SRI BALAJI SOCIETY, PUNE

PROJECT REPORT ON

COMPARATIVE ANALYSIS OF THE

FINANCIALS OF CEAT TYRES AND JK TYRES

SUBMITTED TO

SRI BALAJI SOCIETY, PUNE

BY

ARINDAM DAS (MM1820189)

ANJALI (MM1820117)
AMEESHA DUBEY (MM1820182)
AKSHAY (MM1820210)
AKANKSHA VERMA (MM1820
NAMAN SETHI (TM
SHUBHI KHAMPARIA (MM1820
SHIVANI (MM1820
SHRUTI (MM1820
PREFACE

The main aim of this project is to do comparative analysis on tyre

manufacturing companies and to find out the opportunities for investment in
this sector where returns can be maximized. This report starts with the financial
analysis followed by the findings and interpretations of the ratios.

Analysis of the company

Analysis of the company has been done by looking at various factors:-
 Financial reports
 Financial publications
 News bulletins and taking guidance from it.
 From government reports.

Analysis of Ratios
Financial analysis is done by doing ratio analysis, which is further divided into
two parts:-

I.Liquidity and Solvency Analysis.

II.Profitability Analysis.
III.Working Capital analysis
ACKNOWLEDGEMENT

It is with a sense of gratitude, we acknowledge the efforts of entire hosts of

well-wishers who have in some way or other contributed in their own special
ways into the success and completion of this Financial Research Project.

First of all, we express our sage sense of gratitude and indebtedness to the
President of Sri Balaji Society, Pune – Prof. Col. A Balasubramaniam and
Directors of our Respective institutes.

Also, we express our sincere thankfulness to our project mentor- Ms. Pallavi
Mitragotri for her kind advice, suggestion and constant help in a lot of various
ways during project course.

We are also grateful to all the people who have helped us in completing our
project successfully.
Table of Content

Serial no. Topic Page no.

1 Executive Summary

2 Overview

3 Objective

4 Literature review

5 Scope, Period and Significance of the study

6 Research methodology

7 Data analysis and interpretation

8 Limitations of the study

9 Future scope of the study

10 Conclusion

11 Recommendations

13 References/Sources
EXECUTIVE SUMMARY

The main aim of this project is to do comparative analysis of the two companies
and to find out the opportunities for investment in this sector where returns can
be maximized. This report starts with the industry analysis of tyre industry
followed by the fundamental analysis of the companies.

Analysis of the Sector

Analysis of the sector has been done by looking at various factors:-
 Financial reports
 Financial publications
 News bulletins, newspaper.
 From government reports.

Analysis of Companies
Analysis of companies is done by doing equity research, which if further
divided into two parts:-
Fundamental Analysis.
Technical Analysis.

Fundamental Analysis
In fundamental analysis mainly the financial position of the company is
analysed by looking at its Profit and loss statement, Balance sheet and cash flow
statement. Annual report and investor presentations are analysed in detail.
Various models are prepared by taking historic figures and various assumptions
are taken to predict the future financial position.
Technical Analysis
Technical analysis is used to study the ratios chart patterns of these companies.
The observed patterns are tested and studied, and decision about stock is made.
Based on these factors, trend of a particular stock is observed.
This report will help the investors to know about the current growth prospects
of Indian economy in relation with cement sector. They will get to understand
various factors affecting this sector & their impact on the growth of the sector.
This report will help them in comparing the companies & predicting the future,
so that they can invest in better options & get maximum returns.
INDUSTRY OVERVIEW

The Indian Tyre Industry is an integral part of the Auto Sector – It contributes
to ~3% of the manufacturing GDP of India and ~0.5% of the total GDP directly.
So, let’s understand the dynamics of the Tyre Industry in India.

Indian tyre industry has almost doubled from ~Rs 30,000 crores in 2010-11 to
~Rs 59,500 crores in 2017-18 of which 90-95% came from the domestic
markets. The top three companies – MRF, Apollo Tyres and JK Tyres have
~60% of the market share in terms of revenue. In terms of segmentation tyres
can be divided in two ways – based on end market and based on product
COMPANY OVERVIEW

CEAT TYRES

Cavi Elettrici e Affini Torino, commonly known by the abbreviation CEAT,

is the flagship company of RPG Group. It was established in 1924
in Turin, Italy. As of date, CEAT produces over 165 million tyres a year and
manufactures tyres for passenger cars, two-wheelers, trucks and buses, light
commercial vehicles, earth-movers, forklifts, tractors, trailers, and auto-
rickshaws.The current capacity of CEAT tyres' plants is over 800 tonnes per
day.

