Escorts Project by Sunny

Submitted To
FACULTY OF MANAGEMENT STUDIES MANAV RACHNA INTERNATIONAL UNIVERSITY
SUBMITTED BY:
SUNNY SONI Roll No.- FMS/MBA/229 MBA 3rd Sem.
MANAV RACHNA INTERNATIONAL UNIVERSITY FACULTY OF MANAGEMENT STUDIES
DECLARATION
I, Sunny soni student of Masters of Business Administration from Faculty of management studies, Manav rachna international university hereby declare that I have completed Summer Internship on RATIO ANALYSIS AND ESTIMATION OF FINANCIAL STRENGTH OF ESCORTS as part of the course requirement. I further declare that the information presented in this project are true and original to the best of my knowledge.
Date: 26/07/10
Sunny soni
Place: Faridabad
MBA Class of 2011
MANAV RACHNA INTERNATIONAL UNIVERSITY FACULTY OF MANAGEMENT STUDIES
CERTIFICATE
I hereby certify that Sunny soni student of Masters of Business Administration at Faculty of management studies,manav rachna international university has completed Summer Internship on RATIO ANALYSIS AND ESTIMATION OF FINANCIAL STRENGTH OF ESCORTS, under my guidance.
Mrs. Aman dhaliwal Lecturer Department of Finance
ACKNOWLEDGEMENT
This report is the result of efforts put in by many people who contributed to it by offering valuable suggestions, encouraging advices, constructive criticism and proper guidance. At this level of understanding it is often difficult to understand the wide spectrum of knowledge without proper guidance and advice. Their support and surveillance throughout the project stand out as beacon of inspiration to us. I take this opportunity to express my heartfelt gratitude to my industry guide, Mr. Vijay Nehra, for offering valuable suggestions, encouraging advices, constructive criticism and proper guidance. I would also like to thank my faculty guide Mrs. Aman dhaliwal , for his continuance guidance, his immense interest, valuable guidance, constant inspiration and kind co-operation throughout the period of work undertaken and furnishing me with the in-depth theoretical knowledge. I would also express my sincere gratitude to Mr. Rajesh Goyal, Rajiv, Rajesh Jauhari, Rajender Bhardwaj, S.K. Bali and other members of Escorts who were always very helpful and encouraging. I also acknowledge my profound sense of gratitude parents for their moral support to carve out this project. to my friends and
CONTENTS
Declaration
Certificate from Industry Guide
Certificate from Faculty guide
Acknowledgement
S.No. 1
Chapter Name Introduction Introduction to industry Company profile
Page No.
6 28 33 34 35
2 3 4 5
Project overview Research Methodology Data Collection Data Interpretation & Analysis SWOT analysis Analysis of Escorts Comparative analysis of Escorts with its competitors
36 38 62
6 7
Recommendations & Conclusions Bibliography
79 81
INTRODUCTION TO INDUSTRY
India is mainly an agricultural country. Agriculture in India is unique in its characteristics, where over 250 crops are cultivated in its varied agro-climatic regions, unlike 25-30 crops grown in many of the developed nations of the world. Agriculture is one of the most important sectors of the Indian economy contributing 18.5 percent of national income, approximately 25 percent of Indias GDP, about 18 percent of total exports, supporting two-thirds of the work force and employ about 62 percent of the population. About 45 percent of the Indias geographical area is used for the agriculture purpose therefore, it is considered to be the vital sector of the economy. India with its favourable agro-climatic conditions and rich natural resource base has become the worlds largest producer across a range of commodities. Tractor industry plays a very crucial role in the agricultural sector. Tractors are part of agricultural machinery industry and forms an integral part of farm mechanization and plays a very crucial role in increasing productivity. Tractor is used for multitude of uses, it is used in agriculture for both land reclamation and for carrying out cultivation of various crops. It is also employed for carrying out various operations related to raising of crops by attaching suitable implements and to provide the necessary energy for performing various crop production operation involved in the production of agricultural crops. Tractors are capital intensive, labour displaying used as a mode of transport, in electricity generation, in construction industry and for haulage operation. It has now become an integral part of farm structure. The applications of tractor for agricultural purposes have solved various problems of farmers.
EVOLUTION OF TRACTOR
The early agricultural mechanization in India was greatly influenced by the technological developments in England. Horse drawn and steam tractor operated equipments were imported during the later part of the nineteenth century. The horse drawn equipments imported from England were not suitable for bullocks and buffaloes being used in India. These were suitably modified to suit Indian draught animals. With the production of indigenous tractors and irrigation pumps, the use of mechanical power in agriculture, has been showing an increasing trend. As a Green Revolution in the sixties, the total food grain production increased from a mere 50.8 million tonnes during 1950-51 to 217 million tonnes in 2009-10 and productivity increased from 522 kg/ha to more than 1,500 kg/ha. The increase in production of food grains was possible as a result of adoption of quality seeds, higher dose of fertilizer and plant protection chemicals. Irrigation played a major role in increasing the productivity. Increased cropping intensity and higher quantity of inputs can no longer be effectively managed by animal power alone and, therefore, farmers adopted tractors, irrigation pumps, harvesters and power threshers extensively.
HISTORY
At the time of independence the level of mechanization was low so the government started investing in establishing agricultural research farms and colleges and large scale irrigational schemes to improve the situation. The five year plans during the 1950s and 1960s aggressively promoted rural mechanization through joint ventures and tie-ups between industrialists and international tractor manufacturers. Tractor came to India through imports and later on the manufacturing started with the help of foreign collaborators the manufacturing process started in the year 1961-62. Despite the aggressiveness the production of tractors grew slowly in the first three decades. The history of tractors in India can be described in following phases: 1945 to 1960 War surplus tractors and bulldozers were imported for land reclamation and cultivation in mid 1940s. In1947 Central and State Tractor Organizations were set up to develop and promote the supply and use of tractors in agriculture and till 1960, the demand was met entirely through imports. There were 8,500 tractors in use in 1951, 20,000 in 1955 and 37,000 by 1960. 1961 to 1970 Home production began in 1961 with five manufacturers producing a total of 880 units per year. By 1965 this had increased to over 5,000 units per year and the tractors in use had risen to over 52,000. By 1970 annual production had exceeded 20,000 with over 1,46,000 units working in the country. 1971 to 1980 Six new manufacturers were established during this period although three companies (Kirloskar Tractors, Harsha Tractors and Pittie Tractors) did not survive. Escorts Ltd. began local manufacturing of Ford tractors in 1971 in joint collaboration with Ford, UK and total production climbed steadily to 33,000 in 1975 reaching 71,000 by 1980. Credit
facilities for farmers continued to improve and the tractor market expanded rapidly with the total in use passing the half million mark by 1980. 1981 to 1990 Five new manufacturers began production during this period but only one among them survived due to increased competition in the market place. By 1985 annual production exceeded 75,000 units per year and by 1990 it crossed the mark of 1,40,000 units when the total in use was about 1.2 million. Then India-which was a net importer till seventies became the exporter in the 1980s mainly to the African countries. 1991 to 1997 Since 1992, obtaining of the license was not necessary for the tractor manufacturing in India. Annual production exceeded 255,000 units and the national tractor population had passed the two million mark. India now emerged a one of the world leaders in the tractor production. 1997 to 1999 Five new manufacturers have started production since 1997. In 1998 Bajaj Tempo, already well established in the motor industry, began tractor production in Pune. In April of the same year New Holland Tractor (India) Ltd launched production of 70 hp tractors with matching equipment. The company made a $US 75 million initial investment in a state of the art plant at Greater Noida in Uttar Pradesh state with an initial capacity of 35000 units per year. Larsen and Toubro have established a joint venture with John Deere, USA for the manufacture of 35-65 hp tractors at a plant in Pune, Maharashtra and Greeves Ltd will produce Same tractors under similar arrangements with Same Deutz Fahr of Italy. Looking to South American export markets Mahindra and Mahindra are also developing a joint venture with Case for tractors in the 60-200 hp range.
1999 to present Facing market saturation in the traditional markets of the North West (Punjab, Haryana and eastern Uttar Pradesh) tractors sales began a slow and slight decline. By 2002 sales went below 200,000. Manufacturers headed towards the eastern and southern India markets in an attempt to reverse the decline, and began exploring the potential for overseas markets. But sales remained in a slump. By 2004, once again there was a slight increase in sales due to stronger and national and to some extent international markets. But by 2006 sales once again were down to 216,000 and now in 2007-08 have slid further to just over 200,000.
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Present Scenario Indias gross cropped area which is 42 percent of the total geographical area is next only to Unites States of America and Russia along with fragmented land holdings has helped India to become the largest tractor market in the world. But because of its very low penetration level in India as compared to the world standards it drops to the eighth position in terms of total tractor in use. Also the penetration levels are not uniform throughout the country. While the northern region is now almost saturated in terms of new tractor sales, the southern region is still under penetrated. The medium horse power category tractors, 31-40 HP, are the most popular in the country and fastest growing segment. Indian tractor industry is comparatively young as compared to the world standards and has expanded at a spectacular pace during last four decades. Consequently, it now occupies a place of pride in Indias automobile industry. U.S.A., U.S.S.R. and only a few Western European countries exceed the current production of tractors in India but in terms of growth, Indias growth are unmatched even with countries of long history of tractor manufacturing. About 20 percent of worlds tractor production occurs in India only. The spectacular achievement reflects the maturity and dynamism of tractor manufacturers and also the policies adopted by the government to enable it to effectively meet the demand. The tractor industry in India has made a significant progress in terms of production and capacity as well as indigenization of technology. It is a typical sector where both imported technology and indigenous developed technology have developed towards meeting the overall national requirements. In India tractor industry has played a vital role in the development.
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HOME MARKET
Tractor market in India is about Rs 6,000 crores. On an average around 4,00,000 tractors are produced and 2,60,000 are sold.
SEGMENT WISE ANALYSIS India tractor market is characterized by medium horse-power tractors which consists of mostly 31-40hp tractors and the market share gabbed by this segment is 47% of total market share. This is the most popular and fastest growing segment in India and dominates the market. The reason of the popularity of this segment tractor is that the major tractor demanding states like Haryana, Punjab and U.P have plenty of alluvial soil which does not require deep tilling. Growth of the industry depends on the growth of this category.
21-30hp
31-40hp
41-50hp
50 hp and above
The other category with the second largest market share is of 41-50hp. It has the market share of about 23%. The tractors of 21-30hp and above 50hp category have the market shares of 20% and 10% respectively.
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BY SALES ANALYSIS More than 90% of the tractor industry is concentrated in the 12 states namely Haryana, Gujarat, Andhra Pradesh, Uttar Pradesh, Karnataka, Orissa, Tamil Nadu, Bihar, Rajasthan, Maharashtra, Punjab and Madhya Pradesh. Uttar Pradesh has the largest tractor market in India, one out of four tractor is being purchased here.
The northern region remains the largest tractor market in India with sales crossing 167000 units in 2009-10. There is a growth of 35.7% as compared to last year with major contributors are Uttar Pradesh, Haryana, Punjab and Rajasthan. This region has benefitted from the nonavailability of labor and non-agricultural use of tractor in construction and infrastructure purposes.
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The performance of the southern region was modest except Andhra Pradesh who showed a decline. It the major market in southern region, because of fall in sales total southern market grew at a modest rate of 11.9% over last year. Western region has also reported a growth of 35.7% over last year with sale of 92000 units In the eastern region sales has gone up by 53.8% over last year however in this region financers are reluctant to finance tractors. Bihar is the major market in the eastern region which has grown constantly over last few years.
EXPORTS
Export market for tractors has been grown significantly in India. Exports are increasing considerably in which USA has absorbed a major share. The industry exported a total of around 37,900 tractors during 2009-10, with the USA, Africa, South America and some Asian countries being the top destinations. Exports to the South-Asian countries like Malaysia and Turkey are growing rapidly as well. African countries are also a major importer of Indian Tractors as Indian Tractors are increasingly gaining acceptance in the international markets.
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KEY PLAYERS AND THEIR MARKET SHARES
Many tractor companies are present in Indian market in various segments. At present Mahindra & Mahindra is the leading player in the Tractor industry with a market share of around 40%. Major players operating in this industry with their market shares are:-
Market share ( in percentage ) Companys name

