This project tries to look into the WORKING CAPITAL MANAGEMENT IN HERO HONDA

8/7/2019 This project tries to look into the WORKING CAPITAL MANAGEMENT IN HERO HONDA

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This project tries to look into the WORKING CAPITAL MANAGEMENT IN HEROHONDA

INDEXPARTICULARS

1. Company profile

2. Analysis & Comparison

A. Working capital style in India

B. Working capital style Abroad

C. Working capital style in Automobile industry

D. Working capital constituents

E. Operating cycle

F. Ratios

G. Qualitative Analysis

COMPANY PROFILE(COMPETITORS)

TVS Motor Company’s two wheeler sales in August 07 at 102,734 units

TVS Motor Company reported total two wheeler sales of 102,734 units in August 2007compared to 135,533 units in August 2006. The overall industry slowdown witnessed bythe motorcycle segment continued in August 2007 resulting in high levels of trade stock for most players. During the month the company’s motorcycle sales recorded 46,235units compared to 83,014 units recorded in August 2006. The company is consciouslyreducing the stock of motorcycles in trade, even as it witnessed a 4% increase inmotorcycle sales over last month. TVS trade stocks will be lower than most players in the



industry.

The company has rolled out a new 110 cc StaR City, which will be available for theforthcoming festival season. Among the other models that were simultaneously rolledout, the new 125cc Flame and Apache EFI will hit the market in the coming months and

is expected to provide impetus to sales. With the other products that were rolled outexpected to hit the market in the coming months, TVS would have significant presence inthe economy, executive and premium segments. The company will also enter the threewheeler market, having already rolled out three variants Petrol, LPG and CNG in the twostroke version. Four stroke three wheelers are also expected to be launched in the comingmonths. The company hopes to capitalize on growth of the three wheeler market, whichhas witnessed a 21% compounded annual growth rate in the last five years.

TVS Scooty sales clocked 24,645 units in August 2007 compared to 23,118 unitsrecorded during the same period last year. This segment witnessed a 7% growth over thesame period last year. The company will also foray into the electric scooter market with

the roll out of its Scooty Teenz Electric that has been designed to address all the performance issues that plague the current electric vehicles.

On the export front, TVS Motor Company exported 12,006 units of two wheelers inAugust 2007 recording a growth of 9% over August 2006.

TVS Motor Co. records highest ever two wheeler sales of 15, 28,214 units in 2006-07Total motorcycle sales for the year record 15% growth records highest ever exports,crosses 1 lakh mark in 2006-07TVS Motor Company has closed the financial year 2006-07 with 15% growth in the saleof motorcycles. The motorcycles sales recorded 9,24,813 units in the financial year 2006-07 compared to 8,06,708 units 2005-06. The total two wheeler sales witnessed 14%growth by clocking 15, 28,214 units compared to 13,42,204 units recorded in the previous financial year. This represents the highest volumes ever in the history of TVSMotor Company both in motorcycles as well as in the overall two-wheeler segment. TheCompany’s scooter sales recorded 2,58,888 units in the financial year 2006-07 comparedto 2,45,276 units in 2005-06, recording a growth of 6%.On the export front too, TVSMotor Company registered its highest ever sales, clocking 1,03,013 units in the financialyear 2006-07 compared to 79,679 units last year, at a growth of 29%.

In the month of March 2007, the motorcycle sales recorded 73,239 units compared to83,896 in March 2006. The total two wheelers units sold in March 2007 were at 1, 28,207units compared to 1, 28,857 units recorded last year. The company’s March 2007 totaltwo wheelers sales saw an increase of 7% over its February 2007 performance.

The company, during March 07, launched StaR Sport, a new and compact styledmotorcycle for the economy segment. The initial response to StaR Sport has been veryencouraging and together with StaR City the company will increase its market share in



the segment. The coming year will see a spate of new launches that will spur the salesfurther.In scooters, TVS Scooty clocked 20,297 units of sales in March 2007 compared to17,410 units in the previous year. In exports, the company recorded 8,508 units in March2007 compared to 6,032 units recorded last year, at a growth of 41%.

TVS Motor Company records 7% growth in two wheelers in January’07TVS Motor Company has recorded a growth of 7% in total two wheelers during January2007 over the corresponding period in the previous year. The total two wheeler sales inJanuary 2007 stood at 121,147 units compared to 112,910 units recorded during January2006.