CEAT started its journey in 1958 in Worli, Mumbai as its headquarters .CEAT
has created an impressive and reliable image for itself in Indian market after
being in for 6 years. It is the leading Indian tyre industry with a turnover of
95000+ tyres a day. One of the unique feature of most of the products of CEAT
is that they are comparatively cheaper than the rivals. And, that too without any
compromise in the product quality.

The company has a robust national network consisting of 34 regional offices

and over 3500 dealers among which approximately 100 are exclusive dealers
running the CEAT Shoppe. The main objective of the company is to construct,
produce, prepare, manufacture. For last 50 years the company has established a
strong presence in both domestic as well as global market.
JK TYRES
JK Tyre & Industries Ltd is one among the leading automotive tyre makers in
India. JK Tyre & Industries Ltd is associate degree automotive tyre, tubesand
flaps producing company based mostly in Old Delhi, India.They manufactures
Radial and Bias 4-wheeler tyres for trucks, buses rider cars, LCVs, tractors etc.
The name JK springs from the initials of Kamlapatji (1884–1937) and his father
Seth Juggilal (1857–1922). the corporate name was became JK Industries LTD
with result from national holiday, 1974 sequent upon conversion of the
corporate into a public company. they need four plants placed in Rajasthan,
Madhya Pradesh and Karnataka. the corporate has 134 sales, service and stock
points placed throughout the country. they need over three,500 dealerships
across India. The company's client base covers just about the whole Original
instrumentality makers in India along with Replacement marketplace for four
wheeler vehicles, Defence and State Transport Units. Besides India, they need a
worldwide client base in over forty five countries across all six continents. it's a
neighborhood of J. K. Organisation cluster of corporations. In 2016 it became
1st indian tyre maker to provide ten million truck/ bus radial tyres in India and it
additionally noninheritable Henry Cavendish Industries Ltd from Birla cluster.

In 2017 it entered into 2 wheeler class and launched tyres for Scooters and
Royal Enfield.

In 2018, it inaugurated 350 JK complete Shops-Steel Wheels across India

OBJECTIVE

 To study manufacturing performance of selected tyre manufacturing

companies
 To study the capital structure
 To study the profit margin and assets turnover of selected manufacturing
giants
 To study return on capital employed and appropriation of profits
 To examine the financial strength and efficiency of the two companies
 To suggest an appropriate strategy for the companies
 To make a comparative analysis/study of financial performance of the
two companies
RESEARCH DESIGN

The present study, “COMPARITIVE ANALYSIS OF JK TYRES AND CEAT

TYRES” is based on secondary data. We use the facts of information which
were already available and analyse them on our own to evaluate some of the key
areas:-

 LIQUIDITY and SOLVENCY

 PROFITABILITY
 MANAGEMENT EFFICIENCY
 OPERATING EFFICIENCY

The research work has to follow two or more type of research i.e. case
study , financial reports , project reports , efficiency research etc. ,It
means this research is a mixture of different research design.

SOURCES OF DATA COLLECTION:-

 The study is entirely based on secondary data
 The data have been collected from the relevant annual reports of JK
TYRES and CEAT TYRES, year books and various news bulletins
 The annual reports of ATMA (Automotive Tyre Manufacturers’
Association) and other related literature available on the internet and
newspapers have been consulted for data collection.
 The following websites have been consulted:
a) Www.jktyre.com
b) www.ceat.com
c) www.equitymaster.com
d) www.moneycontrol.com
e) https://auto.economictimes.indiatimes.com
f) And several others

Raw data have been first subjected to simple tabulation and then these have
been further processed to get the required form so as to represent various
variables required for the study.
LITERATURE REVIEW

Beginning with Beaver (1966) who contended that standard financial ratios can
predict thefinancial performance of firms, many subsequent studies have
attempted to demonstrate thepredictive value of various techniques for
estimating actual business performance. Manyresearch projects were undertaken
in an attempt to validate the use of financial ratios forpredicting the financial
performance of a firm. Some of the better known studies includeAltman and
Narayanan (1977), Norton and Smith (1979), and Mensah (1983). These
studies,like their predecessors, fail to demonstrate that normality of distribution
or those necessarySample assumptions have been met prior to the analysis.