2007-2008 Escorts ltd. Mahindra & Mahindra Swaraj (Punjab Tractors Ltd.) Eicher TAFE Tractor & farm equipment Ltd. HMT MGTL Sonalika (International Tractors Ltd.) Force Motors Ltd. John Deere New Holland India VST Tillers Tractors Others
12.3 28.4 9.2 7.3 15.1 1.2 0.6 8.7 0.2 9 5.3 0.8 1.9
2008-2009
12.8 28.2 10.7 7.6 14.6 1.1 0.6 8.4 0.5 8.1 5.6 0.5 1.3
2009-2010
13.7 40.5
21.7
1.2 0.5 8.4 0.2 7.2 4.9 0.9 0.8
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market share (2009-10) in %age
Escorts Ltd. Mahindra & Mahindra Swaraj Eicher TAFE HMT MGTL Sonalika Force Motors Ltd. John Deere New Holland India VST Tillers Tractors Others
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FUTURE OUTLOOK
The demand in the tractor industry is expected to grow mainly due to the agricultural sector, with the expected increase in agricultural production. Also, the shift in trend for demand towards higher horsepower (HP) tractors is expected to continue. This will be further strengthened by the launch of several new models. In the next 2-3 years, demand for tractors is expected to increase significantly in the eastern states, where traditionally, tractor usage has been low. Exports are expected to increase significantly as several Indian Players are targeting the hobby farming segment in the United States, which is considerably large. Also, tractors of most Indian manufacturers comply with the emission standards accepted in the US. Most exports are likely to be through overseas partnerships or joint-ventures.
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DRIVERS OF TRACTOR GROWTH

Many factors influence tractor demand. Primary demand emanates from agricultural growth and secondary demand from dual use of tractors, primary haulage. The primary usage (agriculture) is dependent upon the following drivers: Expansion and Extension of Agricultural land From the past 20 years, it is evident that irrigated and arable land has not increased. There is an immediate need to expand agri-land by conversion of wasteland. Availability of water is another important factor in guaranteeing a predictable agricultural yield, without having to depend on the yearly variations and unpredictability of monsoons. In the last four decades, very few additions have occurred with respect to direct-irrigation potential. Almost all growth has resulted from exploration of groundwater, which has led to exploitation and depletion. Government sponsorship of major and monumental projects like the interlinking of rivers/national policy on water resources and implementation is a foregone need. Even if the final completion is a generation away, the incremental progress that will be made during the process of implementation will catapult Indian agriculture to more than the targeted 4 percent of the GDP. The short term focus must be on increasing and maintaining natural water, such as natural water storages, ponds, lakes and retention dams. Value additions in farming Land is limited, therefore. It must be our aim to get the maximum yield from every acre of farmable land. We have to look at the world as the source and the consumer. The government must enable farmers to move away from low-yield to higher value crops in a judicious manner, in order to increase farming income and to attract a new crop of young farmers.
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Return on Investment (ROI) increases in farming will attract educated youth and will become another satisfying, future job-opportunity. Credit and Money availability has always been a big factor in the tractor industrys and mechanizations fortunes. The government must initiate a long-term policy of zero or marginal interest rates to enhance the use of agricultural mechanization. Insufficient animal power To meet the power demand of farmers the availability of the animal power is not sufficient. Mechanized operations and the use of tractors ia preferred to eliminate drudgery and delay and also to avoid the labour shortage during the harvesting. Improved irrigational facilities
Improvement in the irrigational facilities had reduced in the reliance on the monsoon and allows for the quick yielding varieties of food grains. It has reduced the cropping cycle from traditional 5-6 months to 3-4 months. Reduced cropping cycle requires deep tilling which translates into higher demand for tractors. Deep Tilling Agronomists believe that there is a need for more tilling due to the depletion of moisture and repeated cultivation of land. This purpose can be very well fulfilled by the tractor, so the demand of tractor is well maintained during the drought period also.
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CHALLENGES FOR TRACTOR INDUSTRY

Buying capacity reduction in average age of tractor buyers from the age group of above 40 to younger individuals. Increasing demands Higher expectations on comfort levels Importance for styling and appearance Better finish (paint finish like cars) Fuel economy Likes on new models Awareness about latest technologies Longer life - resale value New product development Styling- availability of latest softwares and technologies. Engine performance power train research and development Rapid prototyping component development Accelerated testing techniques reduce the development lead time to help industry to introduce new models in shorter periods. Application of electronics The recent developments in applications of electronics on agricultural tractors like GPS and Auto Cruise Systems have helped farmers greatly. Alternate Energy alternate energy source development and tractor development are interdependent. Increased focus on agri-based energy policy in near future. Production of fuel oil and biomass power Lucrative alternate markets for farm produce Reduce the countrys dependence on imported fuels Alternate energy development most important agenda for power train research and development.
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Export potential Testing under various climatic conditions one of the challenges for export of tractors. Testing and certification as per the OECD. Expert teams to coordinate with standardization. Cooperation with other test agencies worldwide. New regulations Noise, safety and other regulations. Engine performance improvement. Center of excellence for passive safety.
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RISK FACTORS OF TRACTOR INDUSTRY
Dependency on monsoon
High product life
RISK Increasing fragmentation of land FACTORS Lack of access to financing
Suboptimal irrigation infrastructure
There are various risk factors that are related to the tractor industry. Some of them are Dependency on Monsoon High product life Lack of access to financing Suboptimal irrigation infrastructure Increasing fragmentation of land The performance of the tractor industry is closely and directly related to the performance of agricultural sector. Even now, there is a heavy dependency on monsoon and a large majority of farms are still rain fed. The phase of first monsoon from June to September of 2008-09 was 98% of the Long Period Average, resulting in good crop. However, the second half of the year, resulted in deficient north-east rainfall in 30 of the 36 meteorological districts. Apart from the
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dependency on monsoons the irrigation infrastructure is also suboptimal. Furthermore, there is a huge pressure on the existing agricultural land. The Net Sown Area across States has either remained constant or changed slightly and efficient land utilization is approaching the peak level in all states. Many farmers still lack access to finance and depend on unorganized moneylenders. Escorts continues to focus on creating additional mechanisms for access to cash for our final customers in an overall environment where credit flow has been slow.
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PROFILES OF KEY INDIAN PLAYERS
Mahindra & Mahindra Ltd. (M & M)