The company’s total motorcycle sales in January 2007 recorded 69,634 units compared to69,279 units in January 2006. The performances of brands launched last year, in

particular, StaR City Electric Start version and Apache continue to receive favourableresponse. The company’s accelerated drive in achieving top quality in all its products hasresulted in Apache winning the ‘NDTV Car & Bike – AAA viewer’s choice Bike of theYear 2007’ award, thus reinforcing customer’s preference. Last year, TVS Apache,which was awarded ‘Bike of the Year 2006’ by several leading auto magazines, waschosen as the number 1 motorcycle brand in its class, in an all India customer satisfactionsurvey conducted by TNS Automotive

StaR City ES with its attractive pricing is India’s first and only electric start 100ccmotorcycle. This coupled with the unique 5-year warranty offered on the vehicle has proved a big hit and brings great reassurance and value to the discerning motorcyclecustomers in the country.TVS Scooty recorded 20,534 units in January 2007 compared to17,957 units in the same period last year recording a growth of 14%. Scooty Pep+continues to be the market leader in the sub 100 CC scooter segment. In the export front,TVS Motor Company continued its good performance having exported 7,049 units inJanuary 2007. Exports recorded a growth of 11% compared to the same period last year.

TVS Motor Company records 28% growth in Motorcycles

Buoyed by a 28 per cent growth in its motorcycles, TVS Motor Company’s total twowheeler sales in July 2006 clocked 1,21,462 units compared to 1,01,359 units, during thesame period last year. The total two-wheeler growth stood at 20 per cent.The motorcyclesales in July 2006 were higher at 68,335 units compared to 53,215 units during the year-ago period largely due to the growing popularity of Apache and TVS StaR brands acrossall markets.

In a short period of time Apache has become the second-largest brand in the premiumsegment and the company continues to ramp up its production to meet the growingdemand. The TVS StaR brand too has achieved significant growth. During the month itcrossed the cumulative 8,00,000 unit mark.



TVS Scooty sales clocked 25,356 units in July 2006 as against 24,244 units of July 2005.The brand continued its market leadership in the sub-100 cc scooter segment. TVS Motor Company exported 10,382 units in July 2006, the highest ever export sales in a singlemonth, reflecting a growth of 15 per cent over the same period last year.

Bajaj Auto is a major Indian automobile manufacturer. It is India's largest and the world's4th largest two- and three-wheeler maker. It is based in Pune, Maharashtra, with plants inAkurdi and Chakan (near Pune),Waluj (near Aurangabad) and Pantnagar in Uttaranchal.Bajaj Auto makes and exports motorscooters, motorcycles and the auto rickshaw. TheForbes Global 2000 list for the year 2005 ranked Bajaj Auto at 1946Over the last decade, the company has successfully changed its image from a scooter manufacturer to a two wheeler manufacturer. Its product range encompasses Scooterettes,Scooters and Motorcycles. Its real growth in numbers has come in the last four years after successful introduction of a few models in the motorcycle segment.The company isheaded by Rahul Bajaj who is worth more than US$1.5 billion

.Company's historyBajaj Auto came into existence on November 29, 1945 as M/s Bachraj TradingCorporation Private Limited. It started off by selling imported two- and three-wheelers inIndia. In 1959, it obtained license from the Government of India to manufacture two- andthree-wheelers and it went public in 1960. In 1970, it rolled out its 100,000th vehicle. In1977, it managed to produce and sell 100,000 vehicles in a single financial year. In 1985,it started producing at Waluj in Aurangabad. In 1986, it managed to produce and sell500,000 vehicles in a single financial year. In 1995, it rolled out its ten millionth vehicleand produced and sold 1 million vehicles in a year

Products:Some of the models that Bajaj makes (or has made) are:

• Scooters• Bajaj Kristal DTSi• Motorcycles• Hilti Dulti Bikes• Bajaj CT 100• Bajaj Platina• Bajaj Discover 110cc• Bajaj Discover DTS-i 125cc• Bajaj XCD 125 DTS-Si• Bajaj Discover DTS-i 135cc• Bajaj Pulsar 150 DTSi• Bajaj Pulsar 180 DTSi• Bajaj Pulsar 200 DTSi• Bajaj Pulsar 220 DTS-Fi