Some other notable studies in this area are Boardman and Vining (1989),
Commanderetal. 1996) and La Porta et al. (1997). In the historical approach, ex
ante and ex postprivatization performance of the same enterprise is compared.
Notable studies that followedthis approach include Megginson et al. (1994),
Earle and Estrin (1997), and Dewenter andMalatesta (1998). This was not the
case in countries like Mexico, Chile and Mozambiquewhere a few years after
privatization, the institutions were experiencing financial problemswhich
quickly got transformed into a systemic crisis (Dammert and Lasagabaster,
2002)

Foster (1986) reviewed the literature describing the methods and theories for
evaluatingand predicting the financial performance and revealed that although
methods have becomeincreasingly complex, few researchers have adequately
addressed the problems associatedwith the sample used. For example, most ratio
analysis studies use multivariate analysis thatis based on the assumption of
normal distribution of the financial ratios. Without confirmingthe
approximation of normality of ratio distribution, the researchers are at a risk of
drawingeRRoneous inferences. When considering the distribution of financial
ratios in any databasethe normality of the distribution can be skewed by data
recording errors, negative denominatorsand denominators approaching zero.
Further, McLeod and Malhorta (1994) argued that theonly way to assess future
financial performance is through the inclusion of subjective measuresLasher
(2005) debt ratios show how effectively the organization uses other
people'smoney and whether it is using a lot of borrowed money. Ross et al.
(2007) expressed theconcern that most researchers divide financial ratios into
four groups, le., profitability,solvency, liquidity and activity ratios. Lemack
(2003) showed the benefits of financialratios analysis. He showed that financial
ratios are an important and well established techniqueof financial analysis. As
for the benefits of financial ratios analysis, Brigham and Ehrhardt(2010) stated
that financial ratios are designed to help evaluate financial statements.
Financialratios are used as a planning and control tool, and financial ratios
analysis is used to evaluatethe performance of an organization

Tiwari and Parray (2012) explained in detail the analysis of financial

statements of RanbaxyLtd. They provided insights into two widely used
financial tools, ratio analysis and commonsize statements analysis. The
objective of the paper was to help the reader understand howthese tools should
be used to analyze the financial position of a firm. To demonstrate the process
of financial analysis, Ranbaxy Ltd’s balance sheet and income statement were
analysed.
DATA ANALYSIS AND DATA INTEPRETATION

Here according to the Balance sheet and the Income statement of the company
we have calculated the financial ratios which lead to comparative analysis of
both the companies

Now in this section we are comparing both the companies on the basis of their
financials, wherein we are also interpreting the data collected as well as
calculated.
Return on Net Worth

Return on Net Worth is a ratio developed from the perspective of the investor
and not the company. By looking at this, the investor sees if entire net profit
was passed onto him, how much return he will be getting. It explains the
efficiency of the share holder’s capital to generate profit. Return on net worth is
a measure of profitability of a company expressed in percentage. It is calculated
as:

Return on net worth= Profit after tax

Net Worth

JK Tyres

Particulars 2017- 2016- 2016- 2015- 2014-

18 17 17 16 15
Profit 43.09 332.13 400.96 253.3 134.6
8
Net Worth 1644.2 1673.9 1416.6 1091.4 848.4
9 5 7 8 2

Return on net worth (%) 2.62058 19.8410 28.3029 23.2070 15.8742

4 9 9 2 1

Comments: The return on net worth has come down from 15.87 to 2.62 during
the period of 5 years from 2015 to 2017 due to huge decline in profits.

CEAT Tyres
Net Worth 2,546.82 2,306.15 1,991.26 1,598.54 967.1
Profit 2,546.82 2,306.15 1,991.26 1,598.54 967.1

Return on net worth 100 100 100 100 100

INTERPRETATION

Return on net worth is constant throughout the five year period which is
100% of the profits.

30

25

20

JK Tyres
15
CEAT Tyres

10

0
2017-18 2016-17 2015-16 2014-15 2013-14

INTERPRETATION

The Return on net worth of CEAT Tyres is more than JK Tyres.

Return on Capital Employed

Return on capital employed is a financial ratio that measures a company’s

profitability and the efficiency with which its capital is used. In other words the
ratio measures how well a company is generating profits from its capital. The
ROCE ratio is considered an important profitability ratio and is used often by
investors when screening for suitable investments. The formula for ROCE is:

ROCE= EBIT
Capital Employed
EBIT= Earnings before interest and tax

Capital Employed= Total Assets – Current Liabilities

JK Tyres

Particulars 2017- 2016- 2016- 2015- 2014-

18 17 17 16 15
Net Worth 1644.2 1673.9 1416.6 1091.4 848.4
9 5 7 8 2
Long Term Borrowings 1457.7 1637.2 1503.1 1415.9 1163.
8 9 3
Profit 43.09 332.13 400.96 253.3 134.6
8
Finance costs 274.12 267.58 229.03 240.8 248.3

Return on capital 0.93407 0.79265 0.80598 0.88536 0.8176944

employed (%) 5 4 3 8 3
INTERPRETATION

Return on capital employed has increased from 0.81769 to 0.93407 which is

less than Return on net worth which is a good sign.