Mahindra & Mahindra, headquartered in Mumbai, India, is principally involved in the manufacture, equipments distribution, and utility sale of farm The
vehicles.
companys operations are divided into four business segments: automotive, farm
equipment, financial services and IT services. M&Ms farm equipment sector has market leadership in the domestic market for last 24 years. The farm equipment segment has significant presence across six continents and manufactures agricultural tractors and implements that are used in conjunction with tractors and industrial engines at its Kandivli and Nagpur plants in Maharashtra. One of the top five tractor brands in the world, the company has its own state of the art plants in India, USA, China and Australia and a capacity to produce 1,50,000 tractors per year.
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TRACTORS AND FARMS EUIPMENT LIMITED (TAFE)
TAFE is a US $750 million tractor major incorporated in 1960 at Chennai in India, in collaboration with Massey Ferguson (which is now owned by AGCO Corporation, USA). TAFE acquired the Eicher Tractors business, its engine plant at Alwar and transmissions plant at Parwanoo through a wholly owned subsidiary TAFE Motors and Tractors Limited. This company has four plants involved in tractor manufacturing at Mandidheep (Bhopal), Kallidaipatti (Madurai), Doddabalbur (Bangalore) and in Chennai. Apart from being among the top five tractor manufacturers in the world, TAFE is also involved in making diesel engines, gears, panel instruments, engineering plastics, hydraulic pumps, plantations and passenger car distribution through other divisions and wholly owned subsidiaries.
Escorts Agri Machinery Group (AMG) Escorts Ltd. set up the strategic Agri Machinery Group (AMG) in 1960 to venture into tractors. The company rolled out its first brand of tractors Escort in 1965. In 1969 a separate company Escorts Tractors Ltd. was established with equity participation of Ford Motor Co., Basildon, UK for the manufacture of Ford agricultural tractors in India. In the year 1996, Escorts Tractors Ltd. formally merged with the parent company, Escorts Ltd. Since its inception, the company has manufactured over 1 million tractors.
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JOHN DEERE Deere & Company, founded in 1837, grew from a one-man blacksmith shop into a worldwide corporation that today does business in more than 160 countries and employs approximately 50,000 people worldwide. To expand its global presence in the agricultural equipment sector, John Deere established a green field project in 1999 under a 50:50 joint venture with Larsen & Toubro (L&T) an engineering company of repute from India. A state of the art tractor manufacturing plant for 5,000 series John Deere tractor was set up at Sanaswadi, near Pune, in the state of Maharashtra. These tractors were introduced in India in early 2,000. In 2005, Deere and company acquired nearly all the remaining shares in this joint venture. The new enterprise, John Deere Equipment Private Ltd. operates through a network of 15 area offices, 4 zonal offices and 270 authorized dealers spread across the country. The factory currently produces modern tractors of 35, 40, 42, 47, 50, 55 and 70 HP capacities for domestic markets. Tractors manufactured in Sanaswadi are also exported to USA, Mexico, Turkey, North and South Africa and South East Asia. The company has received awards for export excellence in 2005 and 2006 from the Engineering Export Promotion Council.
NEW HOLLAND New Holland AGs entry into India was facilitated by FIATs acquisition of Ford-New Holland in 1991. By 1998 New Holland AG (India) completed the construction of a new plant in Noida, near Delhi, with a capacity of 5,000 tractors in the 35-75 HP range. In 1999, New Holland AGs parent company FIAT bought 70 percent of holdings of Case New Holland Global. In 2000, the capacity of the Noida plant rose to 12,000 tractors per year and in 2007 the company can manufacture close to 24,000 tractors for the domestic and export markets. New Holland India exports fully-built tractors to 51 countries in Africa, Australia, South-East Asia, West Asia, North America and Latin America. It also exports subassemblies and other tractor parts to the facilities of CNH Global, around the world.
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HMT Limited HMT Limited incorporated in 1953 by the Government of India as a machine tool manufacturing company, diversified over the years into watches, tractors, printing machinery, metal forming presses, dye casting and plastic processing machinery, CNC systems and bearings. Today, HMT comprises of six subsidiaries under the ambit of a holding company, which also manages the tractor business directly. HMT commenced manufacturing agricultural tractors in 1972 with technology acquired from ZETOR, Czech Republic and continues to upgrade the products. The tractor plants in Pinjore, Hyderabad and Mohali with a capacity of 20,000 per annum, produce a wide range of tractors from 25-75 horsepower (HP) to suit various farming requirements. The company also manufactures a primary and secondary tillage implements, land shaping, planting and harvesting equipment.
Sonalika (International Tractors Limited) Established in 1969, Sonalika since the inception has tried to understand customer need to be facilitating them with its value for money products. The company has a state of art manufacturing facilities, spread in acres, located in the free shrubs of Punjab and Himachal Pradesh. Sonalika is one of the top 3 tractor manufacturing company in India, other products include of Multi Utility Vehicles, engines and various farm equipments. Today, the group stands tall with an approx. turnover of 5,000 crore INR. An average growth of 30 percent makes it one of the fastest growing corporate in India. It is also one of the few debt free companies. Group has strength of about 2,000 employee technocrats.
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COMPANY PROFILE
INTRODUCTION Escorts ltd. is one of the pioneer manufacturer and exporter of Agri Machineries. The company manufactures and exports Tractors and Tractor Parts, Diesel Engines, Gears, Shafts, Gear boxes, Engine blocks, Crankshafts, Cylinder Heads, Connecting rods and Spindles. They also offer brakes, couplers, shock absorbers, rail fastening systems, composite brake blocks and vulcanized rubber parts. The company through their subsidiaries operates in the ITES and financial services sectors. HISTORY Escorts ltd. was incorporated in the year 1944 as Escorts Agents ltd. in Lahore. In the year 1951 Escorts established Indias first private institute of Farm Mechanization at Delhi and in year 1953 Escorts (Agents ltd.) and Escorts ( Agriculture and Machines) ltd. merged to form Escorts Agents Pvt. Ltd. the company was converted into a public limited company in December 1959 and subsequently the name was changed to Escorts Ltd. in January 1960.
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In year 1961, Escorts Tractors ltd. made a technical and financial joint venture with the global giant Ford Motor Company, USA for manufacturing Ford Tractors in India. And in February 1, 1971, the first tractor FORD 3000 rolled out of the factory. 1n 1977, the company set up their first independent R&D center namely Escorts Scientific Research Center at Faridabad. Also, they set up their second plant at Bangalore for manufacturing piston assemblies. In 1979, they made collaboration with JCB Excavators Ltd., UK for manufacturing of Excavators. In 1980, the company forayed into healthcare and set up Escorts Hospital and Research Center in Faridabad. In 1984, company signed an agreement with the Japanese bike giant Yamaha to manufacture motorcycles with Yamaha technology. Also, they made collaboration with Jeumont Schneider of France and Dynapac of Sweden to manufacture EPABX systems and vibratory road compactors respectively. In 1997, the company made a joint venture agreement with New Holland and launched Farmtrac Tractor. Also, they made a joint venture with First Pacific Company of Hong Kong and formed Escotel Mobile Communications. In 1998, the company launched Powertrac tractors. They signed a MoU with Long Manufacturing Company of USA for setting up a joint venture in USA. 1n 1999, the company signed a MoU with a Polish Company POL-MOT for assembling, manufacturing and marketing of Farm Machinery. In September 1999, they set up a subsidiary namely, Escosoft Technologies Ltd. in the Information Technology Sector. During the year 2001-02, the company sold their 26% shareholdings in Yamaha Motors Escorts Ltd. they entered into an agreement with Claas KgaA, Germany, their joint venture partner in Escorts Claas Ltd. for sale of their 60% equity in the joint venture for a consideration of Euro 13.2 million. During the year, Escorts Heart and Super Speciality Institute Ltd., Escorts Heart Centre Ltd., Automatrix India Pvt Ltd and Escorts Research and Development Ltd. became the subsidiary companies. In January 2004, the company entered into an agreement with Idea Cellular Ltd. to divest their share in Escorts Telecommunication Ltd. In September 2005, the company entered into an agreement with Fortis Healthcare Ltd to divest their shares in Escort Heart Institute and Research Centre Ltd for a consideration of Rs 520 crore.
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During the year 2005-06, tha company set up a new manufacturing facility in Rudrapur, Uttrakhand for manufacturing of new range of railway equipment. The company sold their stake in in the software companies and all divested 49% stake in joint venture, Carraro India Ltd. in which the company is getting out of all the unrelated business and to remain focused on the three core businesses. During the year 2006-07, the company embarked on entering into the manufacturing of shock absorbers for commercial vehicles. Throughout the evolution of Escorts, technology has always been its greatest ally for growth. In the over six decades of their inception, Escorts has been much more than just being one of the Indias largest engineering companies. It has been a harbinger of new technologies, a prime mover on the industrial front, at every stage introducing products and technologies that help take the country forward in key growth areas. Over a million tractors and over 16,000 construction and material handling equipments that have rolled out from the facilities of Escorts, complemented by a highly satisfied customer base, are testimony to the manufacturing excellence of Escorts. Following the globally accepted best manufacturing practices with relentless focus on research and development, Escorts is today in the league of premier corporate entities in India. Technological and business collaboration with world leaders all over the years, globally competitive indigenous engineering capabilities, over 1600 sales and service outlets and footprints in over 40 countries have been instrumental in making Escorts the Indian multinational. Today, when the world is looking at India as an outsourcing destination, Escorts is rightly placed to be the dependable outsourcing partner of worlds leading engineering corporations looking at outsourcing manufacture of engines, transmissions, gears, hydraulics, implements and attachments to tractors and shock absorbers for heavy trailers and armoured tanks. In todays Global Market Place, Escort is fast on the path of an internal transformation, which will help it to be a key driver of manufacturing excellence in the global arena.
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ESCORTS (AGRI MACHINERY GROUP) Background In 1960, Escorts set up the strategic Agri Machinery Group (AMG) to venture into tractors. In 1965, the company rolled out its first batch of tractors under the brand name of Escort. In 1969, a separate company Escorts Tractors Ltd., was established with equity participation of Ford Motor Co., Basildon, UK for the manufacturing of Ford agricultural tractors in India. In 1996, Escorts Tractors Ltd. formally merged with the parent company Escorts Ltd. Technologies Escorts AMG has three recognized and well accepted tractor brands, which are on distinct and separate technology platforms.
Farmtrac: World class premium tractors, with single reduction and epicyclic reduction transmissions from 34 to 75 hp. Powertrac: Utility and Value-for-money tractors, offering straight axle and hubreduction tractors from 34 to 55 hp. Indias No. 1 economy range-engineered to give spectacular diesel economy. Escort: Economy tractors having hub-reduction transmission and twin cylinder engines from 27 to 35 hp. Pioneering brand of tractors introduced by Escorts with unbeatable advantages. INTERNATIONAL SUBSIDIARIES Escorts AMG has two international subsidiaries. Farmtrac North America LLC in USA Farmtrac Tractors Europe Sp.z.o.o. in Poland.
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LEADERSHIP TEAM OF ESCORTS LIMITED
CHAIRMAN
Mr. Rajan Nanda
JOINT MANAGING DIRECTOR
Mr. Nikhil Nanda
EXECUTIVE DIRECTOR & CEO- AMG EXECUTIVE VICE-PRESIDENT CHIEF FINANCIAL OFFICER GROUP HEAD HUMAN RESOURCES EXECUTIVE VP (Engineering Division)
Mr. Rohtash Mal Mr. G.B. Mathur Mr. O.K. Balraj Mr. Partha Dasgupta Mr. Manoj Jha
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PROJECT OVERVIEW
ABOUT THE PROJECT The project is based on the analysis of Escorts and its competitors in the market. The basic purpose of the project is to assess the financial health of the company and then making a comparison with its competitors through which we can identify the strength of Escorts against its competitors. One of the best way to establish a relationship with companys performance and competitors is by using RATIO ANALYSIS. These relationships establish references to understand how well company is performing and where it stands if compare with its competitors. Ratios for coming two years are also being projected which might help the company to take appropriate measures so that it can withstand and gives a better competition to its competitors. SWOT analysis of the company has also been done in order to identify the strengths, weaknesses, opportunities and threats of the company. Following ratios are used to assess the financial health of the company:
Ratios
Liquidity ratios
Activity ratios
Profitability ratios
Solvency ratios
Market ratios
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OBJCTIVES OF THE PROJECT To evaluate current performance of the company and comparing it with its past performances. To make a comparison of Escorts performance with its competitors. To assess the long-term and short-term financial soundness of the company. To find out various reasons which are responsible for the differences in the performance of Escorts and its competitors.
METHODOLOGY The methodology to be adopted for the project is explained as under: The initial step of the project was to study about the company and then evaluating the financial position of the company on the basis of ratio analysis. Then in the next step, the financial position of the company is measured with its competitors through which we would be able o identify the trend and the direction in which company and industry is moving.
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DATA COLLECTION The data has been collected in a structured form with the help of staff members of the organization considering various factors concerned with the secrecy and privacy of the organization data. The data was taken directly from the finance department. For Escorts Ltd. secondary data has been collected from annual reports of the company and data of other companies has been taken from the internet as it was available only within the organization.
DATA ANALYSIS Analysis of the data has been done both qualitatively and quantitatively and well supported by various graphs, data tables and charts. Various ratios have been used and calculated for the analysis of the company for previous five years. Not only previous ratios are used but ratios of coming two years are also calculated by using the least square method for the analysis of the company and to determine its financial health. These ratios are then used for comparison with its own ratios and with the ratios of its competitors.
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SWOT ANALYSIS
STRENGTHS Company is having good image in the market. Always able to deliver the product in time. Excellent distributorship network across India. The use of latest technology. Good quality standards of production. Provide better services all the time.
WEAKNESSES High prices as compared to the market.
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OPPORTUNITIES The growing domestic demand for food grains and agri products promises a very good future for companys core business. India being a major exporter of grains and other Agri products can increase demand both for domestic and international market resulting more sale in this sector especially TRACTORS. Government upliftment towards the loan waiver scheme can also help the farmers to attract towards the tractors. New technologies are invented for the production of the tractors which can help the company to produce tractors at a much cheaper rate and in less time. Government launching new schemes for the farmers to buy latest technologies for their farming techniques. So this sector is having wide scope to enhance its sales which results in an increase in its market share.
THREATS The sales of tractors are seasonal according to the requirement of the farmers. Even now, the farmers are unaware about the schemes and the upliftment made by the government. Many of the farmers are illiterates and does not know the various uses of tractors.
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RATIO ANALYSIS OF ESCORTS
LIQUIDITY RATIOS Liquidity refers to the ability of the firm to meet its current liabilities. Liquidity ratios therefore are also known as short-term solvency ratios. These ratios are used to judge the ability of the enterprise to pay its short-term obligations or commitments as and when due. Short-term creditors of the company are primarily interested in the liquidity ratios of the firm as they want to know how promptly or readily a firm can meet its current liabilities. A liquidity ratio primarily includes two ratios: Current ratio Quick ratio or Acid-test ratio or Liquid ratio
Liquidity ratios
Current ratio
Quick ratio
Current Ratio
The ratio which establishes the relationship between current assets and current liabilities of a business is known as Current ratio. The ratio is calculated by applying the following formula:
Current ratio =
Current Assets Current Liabilities
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Current Assets includes those assets which are either consumed or converted into cash within a period of one year. Current Liabilities are the liabilities which are to be paid within a period of one year. Significance: Current ratio is a measure of the ability of a firm to meet its short-term obligations and commitments as and when it is due. It is calculated to assess short-term financial position and liquidity of the firm. Current ratio helps management to focus their attention on efficient management of working capital. It indicates margin of safety available to short-term creditors. A current ratio of 2:1 is considered to be an ideal ratio. The higher the ratio the better it is, because the company will be able to pay its liabilities easily.
1.4 1.2 1 0.8 0.6 0.4 0.2 0 Curent ratio Quick ratio sep'05 1.04 0.75 sep'06 1.03 0.83 sep'07 1.15 0.89 sep'08 1.27 0.97 sep'09 0.97 0.7 sep'10 1.12 0.84 sep'11 1.13 0.85
Projected ratios for year 2010 and 2011 by using method of Least Square. Equations for regression line or trend line using time series: Current ratio : Y = 1.09 + 0.011 X (where X=3, 4 for 2010 & 2011 respectively in all cases) Quick ratio : Y = 0.83 + 0.004 X
Interpretation- The above graph for current ratio reveals that the ratio is continuously
increasing till 2008 and then there was a minor decrease in 2009. But projected current ratio shows that there would be an increase in ratio in the coming years 2010 and 2011. This shows that the company has a good position and has the ability to meet its current obligations with the help of current assets in future.
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Quick ratio
Quick ratio is also known as acid-test ratio or liquid ratio. It is a measure of relationship between liquid assets (quick assets) and current liabilities. Quick assets are those assets which are quickly convertible into cash without loss of value and time. While calculating quick assets, stock and prepaid expenses are excluded from current assets. Quick ratio = Current assets prepaid expenses stock Current liabilities
Significance- It is a much better test of short-term financial position or liquidity of the firm because of non-liquid current assets i.e. stock and prepaid expenses are not included in quick assets. It is used to measure ability of the firm to pay its current liabilities as and when it is due without depending upon cash generated from sale of stock.
Interpretation- In the case of acid-test or quick ratio, graph reveals that quick ratio is also
continuously increasing for first four years and then decrease to its lowest level in 2009. Similar like current assets, projected ratio shows that quick ratio will also increase in coming years. But the major point to note is that the company does not match to an ideal ratio of 1:1 in its whole period of five years which shows that company does not have very sound position to meet its short-term liabilities and it needs to be taken care off.
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ACTIVITY RATIOS Activity ratios measure how effectively the firm employs its resources. These ratios are called turnover ratios which involve comparison between the level of sales and investment in various accounts, i.e. stock, debtors, fixed assets etc. These ratios are used to measure the speed at which these various elements can be converted into sales or cash. Some important turnover ratios are: Debtors turnover ratio Creditors turnover ratio Stock turnover ratio Fixed assets turnover ratio Total asset turnover ratio
Activity ratios
Debtors turnover ratio
Creditors turnover ratio
Stock turnover ratio
Total asset turnover ratio
Fixed assets turnover ratio
Debtors turnover ratio