• Bajaj Avenger

Dealers:The company has a network of 498 dealers and over 1,500 authorised service centers and

162 exclusive three-wheeler dealers spread across the country. Around 1,400 rural outletshave been created in towns with population of 25,000 and below. The current dealer network is servicing these outlets. Bajaj has identified a segment of customers 'Probikers',who are knowledgeable, appreciative of contemporary technology, they are trendsettersand very choosy about what they ride. Hence, Probikers need to be addressed in ameaningful way that goes beyond the product. Bajaj Auto is in the process of setting up achain of retail stores across the country exclusively for high-end, performance bikes.These stores are called " Bajaj Probiking". Eight such stores have been opened, viz inPune, Ahmedabad, Chennai, Hyderabad, Kolkata, Navi Mumbai, Chandigarh and NewDelhi.Another landmark has been broken in terms of the investment required to create a plant

with a capacity of 1 million vehicles annually. Bajaj Auto has directly invested only Rs.150 crores in this new manufacturing unit for an investment cost of merelyRs.1500/vehicle a benchmark perhaps unequaled elsewhere. This will enable one of theshortest payback periods for any Plant globally.Bajaj Auto, the pioneer in performance biking has further extended the portfolio with the launch of the new 200 cc ‘Pulsar’ DTS-i in New Delhi today. The latest offering has set new benchmarks in technology, performance, and styling to address the needs of a growing segment of pro-bikers.

December 07

Particulars December 2007 December 2006 Growth %MOTORCYCLES 176,441 187,063 -6TOTAL 2 WHEELERS 177,249 187,179 -53 WHEELERS 22,221 27,749 -20TOTAL 2 & 3 WHEELERS 199,470 214,928 -7Exports out of the above 50,702 39,385 29









INDUSTRY

WORKING CAPITAL OF THE INDUSTRY

• USE OF INVENTORY CONTROL TECHNIQUE: in the automobile industry, fromthe last two years, companies are more inclined toward using of information technologiesin maintain their inventory weather it is raw material or the finished goods. Manycompanies are using JUST IN TIME in controlling their inventory on the shop floors.Using JIT in controlling the inventory, company are able to reduce the handling costwhich means when the raw materials are needed for the input at that time only theinventory are brought down on the job floor.Inventory also means the finished stocks, so when the output as the finished goods are

produced then using supply chain management system , company directly send it to thecustomers so again it reduces the handling cost of the finished goods. Using supply chainmanagement system, the company also reduces the time of converting raw material intofinished goods and then selling it to end customers.

• DEBTORS - DEALERS: companies like TVS, they are more focused in system calledDEALERS MANAGEMENT SYSTEM, and this is an online network system throughwhich the companies are directly related to their dealers all over the INDIA. For examplewhen any dealers are shortage of the products then the demand is directly is send to thecompanies so the time gap is reduced in placing the order and then receiving the order.DMS system also helps in receiving the money from debtors on time, as debtors getaware when they have to pay to the company and it also helps in determining thediscounts availed in different order of lots of goods.

• DECENTRALISED CASH MANAGEMENT SYSTEM: collection of money fromdealers or other debtors is a big problem for the company these days in any industry. Inthe last two years many companies have decentralized their system in collecting the cashfrom the debtors. By this system many companies have reduced their cost of collectionfrom their debtors and even they have increased the working capital of the company.

• USE OF CREDIT DEFERRAL POLICY AS FINANCING ALTERNATIVE AND



ALSOBANK CREDIT: Many companies finance their working capital by the deferral policy of credit or by bank credit. Using deferral policy many companies are able to manage their working capital at very low cost. Use of bank credit is very old system but thing whichmatters is how they use their credit system in managing working capital. Companies try

to pay their debts as late as possible through which they can use their credit period inmanaging working capital which also not affects their goodwill in the industry.

