareholding.htm
http://www.swarajenterprise.com/Swaraj Division_enterprise.htm
http://www.swarajenterprise.com/Swaraj
Divisionprofitandloss.asp#pl
http://www.swarajenterprise.com/Results/SWARAJ DIVISION-
RESFirstQuarterReport2008.htm
www.indiaautomotive.net

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