This ratio expresses the relationship between net credit sales and average accounts receivables. Average accounts receivables includes debtors and bills receivables. While calculating this ratio, provision for bad and doubtful debts are not deducted from total debtors, so that it may not give a false impression that debtors are collected quickly.
Debtors turnover ratio =
Net Credit Sales Avg. Debtors + Avg. B/R
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Significance- This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it means speedier collection and lesser amount being blocked up in debtors and vice-versa. By comparing the debtor turnover ratio of the current year with the previous year, it may be assessed whether the sale policy of the management is efficient or not.
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7 6 5 4
3
2 1 0 Debtor turnover ratio Creditors turnover ratio sep'05 sep'06 sep'07 sep'08 sep'09 sep'10 sep'11
5.89
4.32
7.46
4.16
6.18
3.85
4.07
3.99
5.09
3.62
4.24
3.54
3.74
3.39
Projected ratios for year 2010 and 2011 by using method of least square. Equations for regression line or trend line using time series: Debtor turnover ratio Creditors turnover ratio : Y = 5.74 0.5 X
: Y = 3.99 0.15 X
Interpretation- Debtor turnover ratio reveals about the speed with which the amount is
collected from debtors. This ratio has been fallen for two consecutive years after 2006 and then shows a little improvement which can be interpret from the increase in the ratio. Fall in this ratio is alarming for the company as it means debtors are taking more time to pay which might result in increase in bad and doubtful debts which in turn affects the net profit of the company. A projected ratio also reveals that the ratio will go down in the coming years instead of moving up. Hence, to prevent such conditions to occur in the future, there is need to apply strict credit policies which results in improvement of the ratio and thus improving the collection.
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Creditors turnover ratio

This ratio expresses the relationship between net credit purchases and average accounts payable. Accounts payable arises on account of credit purchases of goods.
Creditors turnover ratio =
Net Credit Purchases Avg. Creditors + Avg. B/P
Net credit purchases
= total purchases cash purchases purchase returns
Significance- This ratio indicates the speed with which amount is paid to the creditors. A high creditors turnover ratio or a lower credit period ratio signifies that the creditors are being paid promptly. This situation enhances the worthiness of the company. However, a very favorable ratio to this effect shows that the business is not taking the full advantage of credit facilities allowed by the creditors.
Interpretation- Creditors turnover ratio is the one which reveals about the speed with which
the amount is to be returned to the creditors and the number of creditors. And in this case, the lesser the value the more efficient is the management of credit.
This ratio is very sound for the company as it is continuously decreasing except in 2008 where a marginal increase was occurred. Projected ratios also give a positive sign which means that the ratio is continuously improving year by year and thus shows an effective management of credit.
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This ratio indicates the relationship between cost of goods sold and average stock kept during the year. Stock turnover ratio = Cost of goods sold Avg. Stock
Significance- This ratio indicates the rate at which stock of finished goods are converted into sales. It also determines how many times stock is purchased or replaced during a year. The higher the ratio, the better it is for the business, since it means the stock is being sold quickly. Concerns having too much stock turnover ratio may be operating with low margin of profit and low turnover may be due to overinvestment in stock.
14 12 10
8
6 4 2 0 Stock turnover ratio sep'05 10.37 sep'06 10.34 sep'07 13.33 sep'08 11.56 sep'09 11.99 sep'10 12.86 sep'11 13.3
Regression equation : Y = 11.52 + 0.446 X
Interpretation- Value of stock turnover ratio shows a zigzag trend, as, if it increases in first
year and it falls in another. In 2009 the ratio is increased in comparison to 2008 which is good for the company. Projected ratio also shows an increasing trend which means that the company will stock into sales more quickly than previous years. And we can also say that, the stock will be efficiently used and yields a good profit for the company which helps in improving its other profitability ratios also.
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This ratio indicates the ability of the firm to utilize its total assets to generate sales or in other words we can say, how well the assets are used in order to generate revenue. Total assets comprised of all assets including fixed assets and current assets. Total asset turnover ratio = Net Sales Total assets
3 2.5 2 1.5 1 0.5 0 Total asset turnover ratio Fixed asset turnover ratio sep'05 0.74 sep'06 0.76 sep'07 0.9 sep'08 0.83 sep'09 0.84 sep'10 0.9 sep'11 0.92
2.53
2.04
2.45
2.26
1.48
1.58
1.39
Regression equations: Total asset turnover ratio : Y = 0.814 + 0.027 X
Fixed asset turnover ratio : Y = 2.15 0.19 X
Interpretation- Total asset turnover ratio, similarly like stock turnover ratio shows an
increasing trend but having a decline in 2008 if compared to its previous year and then again starts rising. This is not the only thing which is related to this ratio, projected ratio in this case also shows an increasing trend. After looking at the projected ratios we can say that the image of the company will definitely improved and it will strongly compete with its competitors. This depicts that the assets are being utilized efficiently and effectively. Thus to maintain its position,
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company has to maintain and further improve its assets turnover so as to stand against the competitors and giving them a strong competition.
Fixed asset turnover ratio