WORKING CAPITAL

CONSTITUENTS

HERO HONDA MOTORS LTD:The major components of the working capital of Hero Honda Motors Ltd are Inventory,Debtors, Cash and Bank balance and the Creditors. In this working capital structure thereare few interesting things to note and analyse. These are as follows No short term bank borrowings: There are no short term bank borrowings taken by thecompany to finance the current assets of the company. This is mainly because the currentassets of the company are finance by the credit deferral toward its creditors. Negative working capital: The working capital of the company is negative this is becausethe current liabilities of the company are more than the current assets of the company.The reason behind this is that at any given point of time the amount blocked in creditorsis more than the amount blocked in its current assets, mainly in the inventory cash anddebtors.Lower current ratio: The current ratio of the company is very low (this is discussed later)which indicates that the company is following aggressive policy. Under this policy thecompany does not have the short term liquidity but the amount blocked in the networking capital is zero which gives the company more profitability.

BAJAJ AUTO LTDThe major components of the working capital of BAJAJ MOTORS LTD Ltd areInventory, Debtors, Cash and Bank balance and the Creditors. In this working capitalstructure too there are few interesting things to note and analyse. These are as followsPresence of short term borrowing: in order to finance its current assets bajaj auto had totake shortterm borrowings from the bank. This was the highest in the year 2002-03,followed by the year 2006-07. In the intervening years the borrowings from the bank were minimal and was even nil for the year 2004-05. This trend comes as a consequenceof the changes in the net working capital that has been explained next. Net Working Capital: the net working capital of Bajaj auto is negative for most of theyears except for the year 2002-03 when it was positive. The reason for this has already been given while explaining the negative working capital for Hero Honda. However oneinteresting thing to note is that the company’s short term borrowing was the maximum in



the same year when its net working capital was also maximum. We will see an interestingtrend regarding this relationship between NWC and short term borrowings when wediscuss TVS.Current Ratio: the current ratio for the company is less than 1 for most of the years exceptfor the year 2002 -03. This shows that the company is following an aggressive policy.

But again as compared to Hero Honda the company seems less aggressive which can beseen from the higher values of its current ratio.

TVS AUTO Co.The components of the working capital are the same as in the earlier two companiesdiscussed. The other things to be noticed are as follows:

Presence of short term borrowings: TVS motors have been taking short term loans tofinance its current assets. Hence the relationship between net working capital and theshort term borrowing mentioned earlier is more prominent in the case of TVS motors.

Whenever the working capital is positive the company has gone for short term borrowings. This will become apparent from the following data

constituents 02-03 03-04 04-05 05-06 06-07Short term Borrowings 16.13 -10.71 -5.42 34.12 70.02 NET WORKING CAPITAL -9.06 -17.38 4.27 34.6 125.63

Net working capital: the net working capital for TVS for the first two years i.e. 2002-03and 2003-04 was negative where as the same for the later years is positive throughout andis constantly increasing. This shows that the company’s current assets were greater thanthe current liabilities and a part of the net working capital was financed by the short term borrowings. In the year 2005-06 almost the complete gap in the working capital wasfinanced by the short term borrowings.

Current ratioThe current ratio for the company is constantly increasing and has been greater than onefor the past three years i.e. since 2003-04. This is a marked shift from its earlier aggressive policy when the current ratio was less than one.

OPERATING





The trend is the same across all the companies as there has been a sudden increase in the prices of raw materials( steel, nickel and aluminium ) and that’s why the receivables areincreasing throughout the industry. As they want to have better relationship with their creditors.

Creditors deferral period : the time taken to pay back our creditors.The hero Honda is cashing on the better relationship with their suppliers and the cashdiscount they give, they are capitalizing on that. Whereas bajaj auto ltd. And TVS areincreasing their creditors deferral period as they want to pay their creditors late and keepthe money with them as they want to invest this money in other areas.

RATIO

ANALYSIS

Current ratio and quick ratio: it is the ratio of the current assets to current liabilities.In the case of hero Honda it is low, showing the aggressive polices the hero Honda isfollowing and the same case is with the bajaj but in case of TVS it is increasing as theyhave a conservative approach.

Inventory turnover: how many times do you convert your inventory in a year?In the case of hero Honda we see a gradual increase in the inventory turnover whereas incase of bajaj auto ltd there is a sudden increase the reason cited is the better percentageincrease in the sales of hero Honda and also the raw mater costs as a perentage of totalsales increase from 69.5% to 72.5% i.e. a increase of 3%. But in the case of TVS it isconstantly decreasing because of their aggressive approach.