CEAT Tyres

Net Worth 2,546.82 2,306.15 1,991.26 1,598.54 967.1

Long Term Borrowings 272.3 703.51 589.96 354.32 422.49
Finance costs 86.45 79.47 89.16 130.46 169.16
Profit 2,546.82 2,306.15 1,991.26 1,598.54 967.1

Return on capital 0.93407 0.79265 0.80598 0.88536 0.8176944

employed (%) 5 4 3 8 3

INTERPRETATION

Return on capital employed has increased from 0.81769 to 0.934075.

35.00%

30.00%

25.00%

20.00%
JK Tyres

15.00% CEAT Tyres

10.00%

5.00%

0.00%
2017-18 2016-17 2015-16 2014-15 2013-14

INTERPRETATION

Return on capital employed of CEAT Tyres is more than JK Tyres.

CURRENT RATIO

The current ratio is a liquidity ratio that measures a company’s ability to pay
short-term obligations or those due within one year. It tells investors and
analysts how a company can maximize the current assets on its balance sheet to
satisfy its current debt and other payables. It is calculated as:

Current ratio = Current Asset

Current Liabilities
JK Tyres

2017-
Particulars 2016-17 2016-17 2015-16 2014-15
18
Current Assets 2802.82 3000.45 2576.72 2477.47 2383.76
Current Liabilities 3370.03 3059.64 2684.3 2713.32 2503.94

Current Ratio 0.83169 0.980655 0.959923 0.913077 0.952004

INTERPRETATION

:The current ratio has dropped down slightly from 0.9520 in 2014-15 to 0.8316
in 2017-18, which indicates that the company does not have capital on hand to
meets its short-term obligation.

CEAT Tyres

Particulars 2017-18 2016-17 2016-17 2015-16 2014-15

Current Liabilities 1736.51 1337.61 1194.48 1537.73 1857.35
Current Assets 1748.08 1823.57 1448.58 1796.49 1663.56

Current Ratio 1.006663 1.363305 1.212729 1.168274 0.895663

INTERPRETATION

: The current ratio for CEAT Tyres has improved from 0.8956 in 2014-15 to
1.0066 in 2017-18, which indicates that the working capital is well managed
with minimum amount blocked in working capital.
INTERPRETATION

The Current Ratio of CEAT Tyres is more as compared to JK Tyres,

therefore the working capital of CEAT Tyres is well managed as compared
to JK Tyres.

Cost of Borrowings

Cost of borrowings can be defined as interest and other cost incurred by a

company in relation to the borrowing of funds. In a more technical way we can
say borrowing cost refers to the expense of taking out loan expenses like
interest payments incurred from a loan or any other kind of borrowing.

Cost of Borrowings= Finance cost

Long term borrowings

Long Term Borrowings 1457.7 1637.28 1503.19 1415.9 1163.3

Finance costs 274.12 267.58 229.03 240.8 248.3

Cost of borrowing 0.18805 0.16343 0.152363 0.170069 0.213445

INTERPRETATION

Cost of borrowings has decreased from 0.213445 to 0.18805 which implies that
company has reduced its debt obligations.

CEAT Tyres

Long Term Borrowings 272.3 703.51 589.96 354.32 422.49

Finance costs 86.45 79.47 89.16 130.46 169.16

0.31748 0.11296 0.15112 0.36819 0.4003881

Cost of borrowing 1 2 9 8 7

INTERPRETATION

Cost of borrowings has decreased from 0.40038 to 0.31748 which implies that
company has reduced its debt obligations.
0.45

0.4

0.35

0.3

0.25
JK Tyres
0.2
CEAT Tyres
0.15

0.1

0.05

0
2017-18 2016-17 2015-16 2014-15 2013-14

INTERPRETATION

The cost of borrowings of CEAT Tyres is far more than JK Tyres which implies
JK Tyres uses less external funds as compared to CEAT Tyres.
Debt-Equity Ratio

The Debt-Equity ratio or the debt to equity ratio is calculated by dividing a

company’s long term liabilities by its shareholders’ funds(net worth). The data
is available in the balance sheet of any company’s financial statements.

This ratio is used in evaluating a company’s financial leverage. It is a measure

of the degree to which a company is financing its operations through debt
versus wholly owned funds.