This ratio shows the relationship between net sales of the firm and its fixed assets. Since investments are made for the purpose of efficient sales, the ratio is used to measure the fulfillment of that objective. Investments are excluded from fixed assets as they do not affect sales.
Fixed asset turnover ratio =
Net Sales Fixed Assets
Significance- This ratio measures efficiency and extent of utilization of fixed assets. Higher ratio indicates efficient utilization of fixed assets while a low ratio indicates under utilization of fixed assets.
Interpretation- Apart of showing an increasing trend for total assets and stock turnover, fixed
asset turnover is showing a different kind of pattern. This ratio is showing a more or less zigzag type of pattern. Projected ratio also shows this type of pattern, this ratio shows an increase in 2010 but decrease in 2011. This means that company in not utilizing its fixed assets properly. To prevent a decrease in the ratio in the coming years management has to think over the utilization of fixed assets otherwise this will lead to a problem and will give a chance to competitors to move up.
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SOLVENCY RATIOS These ratios are calculated to judge the ability of the firm to pay in time its long term debts. These ratios reveal as to how much amount in a business have been invested by proprietors and how much amount has been raised from the outside sources. Solvency ratios disclose the firms ability to meet the interest costs regularly and long term indebtedness at maturity. Some of the important solvency ratios are: Debt-Equity ratio Interest Coverage ratio
Solvency ratios
Debt-Equity ratio
Interest coverage ratio
Debt-Equity ratio
This ratio indicates the relationship between debts (long term liabilities) and equity (shareholder funds). It establishes proportion between external long-term funds provided by outsiders and shareholders funds. The ratio shows the degree of the indebtedness of the company. Debt-Equity ratio = Debt ( long term liabilities) Equity (shareholders funds)
Debt means long term liabilities payable after one year, such as debentures, long-term loans from banks, financial institutions, public deposits, mortgage loans etc.
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Equity (Shareholders funds) refers to equity share capital, preference share capital, general reserve, securities premium, capital reserve, credit balance of P/L account etc. However, accumulated losses and fictitious assets like preliminary expenses, discount on issue of shares and debentures, underwriting commission, share issues expenses etc. should be deducted. Significance- This ratio is calculated to determine long-term financial soundness of the business. It reveals the composition of the total long term capital. It helps to judge the ability of the firm to meet its long term obligations. The lower is the ratio, the better is the long-term solvency of the business as it reflects more security available to lenders whereas higher the ratio, more risky it is as it may put the firm into difficulty in meeting its long term obligations to outsiders.
4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5
sep'05 1.02
sep'06 0.46
sep'07 0.38
sep'08 0.36
sep'09 0.18
sep'10 -0.06
sep'11 -0.24
Debt-Equity ratio
Interest Coverage ratio
1.22
0.71
0.83
1.81
3.07
2.97
3.45
Regression equations: Debt-Equity ratio Interest coverage ratio : Y = 0.48 0.18 X
: Y = 1.53 + 0.48 X
Interpretation- The debt-equity ratio of a company is showing a declining trend continuously

over a period of five years and even in the projected years 2010 and 2011. The company has reduced the debts to a large extent because of which ratio is continuously improved from 1.02 to 0.18. In the projected years the ratio comes out to be negative which means that there would be no chances of nay debts in the future which is a much good sign for the company. The decrease of debt in the company means reduction of risks and fewer burdens on the company to pay fixed expenses of interest. So according to this ratio, we can say that the long-term financial position is sound as company is very less bounded by fixed obligations.
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Interest Coverage ratio

The ratio is used to determine how easily a company can pay interest on its outstanding debts or in other words it is measure of the number of times the company can make the payment of interst on its debt with its earnings before interest and taxes (EBIT). This ratio is being calculated by using the following formula:
Interest Coverage ratio =
EBIT Interest payable
Significance- A high interest coverage ratio is desirable from both the creditors and management point of view. A high ratio assures the lender of receiving regular interest payment. The lower ratio indicates that the company is burdened more by its debts. When the ratio is below 1.5 the ability of the company to pay its debts may be put to question and when the ratio is below 1, it can be said that the company is not generating enough revenue to pay its interest payments.
Interpretation- This ratio after showing a decline in 2006 shows an increase continuously in
a period of five years. This means that the company is improving its position significantly. In 2010, it is projected that the company might face a minor decrease in its interest coverage ratio but after that it will show a continuous increasing trend. But the minor decrease would not affect the company position as its ratio would be above the standard ratio of 2:1. Hence, on the basis of these two ratios we can say that long term position of the company is improving and satisfactory.
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PROFITABILITY RATIOS As we know that the main objective of every business is to earn profit and thus profit is the measurement of the efficiency of that business. Ratios that measure profitability of the enterprise in relation to sales or funds employed in the business are known as profitability ratios. Profitability ratios can be divided into two parts: Related to sales Related to investment
Profitability ratios
Related to Sales
Related to Investment
Gross profit margin
Net profit margin
Operating profit margin
Return on capital employed
Return on net worth
Return on total assets
On the basis sales

Gross profit margin This ratio expresses the relationship between gross profit and sales and is usually expressed in percentage.
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Gross profit ratio
= Gross Profit * 100 Net Sales = Net sales cost of goods sold = opening stock + net purchases + direct expenses closing stock = total sales sales return
Gross profit Cost of goods sold Net sales
Significance- It indicates gross margin on goods sold. No ideal ratio is fixed but normally a higher ratio is always considered a good sign so as to cover not only the remaining operating and non-operating expenses etc. but also to allow proper returns to owners. A low ratio may indicate unfavorable purchase and sales policy. It is clear indicator of efficiency and competence of management. Knowledge of gross profit margin helps a firm to decide how much the selling price can be reduced during the time of competition.
Gross-Profit margin
25 20 15 10 5 0 -5 -10 -15 -20 -25 Gross-Profit margin
sep'05 -18.96
sep'06 1.32
sep'07 3.3
sep'08 3.17
sep'09 7.42
sep'10 15.63
sep'11 21.09
Regression equation: Y = 5.46 X 0.75
Interpretation- The gross-profit margin of the company is continuously increasing over a

period of five years except a minor decline in 2008. But initially the increase in margin was low which was because of slowdown in tractor and agriculture industry. In the coming years, gross profit margin will grow very sharply as depicted by the projected ratios. This increase in grossprofit margin indicates that the rate in increase in cost of goods sold are less than rate of increase in sales, hence increased efficiency.
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Net profit ratio

Net profit is that part of profit that is left after deducting overheads and interest payable from gross profit. This ratio shows the relationship between net profit and net sales.
Net profit ratio = net profit * 100 net sales

Significance- It measures the rate of return on sales. Higher the ratio, better it is. A firm with a high net profit ratio is an advantageous position to survive in case of rising cost of production and falling selling processes. It also indicates the ability of the firm to face the adverse economic conditions in future.
Net-Profit Margin
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 Net-Profit Margin
sep'05 3.08
sep'06 1.08
sep'07 -0.31
sep'08 0.59
sep'09 4.16
sep'10 2.23
sep'11 2.4
Regression equation: Y = 1.72 + 0.17 X
Interpretation- Net-profit margin shows a declining trend during first three years but after
that the margin starts increasing. In 2005, the gross-profit margin was negative but net profit margin is positive which may be because of high non-operating income. Projected ratios reveals that the net-profit margin of the company will decrease in coming two years 2010 and 2011, so in order to avoid this decrease company might have to take appropriate measures which could prevent this upcoming downward situation. In the initial periods the gross profit margin was improved but the net profit margin was declined, it may be because of the increase in operating expenses related to sales.
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Operating profit ratio

This ratio expresses the relationship between cost of goods sold and operating expenses on one hand and net sales on the other. Operating expenses are those expenses which have been incurred in running the business operations such as office, selling and administration, distribution expenses etc. these expenses do not include the financial expenses such as interest, tax provision, bank charges etc. Operating ratio = cost of goods sold + operating expenses *100 net sales
Significance- The operating ratio is the yardstick to measure the operational level of business. It indicates optimum use of resources i.e. to earn maximum profit by incurring minimum cost. It is very useful for inter-firm as well as intra-firm comparisons. A lower operating ratio is considered very healthy sign.
Operating Profit
20 15 10 5 0
-5
-10 Operating Profit sep'05 -8.17 sep'06 5.23 sep'07 5.79 sep'08 5.3 sep'09 9.16 sep'10 13.87 sep'11 17.34
Interpretation- The operating profit ratio also shows an increasing trend during its period
except in 2008 where a slight decrease occurred. In the coming years 2010 and 2011, this margin will increase steeply. Because of its continuous improvement or continuous increase in operating-profit margin, the company now has a very sound position in the industry.
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On the basis of investments