No. of day’s inventory: how many days do we keep the total inventory?There has been a constant decline in hero Honda and bajaj auto ltd. As their conversionof inventory is better because of their efficient operations and their JIT and SAP in placewhereas in case of TVS it is increasing because they have a conservative approach andthey keep a high level of safety stock.Debtors turnover: the number of times in a year your debtors are converted into cash?What we see here is a trend in the entire industry for the last three years its decreasing ashero Honda has implemented dealer management system where they sell their product tothe dealers and then the dealers sell it to the consumers.

Current assets to fixed assets ratio: this shows what kind of policy we are following a



high ratio shows conservative approach whereas a low ratio shows aggressive approachand that’s what we see in the hero Honda and bajaj auto ltd. A aggressive approachwhereas in TVS a conservative approach.

QUALITATIVE

ANALYSIS

QUALITATIVE ASPECTS OF THE COMPANY:WHAT IS?VENDOR MANAGEMENT SYSTEM: vendors are the suppliers of the company which

supply raw materials or other goods which is required to produce the final product.Vendors’ management is also known as the suppliers’management. It is informationtechnology method which supports the process and management of acquiring the inputsor raw materials from the suppliers.Tasks associated with vendor management are:• Managing suppliers performance• Negotiating with the suppliers• Obtaining and evaluating quotes from suppliersThe performance of supply management departments and supply management professionals is commonly measured in terms of amount of money saved for theorganization.JUST IN TIME: it is an integrated set of activities designed to achieve high-volume production using minimal inventories of raw materials that arrive at the workstationsexactly when they are needed. JIT helps in avoiding waste, machine downtime and it alsokeeps proper check on the quality aspect of the inventory.ENTERPRISE RESOURCE PLANNING: ERP is software which integrates the differentfunctions in the organizations. It eliminates the need to obtain different applications for each of the business needs.SUPPLY CHAIN MANAGEMENT: it is a technique in which the idea is to apply a totalsystems approach to managing the entire flow of information, materials, and servicesfrom raw materials suppliers through factories and warehouses to the end customers.DEALERSHIP MANAGEMENT SYSTEM: this is a program which manages the entiredealer of the company which improves the communication level between dealers and thecompany and it also reduces the cost of handling them

IMPLICATIONS IN THE COMPANY:HONDA: IT has a direct online network with its suppliers to ensure a seamless flow of parts from vendors to its units. Through vendors management system HONDA hasreduces it manufacturing and processing cost from to 1.74% to 1.64%.To improve the efficiency and inventory cost, it is also using the concept of JUST IN



TIME beyond the shop floors. With the help of vendors management HONDA uses onlythe required inventories which is to be processed as to avoid the inventory cost on theshop floors. Through this concept the raw materials can be properly checked on theaspect of quality the company is also able to reduce the handling cost of inventory on the job floor.

The implications of vendor management system in HONDA, has increased the totalnumbers of vendors to 135 from 46 and in the same time the ordering cost and handlingcost have also decreased which in the end affecting the company’s working capital. Thecompany places online order to the suppliers which is reducing the time gap taken insupply of raw materials.HONDA also uses the enterprise resource planning which is SAPR/3 through which it isable to integrate its different functions inside the organization. Using the ERP System,Honda was easily able to implement the new system of VAT when it was implemented by Haryana government, without much investment in its financial system.BAJAJ:Bajaj is one of the companies in automobile sector in India which is using ERP system

and supply chain system. Through supply chain management, the company is able toreach the zero defects point in which the cost of selling the products to the end customersis reduced. The supplier also supplies the raw materials to the company at the right timewhich reduces the idle time cost.

TVS:To reduce the working capital cost, TVS uses the concept of dealership managementsystem. TVS is able to manage the entire 280 dealer under them and also dealer uses thissystem. When the dealers face any shortage of product, it directly informs the companywhich instantly cover up the shortages faced by them. Through DMS, TVS is able tomanage its entire dealer with less cost which reduces the working capital of the company.Company is also using the supply chain system in order to manage the entire network from supplier to customers.Advertisement

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This project tries to look into the WORKING CAPITAL MANAGEMENT IN HERO HONDA