The formula for the D/E ratio is:

Long term

Calculating the D/E ratio of JK tyres:

Particulars 2017-18 2016-17 2016-15 2015-14 2014-13

Long term 1457.7 1637.28 1503.19 1415.9 1163.3
borrowings
Net worth 1644.29 1673.95 1416.67 1091.48 848.42

Ratio 2017-18 2016-17 2016-15 2015-14 2014-13

Debt-Equity 0.8865 0.9781 1.0611 1.2972 1.3711
INTERPRETATION

 The long term borrowings of the company is gradually decreasing,

indicating that company is giving up on its debt capital.
 The net worth, which constitutes equity shares and reserves, is also going
down as a result of declining profits.
 The decreasing D/E ratios tells us that the company is not making use of
the financial leverage.

Calculating the D/E ratio of CEAT tyres:

Particulars 2017-18 2016-17 2016-15 2015-14 2014-13

Long term 272.3 703.51 589.96 354.32 422.49
borrowings
Net worth 2546.82 2306.15 1991.26 1598.54 967.1

Ratio 2017-18 2016-17 2016-15 2015-14 2014-13

Debt-Equity 0.1069 0.3051 0.2963 0.2217 0.4369

INTERPRETATION

 There is a sharp decline in the long term borrowings of the company,

showing approx. 61.29% of fall from 2017 to 2018.
 This company is not taking advantage of the financial leverage and
residing more on own funds.
Compartive analysis:

Debt-Equity ratio
1.6
1.3711
1.4 1.2972
1.2 1.0611
0.9781
1 0.8865
0.8
0.6 0.4369
0.4 0.3051 0.2963
0.2217
0.2 0.1069

0
2017-18 2016-17 2015-16 2014-15 2013-2014

JK tyres CEAT tyres

Comparatively, CEAT tyres is not doing well in terms of debt-equity ratio as

compared to JK tyres, although we could see the sudden fall in outside funds in
both of the companies.

This could affect the long term solvency of CEAT tyres, making them fall
against the competing firm.
Net Profit Margin

The net profit margin is a measure of profitability. It is equal to how much net
income or profit is generated as a percentage of revenue.

The formula is:

The profit margin is used mostly for internal comparison. It is difficult to

compare two firms on this basis as individual businesses’ operating and
financing arrangements vary so much that different entities are bound to have
different level of costs, so the comparison of one with other have little meaning.

Calculating the net profit margin of JK tyres:

Particulars 2017-18 2016-17 2016-15 2015-14 2014-13

Profit 43.09 332.03 400.96 253.3 134.68
Revenue from 6453.35 5979.12 5880.43 6125.23 5951.08
Operations

Ratio (%) 2017-18 2016-17 2016-15 2015-14 2014-13

Net profit 0.6677 5.5548 6.8185 4.1354 2.2631
margin
INTERPRETATION

 The profits have come down by 87%, this is a very sharp decline in
profits, and this could be because of rise in total expenses.
 The Revenue is increasing at a good pace i.e. the sign of increasing sales.
 The company is not doing well and this is clearly shown by the data of
profit and the calculation of net profit margin.

Calculating the net profit margin of CEAT tyres:

Particulars 2017-18 2016-17 2016-15 2015-14 2014-13

Profit 278.72 362.73 452.52 298.97 253.78
Revenue from 6075.37 5658.25 5458.66 5542.25 5304.15
operations

Ratio (%) 2017-18 2016-17 2016-15 2015-14 2014-13

Net profit 4.59 6.41 8.29 5.39 4.78
margin

INTERPRETATION

 The revenues of the company is increasing with a fall in its profits.

 Declining net profit margin could be because of the rise in total expense
which comprises of depreciation, cost of material consumed and maybe
other off balance sheet items.
Comparative Analysis:

Net Profit Margin

9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2017-18 2016-17 2015-16 2014-15 2013-14

JK tyres CEAT tyres

CEAT tyres is making more profits than JK tyres but both at a decreasing rate.

Revenues of both the companies are increasing on a same pace but decline in
profit can be noticed more in JK tyres (by 87%).

Total expenses are rising in both, that is the cause of fall in profits.
LIMITATION

1. The data is collected from various publications. However companies may

refuse to provide some confidential financial information which may
restrict the proposed research study to limitations.
2. The proposed research study will be limited to only 2 selected companies.
Financial performance (comparison) is very wide subject and there are
many techniques available to it.
3. Time and resources are accounting for such limitations.
FINDINGS
CONCLUSION