Return on Capital Employed (ROI) It is the ratio which measures the overall efficiency of the business. As it reveals overall efficiency of the business, it assumes significance from the point of view of investors. It is ascertained by comparing profit earned and capital employed o earn that profit and expressed in percentage. ROCE = Net profit before interest and tax (PBIT) * 100 Capital Employed Significance- This ratio measures the overall efficiency of the business and one of the important test of profitability of a business. It shows how well the management has utilized the funds employed by owners and others. The higher the ratio, the more efficient the management is considered to be in using the funds employed.
ROCE
25 20 15 10 5 0 -5 -10 -15 ROCE sep'05 -13.06 sep'06 4.04 sep'07 3.68 sep'08 6.22 sep'09 9.28 sep'10 16.1 sep'11 20.79
Interpretation- Return on capital employed (ROCE) has shown a continuous increasing trend
not only during a period of five years but also during 2010 and 2011. This shows that the company is making sufficient return on the capital employed and hence, we can say that the company is using its funds more effectively and efficiently.
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Return on Net Worth (RONW) This ratio measures the profitability of the funds belonging to equity shareholders. Since, the profit available for the equity shareholders is the profit left after payment of interest, taxes and dividend. It is calculated by using the following formula: RONW = Profit after tax preference dividend * 100 Shareholders Equity Significance- This ratio measures how efficiently the funds of equity shareholders are being utilized in the business. It is a true indicator of the management efficiency since it shows the earning capacity of the equity shareholders fund. The higher the ratio the better it is since, equity shareholders will get higher dividend in this case.
RONW
7 6 5 4 3 2 1 0 -1 RONW sep'05 6.32 sep'06 1.86 sep'07 -0.58 sep'08 0.99 sep'09 6.21 sep'10 2.63 sep'11 2.52
Regression equation: Y = 2.96 0.11 X
Interpretation- This ratio has shown a decreasing trend in the first three years but in 2008
and 2009 it has shown a sign of improvement. The downward trend in the initial stages was because of falling net profit because of which return to shareholders decline as there was no profit to distribute among them. But in last two years apart from the projected one, the ratio is improved because of increase in net-profit. On the other side, projected ratio reveals a negative impact of ratio as ratio is decreasing because of decrease in net profits.
Hence, company should take appropriate measures which leads to improvement in net-profit which further leads to an improvement in RONW.
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Return on Total assets (ROTA) This ratio measures the companys earning before interest and taxes against its total assets. Return on Total assets = Profit before interest and tax * 100 Total assets Significance- This ratio indicates how well a company uses its total assets. It also measures the profitability of the investment which reflects the managerial efficiency. The higher the ratio, the better is the profit earning capacity of the firm. However, it does not reveal the profitability of different sources of funds used in purchasing the total assets and also the interest paid to creditors is not deducted from the net-profit.
ROTA
12 10 8 6 4 2 0 ROTA sep'05 10.03 sep'06 2.62 sep'07 2.47 sep'08 4.22 sep'09 6.18 sep'10 3.27 sep'11 2.66
Interpretation- This ratio is showing a declining trend over a period of three years, and then
shows an increasing trend. But in this case also, projected ratio is showing a negative impact as in 2010 and 2011 the ratio starts decreasing again. Hence we can say that, managerial efficiency in investment is not there. Thus, in this case also management has to take appropriate actions or measures and think more than once to invest their money which will result in an improvement in this ratio.
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STOCK MARKET RATIOS Market ratios measure investor response to owning a companys stock and also the cost of issuing stock. Types of market ratios are: Earning per share (EPS) Price-Earning ratio (P/E) Earning retention ratio
Stock market ratios
Earning per share (EPS)
Price-Earning ratio
Earning retention ratio
Earning per share

This ratio measures the relationship between net profit and number of equity shares. It measures the net profit earned per share. The ratio is calculated by using the following formula:
EPS = Net profit after interest, tax and preference dividend No. of Equity shares
Significance- The EPS is one of the important measures of companys economic performance and prospects of the company. The prospective investors invest their money into a company after evaluating its EPS. A higher EPS means better capital productivity and it affects the market price of shares. When EPS is calculated for number of years it gives us indication whether the earning power of the company has increased or not.
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12 10 8 6 4 2 0 -2 EPS sep'05 5 sep'06 3 sep'07 -0.87 sep'08 1.38 sep'09 9.89 sep'10 6.14 sep'11 6.96
Interpretation- Earning per share of the company in initial stages shows a declining phase for
three consecutive years, this might be because of losses that company had to suffer which leads to put pressure on the reserves of the company. But after 2007, the companys EPS starts increasing which was because of earning of profits which leads to its improvement in performance. But, according to the projected ratios for two years company might face a decrease in its EPS in year 2010 as compare to 2009, but afterwards it will continuously grow which will be indicator of its better performance.
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Price Earning Ratio (P/E ratio)

This ratio explains the relationship between current market price of share and earning per share. Price Earning Ratio = Current market price of a share Earnings per share
Significance- This ratio gives the idea of the payback period of the investment. This ratio reflects the market assessment of the future earnings potential of the company. A high P/E ratio reflects high earnings potential and low P/E ratio reflects low earnings potential. The P/E ratio reflects the confidence in the companys equity.
P/E ratio
60 40 20 0 -20 -40 -60 -80 -100 -120
sep'05 17
sep'06 37.33
sep'07 -107.93
sep'08 51.47
sep'09 15.26
sep'10 5.84
sep'11 6.91
P/E ratio
Interpretation- In the initial stages P/E ratio is showing a zigzag trend, as, if it moves up in
one year it would falls down in another year. In Sept07 the company had a very large negative value which was because of huge losses that company had to face during that period. But now the condition is better as after 2007 which was the worst time for the company, companys P/E ratio shoots up to 51.47 which again falls in 2009. Projected ratio reveals that company has to face some decline in 2010 initially after that the growth will be continually increasing. As per the present scenario, investors may have problem in deciding whether to invest amount in buying companys share or not because of fluctuating P/E ratio.
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Earning Retention ratio

The percentage of earning credited to retained earnings is known as retention ratio. In other words, the proportion of net income that is not paid out as dividends. The earning ratio is the opposite of the dividend payout ratio and thus can also be calculated as: Earning Retention ratio = Net income Dividends Net income = 1- Dividend payout ratio
Significance- This ratio is the indicator of the amount of earnings that has been distributed as dividend to shareholders as well as amount of earnings retained for further business operations. A higher ratio means a stronger financial position of the company.

102 100 98 96 94 92 90 88 86 84 Earning Retention ratio
sep'05 100
sep'06 100
sep'07 100
sep'08 100
sep'09 89.89
sep'10 91.92
sep'11 89.9
Interpretation- This ratio tells about the amount that is retained by the company to reinvests
in the business after paying dividend to shareholders. But it is seen from the above graphs that in the initial four years company did not pay any dividend to its shareholders and retained all its capital for further business operations which may be because of losses that company had faced in its bad time. But in 2009, because of good profits
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company declared dividends for its shareholders which is a sign of improvement. Projected ratios also depicts that in the coming years company will pay dividend to shareholders and thus shows indirectly that company will earn better profits. Bu in 2010, company might pay dividend to its shareholders which might be less than as in 2009, afterwards growth will be much better.
After looking at the projected ratios we can say that the image of the company will definitely improve in future and it will strongly compete with its competitors
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COMPARATIVE ANALYSIS OF ESCORTS WITH ITS COMPETITORS
Liquidity Ratios Current ratio

6 5 4 3 2
1
0 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 1.04 1.51 5.29 1.83 sept'06 1.03 1.48 4.77 1.5 sept'07 1.15 1.48 5.1 1.54 sept'08 1.27 1.23 3.59 1.56 sept'09 0.97 1.02 3.65 1.71
Interpretation- Current ratio is mainly used to give an idea of the companys ability to pay back its short-term liabilities (debt and payables) with its short-term assets (cash, inventory and receivables). The higher the current ratio, the more capable the company is of paying its obligations. A ratio under 1 suggests that the company would be unable to pay off its obligations when they arise. After analyzing the ratios of four competitors we can say HMT is the one whose ratio is above the ideal ratio of 2:1 and is improving as compared to sept08. But if we talk about Escorts the ratio is not at all satisfactory as compared to ideal ratio and is continuously improving but it again falls down last year. Current ratio of Mahindra & Mahindra is continuously falling down since last 5 years while the ratio of VST Tillers is continuously improving except a fall in sept06. If we consider the current ratio HMT has the strongest position but short term solvency cannot be decided on the basis of this ratio only because a company might be having a huge investment in the stock and prepaid expenses which are difficult to realize in very short term.
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And lower current ratio can also show the efficient working capital management if the company is not facing any liquidity crisis. So, for this purpose we calculate the quick ratio.
Quick ratio
6 5 4 3 2 1 0 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 0.75 0.93 5.07 1.12 sept'06 0.83 0.92 4.53 0.88 sept'07 0.89 1.04 4.89 1.09 sept'08 0.97 0.78 3.28 1.04 sept'09 0.7 0.73 3.45 0.96
Interpretation- Quick ratio is a rigorous measure of a firms ability to service short-term liabilities. This ratio is calculated after deducting those assets from current assets which cannot be converted into cash immediately like inventory and pre-paid expenses. Generally, an acid-test ratio (quick ratio) of 1:1 is considered satisfactory. According to this ratio only VST Tillers is the one which is close to the ideal ratio, however it is not stable and moving up and down but still manages to be around the standard. But ratio of HMT is much higher than the standard ratio and hence, it has the ability to meet its short term liabilities with its quick assets. Ratio of Escorts is also continuously improving except a shortfall in last year sept09 while ratio of Mahindra & Mahindra is continuously moving up and down. The reason behind such high current and quick ratio of HMT might be that the company invests too much in the inventory and prepaid expenses and also maintains a huge cash and bank balance followed by large number of debtors. On the basis of liquidity ratios we can say that HMT has the strongest short term position followed by VST Tillers, Mahindra & Mahindra and Escorts.
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Activity Ratios
Debtor turnover ratio
16 14 12 10 8 6 4
2
0 Escorts Ltd. Mahindra & Mahindra HMT sept'05 5.89 14.32 1.98 5.77 sept'06 7.46 13.9 2.22 6.42 sept'07 6.18 14.35 1.76 7.6 sept'08 4.07 12.67 1.44 6.96 sept'09 5.09 12.35 1.82 8.29
VST Tillers
Interpretation- This ratio measures how rapidly receivables are collected from debtors. A high ratio is indicative of shorter time-lag between credit sales and cash collection. A low ratio shows that debts are not being collected rapidly. In this case, Mahindra & Mahindra has the highest ratio among all four competitors which shows that it is able to collect receivables from debtors very quickly as compared to others. There is a continuous short-fall in the ratio except in sept07 when there was a increase but still it manages its ratio to be higher than others. Ratio of VST Tillers is also continuously improving except a decline in sept08. An escort also has a satisfactory debtor turnover ratio as it is improving if we compare it with last year. HMT has the lowest debtor ratio and is moving up and down continuously which means that HMT is unable to collect its receivables rapidly and this might be the reason which result in higher current and quick ratio. On the basis of this ratio Mahindra & Mahindra is on the top followed by VST Tillers, Escorts and HMT. HMT is at the lowest position according to this ratio.
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16 14 12 10 8 6 4 2 0 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 10.37 8.92 6.86 5.56 sept'06 10.34 9.01 6.55 6.05 sept'07 13.33 11.75 9.73 6.17 sept'08 11.56 12.49 3.95 6.03 sept'09 11.99 14.6 5.3 6.37
Interpretation- Stock Turnover ratio shows that whether the stock has been efficiently utilized or not, or the speed at which the inventory can be converted into sales. According to this ratio, among four competitors VST and Escorts shows a similar trend. Ratios of both companies were increased till sept07 and after that decrease and then again show an improvement. Both of them are very strong competitors according to this ratio and sell their inventory efficiently. Mahindra & Mahindra also shows a continuous improvement over a period of five years which is not shown by any of its competitors. But if we consider HMT we can say that ratio is not at all static and is continuously moving up and down year after year but has shown an improvement as compare to its previous year.
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2.5
2 1.5
1
0.5 0 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sep'05 0.74 1.32 0.19 2.17 sep'06 0.76 1.33 0.24 2.75 sep'07 0.9 1.22 0.13 2.74 sep'08 0.83 1.06 0.13 2.71 sep'09 0.84 0.9 0.12 3
Interpretation- This ratio indicates how efficiently a firm has utilized its total assets to generate sales. Among the four competitors, VST Tillers is the one which is most efficient in the industry and which utilized its total assets better as compared to its competitors in generating sales. Moreover, the company is showing an increasing trend in 5 years except a shortfall in sept08 where it decreased by a low margin. Mahindra & Mahindra is the one whose efficiency decreases continuously since 5 years and had not shown any improvement even in a single year. If we consider Escorts we can say that the company is utilizing its total assets better as compared to previous years as the ratio is improving continuously till sep07 and after having a shortfall in sep08 it again rises and thus shows an overall improvement. Whereas, HMT is at the bottom in utilizing its total assets for generating sales and shows a continuous decline except a marginal increase in Sep06. In order to improve its position, Escorts needs to utilize its assets more efficiently as compared to VST Tillers.
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Fixed asset turnover ratio
8 7 6 5 4 3 2 1 0 Escorts Ltd. Mahindra &Mahindra HMT VST Tillers sept'05 2.53 4.79 5.72 4.38 sept'06 2.04 5.81 7.23 4.82 sept'07 2.45 6.04 6.44 6.02 sept'08 2.26 5.95 1.43 3.37 sept'09 1.48 4.93 1.23 3.98
Interpretation- This ratio measures the ability of the company to generate net sales from their fixed assets. After analyzing these graphs and ratios we can said that VST Tillers and HMT have highest ratio as compared to the other two which means that both company were utilizing their fixed assets more efficiently than any of its competitors but the efficiency of both VST and HMT decreased drastically from 6 to 3 and 1 respectively in year 2008. Ratio of VST Tillers improved a little in 2009 but in case of HMT the ratio still falls down. In case of Mahindra & Mahindra and Escorts, the ratio was continuously decreasing since 2 years. Mahindra & Mahindra has a better position if we compared it with Escorts according to this ratio Thus we can say that, in order to compete with the competitors Escorts should utilize its fixed assets more efficiently and effectively in generating sales.
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Solvency Ratios
Debt-Equity ratio
16 14 12 10 8 6 4 2 0 Escorts Ltd. Mahindra &Mahindra HMT sept'05 1.02 0.51 14.06 0.24 sept'06 0.46 0.29 10.21 0.02 sept'07 0.38 0.46 4.81 0.05 sept'08 0.36 0.57 1.38 0.04 sept'09 0.18 0.75 1.87 0.01
VST Tillers
Interpretation- This ratio helps us in ascertaining the debt proportion as compared to the shareholders funds and is a measure of long-term financial solvency of a firm. The D/E ratio indicates the margin of safety to the creditors. The ideal ratio is 2:1. A high ratio indicates that company has higher debts as compared to owners capital and increase of debt in the company is risky as company has to pay the interest to creditors even if it faces losses in any particular year. According to this ratio, all the companies have a very sound position except HMT. Escorts is the one whose ratio is continuous decreasing or we can say there is a continuous improvement which is a good sign for the company. None of the company (Mahindra & Mahindra and VST) has such a continuous improvement if compared to Escorts. But if we consider HMT there is drastic change, its ratio is moved to1 from 14 which is a much good sign for the company but still it needs further improvement because if its previous ratios are considered then company might have to encounter serious difficulties in raising funds in future.
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Interest-coverage ratio
90 80 70 60 50 40 30 20 10 0 -10 Escorts Ltd. Mahindra &Mahindra HMT VST Tillers
sept'05 1.22 23.85 0.77 8.07
sept'06 0.71 32.17 0.97 11.84
sept'07 0.83 67.24 0.86 45.08
sept'08 1.81 14.64 0.31 42.35
sept'09 3.07 23.8 -0.14 83.44
Interpretation- This ratio is used to determine how easily a company can pay interest on its outstanding debts. On the basis of this ratio, VST Tillers is the one which has the highest interest coverage ratio in Sep 09 which is almost 3.5 times better than other competitors. Its ratio is almost double if compared to Sep08. Whereas Mahindra & Mahindra is the one which was on top till 2007 but after 2007 its net profit started declining and the proportion of debt in its capital structure is also increased because of which interest payment increased and the ratio falls. This ratio is continuously improving in case of Escorts but its position is not satisfactory as compared to its competitors. HMT has the worst position in the market and now unable to pay off the interest from its net profit, this might be because of huge loss in the industry or might be having a less profit. On the basis of this ratio, VST Tillers has the safest long term position and Escorts has to improve its profit in order to improve this ratio as this ratio is fully dependent on the profit before interest.
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Profitability Ratios
On the basis of sales
Gross Profit ratio
20 10 0 -10 -20 -30 -40 -50 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sep'05 -18.96 12.8 sep'06 1.32 12.48 sep'07 3.3 14.73 sep'08 3.17 8.12 sep'09 7.42 6.1
-4.73
10.21
0.56
11.17
-2.32
13.74
-29.21
11.54
-38.3
15.34
Interpretation- This ratio is a measure of profits in relation to sales. The above data shows that VST has the highest gross-profit margin among its competitors which indicates its strongest position in the market. Moreover, the ratio is continuously improving except a shortfall in the year 2008. Position of Escorts is also continuously improving which can be seen from the above graph except a minor shortfall in 2008. While position of Mahindra & Mahindra has shown a declining trend overall, there had been a rise in year 2007 then it again falls for two consecutive years which made its position unsatisfactory as compared to its competitors. HMT is the only one which is facing huge-huge losses and its losses are increasing every year which makes it to stand at the bottom position among its competitors.
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Net profit ratio
20 10 0 -10 -20 -30 -40 -50 Escorts Ltd. Mahindra &Mahindra HMT VST Tillers sept'05 3.08 7.85 1.88 4.42 sept'06 1.08 10.73 3.67 5.72 sept'07 -0.31 11.12 16.09 7.65 sept'08 0.59 10.21 -18.41 7.55 sept'09 4.16 6.62 -40.84 10.41
Interpretation- This ratio measures the relationship between net-profits and sales of a firm. In some cases we have seen that net-profit is positive irrespective of positive gross-profit margin, this is because company has earned huge profit from its investing and non-operating activities which made its net profit margin positive irrespective of negative gross-profit margin. VST Tillers is showing the highest net-profit margin among its competitors and also shows a continuous improvement since last 5 years except a minor decline in 2008. Net profit margin of Escorts is also continuously improving except a decline in 2007. If we look at Mahindra & Mahindra we can say that initially its net-profit margin increases for 3 consecutive years till 2007 but then it starts decreasing. HMT shows an increasing trend for three years which means that its net-profit margin increases for three years but after 2007 company is facing huge losses which results in negative net-profit margin ratio. The net-profit margin for Escorts was declined for 2 consecutive years till 2007 but from last 2 years company starts to recover from its losses and now starts earning a profit which result in positive net profit margin ratio from negative one. It might be possible that company would be the one which faces highest net-profit margin ratio within 2 years as the increase in margin is too satisfactory.
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Operating profit ratio
20 10 0
-10
-20 -30 -40 Escorts Ltd. Mahindra &Mahindra HMT VST Tillers sept'05 13.62 10.65 -19.48 10.97 sept'06 3.44 10.91 -7.04 11.75 sept'07 2.74 13 -11.5 13.75 sept'08 5.09 11.64 -27.46 13.06 sept'09 7.34 8.47 -36.21 16.36
Interpretation- Operating ratio indicates the earning capacity of the business from its core operations and it does not include non-operating items. This ratio helps to assess whether the company would be able to stand in the market or not. These ratios indicate that VST is the one whose profit margin is continuously improving, not only operating profit margin but net profit and gross profit margin also. This shows that VST is the company which has a strongest financial position among its competitors. Escorts also shows a continuous improvement trend except having a shortfall in 2005. Ratio of Mahindra & Mahindra is satisfactory as compared to the competitors other than VST Tillers but its ratio is decreasing continuously from last 2 years. Now considering HMT, it is nowhere in the competitor list as it makes huge-huge losses every year and never gives a positive margin in last 5 years. Escorts is in better position among its competitors and if it makes little more efforts then surely Escorts would be the top most company in this sector.
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On the basis of investments Return on Capital Employed ( ROCE )
50 40 30 20 10
0
-10 -20 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 -13.06 21.57 6.29 18.74 sept'06 4.04 22.16 8.2 27.41 sept'07 3.68 24.02 4.42 34 sept'08 6.22 18.26 1.49 32.27 sept'09 9.28 11.6 -0.61 48.04
Interpretation- This ratio indicates how efficiently a firm is utilizing the funds of investors and creditors in order to earn the adequate return. In this case also, ratio of VST is continuously increasing except in 2008 where there was a minor fall as compared to its previous year. However, both HMT and Escorts shows an opposite trends. In case of Escorts the ratio is continuously increasing since 2007 whereas in case of HMT the ratio is continuously decreasing since 2007. HMT also shows a negative return in the last year performance. Mahindra & Mahindra follows the VST but it is far behind it, its ROCE is almost one-fourth of VST and the ratio has also been declining in the last few years. It is positive bur has reached to all time low in these five years. Efficiency of utilizing the money of creditors and investors has been improved in the Escorts and VST but the difference is very huge whereas this efficiency has reduced in Mahindra & Mahindra and HMT Ltd.
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Return on Net Worth
40
30 20 10 0 -10 -20 -30 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 6.32 18.76 8.44 14.2 sept'06 1.86 19.52 11.06 15.88 sept'07 -0.58 20.92 6.27 22.2 sept'08 0.99 17.97 -11.88 21.53 sept'09 6.21 10.56 -23.07 31.73
Interpretation- This ratio measures how efficiently the funds of equity shareholders are being utilized in the business. The higher the ratio the better it is because the equity shareholders will get higher dividend in this case. After comparing all the four companies, we said that the company which is facing a negative performance or decreasing trend is HMT and is even unable to pay the dividend to its shareholders. But two companies VST and Escorts are very close to one another as compared with their trends because both of them shows a continuous increasing trend except in year 2006 where Escorts shows a negative trend. Till now, we can say that ratio of Escorts is continuously improving. Mahindra & Mahindra shows a continuous increasing trend for three consecutive years but after that it shows a decrease in its performance. On the basis of this ratio we can say that VST is at the top followed by Escorts, Mahindra & Mahindra and then HMT at the last position.
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Return on Total Assets
20 15 10 5 0 -5 Escorts Ltd. Mahindra & Mahindra VST Tillers HMT sept'05 10.03 14 7.35 0.46 sept'06 2.62 14.57 9.19 1.03 sept'07 2.47 15.9 12.5 2.79 sept'08 4.22 12.31 11.95 -2.88 sept'09 6.18 7.6 18.23
Interpretation- This ratio measures the profitability of the investment which reflects the managerial efficiency. The higher the ratio, the better is the profit earning capacity of the firm. VST Tillers has the highest ROTA as compared to other competitors and the profit earning capacity of the firm is continuously increasing except in year 2008 where the company faces a decline as compared to 2007. Similarly, ratio of Mahindra & Mahindra shows an increasing trend for initial three years but after that it decreases. This might be the result of increase in total assets of the company with a slight increase in the return which results in such decrease. But if we compare Escorts with Mahindra & Mahindra, Escorts is the better one as it shows a positive increase in trend in last year which is opposite in case of Mahindra & Mahindra. HMT is again at the lowest position because of gradual fall down. Overall we can say that VST has the strongest profitability position. And position of Escorts is continuously improving and gives a very strong competition to Mahindra & Mahindra but is far behind VST. HMT does not stand anywhere in between these competitors as its ratios gives a negative response.
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Market Ratios Earning per Share
60 50 40 30 20 10 0 -10 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 5 44.19 0.13 10.17 sept'06 3 38.07 0.27 12.88 sept'07 -0.87 45.15 1.05 21.79 sept'08 1.38 46.24 -0.59 25.01 sept'09 9.89 31.83 -0.93 50.2
Interpretation- EPS is a good indicator of profitability of a company and it tells about the earning power of the company. VST has the highest EPS and is continuously increasing over a period of five years and in the last year i.e. 2009 the ratio is almost become double as compared to year 2008. For Mahindra & Mahindra the earning per share (EPS) is moving up and down continuously, in year 2007 and 2008 it shows an increasing trend while in 2009 it decreases. If we talk about Escorts the ratio is improving drastically as there is a huge increase in the earning power of the company from negative to positive. Whereas HMT is now facing a negative phase which keep it out of the competition. Escorts shows a continuous improvement but the improvement is not enough as its EPS is much far behind the EPS of other competitors company and thus company has to take measures to improve the net profit of the company which will ultimately enhance the EPS and then image of the company.
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Price Earning ratio
60 40 20 0
-20
-40 -60 -80 -100 -120 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 17 10.86 11.46 7.04 sept'06 37.33 15.76 6.96 6.29 sept'07 -107.93 16.61 3.29 4.51 sept'08 51.47 15.14 -8.42 4.69 sept'09 15.26 12.57 -4.34 3.16
Interpretation- This ratio helps the investors to decide whether they have to buy the shares of a company at a particular market price or not. In this case Mahindra & Mahindra and Escorts both have a very tough competition with each other. Ratios of both companies are almost matching with each other. But if we compare amongst the two, Mahindra & Mahindra is the better one because decrease in ratio of Mahindra & Mahindra is much less as compared to decrease in ratio of Escorts in last year. P/E ratio of VST has shown a decreasing trend except in 2008 where it shows a minor increase otherwise it decreases over a period of five years. If we talk about HMT, it is the only company which decreases in all five years not even a minute increase in any of the single year. Furthermore, the company is showing a negative P/E ratio in 2008 and 2009. Thus, according to this ratio, both Mahindra & Mahindra and Escorts almostly stands together followed by VST Tillers and then HMT.
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120 100 80 60 40 20 0 Escorts Ltd. Mahindra & Mahindra HMT VST Tillers sept'05 100 70.58 100 66.76 sept'06 100 73.73 100 73.73 sept'07 100 74.53 100 78.52 75.92 82.06 sept'08 100 75.13 sept'09 89.89 68.59
Interpretation- This ratio indicates the percentage of a companys earnings that are not paid out in dividends but credited to retained earnings for further operations. If we consider Escorts and HMT, we can say that both did not pay any dividend to shareholders and thus retain the whole amount as retained earnings. But in 2009 Escorts had paid some dividend to its shareholders. The highest amount of dividend is paid by Mahindra & Mahindra in 2009. The amount of dividend paid by Mahindra & Mahindra is continuously decreasing but last year the amount is increased. While if we consider VST, the amount given to shareholders as dividend is also continuously decreasing for the first three years then there is a little rise in 2008 which is again followed by decreasing amount for shareholders. The amount which is saved as retained earnings will be used to expand the operations further which results in further increase in net profits and thus helps in improving all other ratios.
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CONCLUSION
After analyzing the ratios of Escorts and its competitors, the main thing to be noted is that the company has improved its performance very well as compared to its previous years ratios. But on the other side, the analysis shows that with the continuous improvement in performance of Escorts, Escorts is still in backward position if compared it with Mahindra & Mahindra and VST Tillers. But we can also say that because of its continuous improvement Escorts is also giving them a tougher competition and will definitely acquire a better position in the future.
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RECOMMENDATIONS Market share: The Companys main motive should be to increase their market share.
Many investors before investing see the market share in the market. So if the company wants to increase the value they have to increase the market share. This can be achieved by creating a competitive edge over its competitors. The company has to increase its sales by various means like maintaining good relationships with the customers, allowing good credit facility and also by reducing cost so as to provide a competitive price in the market. Proper marketing strategies can also help the company in having good sales.
Investments: The Company has invested in various fields which is good as it has
diversed its risk but there are some loop holes in the investment too. The company should also invest in the risk-free return also. The company didnt invest in either of the risk free return. The company should invest in the government securities and debentures so that the company should be risk free upto some percentage.
Payment policies: Payment policies followed by Escorts should be reviewed time to time
and steps should be taken for prompt payments so that the good vendor database can be maintained.
Collection period: Escorts has a low debtor turnover ratio and a very high collection
period of 90 days which implies excessive blockage of funds as debt which might result in stagnation of the business. Attempts to reduce down the debtors turnover ratio to 30 days should be made which would ensure better availability of funds for business operations.
Proper training: The personnels must be given training for proper use of equipments
and materials so as to avoid damages which will result in saving the repairs and maintenance cost.
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BIBLIOGRAPHY
Accounting for management by I.M. Pandey

www.escortsgroup.com www.escortsagri.com http://www.moneycontrol.com/financials/vsttillerstractors/ratios/VST01 http://www.moneycontrol.com/financials/mahindramahindra/ratios/MM
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FACULTY OF MANAGEMENT STUDIES MANAV RACHNA INTERNATIONAL UNIVERSITY

MANAV RACHNA INTERNATIONAL UNIVERSITY FACULTY OF MANAGEMENT STUDIES

MBA Class of 2011

MANAV RACHNA INTERNATIONAL UNIVERSITY FACULTY OF MANAGEMENT STUDIES

Mrs. Aman dhaliwal Lecturer Department of Finance

Certificate from Industry Guide

Certificate from Faculty guide

Chapter Name Introduction Introduction to industry Company profile

Recommendations & Conclusions Bibliography

KEY PLAYERS AND THEIR MARKET SHARES

Market share ( in percentage ) Companys name

1.2 0.5 8.4 0.2 7.2 4.9 0.9 0.8

market share (2009-10) in %age

DRIVERS OF TRACTOR GROWTH

CHALLENGES FOR TRACTOR INDUSTRY

RISK FACTORS OF TRACTOR INDUSTRY

High product life

RISK Increasing fragmentation of land FACTORS Lack of access to financing

Suboptimal irrigation infrastructure

PROFILES OF KEY INDIAN PLAYERS

Mahindra & Mahindra Ltd. (M & M)

TRACTORS AND FARMS EUIPMENT LIMITED (TAFE)

LEADERSHIP TEAM OF ESCORTS LIMITED

Mr. Rajan Nanda

JOINT MANAGING DIRECTOR

Mr. Nikhil Nanda

WEAKNESSES High prices as compared to the market.

RATIO ANALYSIS OF ESCORTS

Current Assets Current Liabilities

Debtors turnover ratio

Creditors turnover ratio

Stock turnover ratio

Total asset turnover ratio

Fixed assets turnover ratio

Debtors turnover ratio

Debtors turnover ratio =

Net Credit Sales Avg. Debtors + Avg. B/R

Creditors turnover ratio

Creditors turnover ratio =

Net Credit Purchases Avg. Creditors + Avg. B/P

Net credit purchases

= total purchases cash purchases purchase returns

Stock turnover ratio

Regression equation : Y = 11.52 + 0.446 X

Total asset turnover ratio

Regression equations: Total asset turnover ratio : Y = 0.814 + 0.027 X

Fixed asset turnover ratio : Y = 2.15 0.19 X

Fixed asset turnover ratio

Fixed asset turnover ratio =

Net Sales Fixed Assets

Interest coverage ratio

Regression equations: Debt-Equity ratio Interest coverage ratio : Y = 0.48 0.18 X

Interpretation- The debt-equity ratio of a company is showing a declining trend continuously

Interest Coverage ratio

Interest Coverage ratio =

EBIT Interest payable

Gross profit margin

Net profit margin

Operating profit margin

Return on capital employed

Return on net worth

Return on total assets