A STUDY ON ASSET MANAGEMENT OF SELECTED AUTOMOBILE COMPANIES IN INDIA

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1 51 A STUDY ON ASSET MANAGEMENT OF SELECTED AUTOMOBILE COMPANIES IN INDIA ABSTRACT DR.M. DHANABHAKYAM*; S.KAVITHA** *Assistant Professor, Department of Commerce, Bharathiar University, Coimbatore **M.Phil Scholar, Department of Commerce, Bharathiar University, Coimbatore Asset Management is an important part of the financial sector throughout the world. It manages huge amounts of investments and helps clients reach a financial goal within a specific period of time. It offers a wide range of investment options. However, with the growing complexity in financial markets, investors are demanding more options. Asset Management is a system in which large or small organizations keep an updated and detailed list of everything the organization owns and spends. The study is based on secondary data and tools used for analysis are Ratio Analysis and Correlation Analysis. Asset management can help to improve the strength and growth of your organization by tracking wasteful investments. It also helps to reduce wasteful spending and improve more profitable and productive investment and also help in making long and short term goals easier and more profitable for your organization. It will also help to keep your organization organized and running as smoothly as possible, making it easy to make an educated decision for your organization based on concrete facts rather than guess work. KEYWORDS: Clients, complexity, investment, investors, productive, tracking. INTRODUCTION ASSET MANAGEMENT "Asset management is managing infrastructure assets to minimize the total cost of owning and operating them while continuously delivering the service levels customer s desire." -- From the publication, Managing Public Infrastructure Assets Asset Management may be defined as a comprehensive and structured approach to the long term management of assets as a tool for the efficient and effective delivery of community benefits. The emphasis is on the assets being a means to an end, not an end in themselves (Austroads, 1997). Asset management refers to a systematic process of effectively maintaining, upgrading and operating assets, combining engineering principles with sound business practice and economic rationale and providing the tools to facilitate a more organized and flexible approach for making decisions necessary to achieve expectations of stake holders and the public.

2 52 FIXED ASSET MANAGEMENT Assets of the type which we are considering here are physical items such as plant, machinery, buildings, vehicles, pipes and wires, and associated information and technical control and software systems that are used to serve a business or organizational function. A Fixed asset (also called non-current asset) is a physical item which has value over a period exceeding one year, for example, land, buildings, plant and machinery. When fixed assets are acquired, their cost cannot be counted as expense for tax purposes in the year of acquisition when we buy or sell fixed assets we are regarded as having swapped one asset-money- for another asset, a machine. For example. Only the depreciation of the machine in any given year is considered to be an expense in the year. This is important as far as tax treatment is concerned. Slow moving spares which normally held for longer than one year should be regarded as fixed assets. CURRENT ASSET Current asset is an asset which is expected to be sold or otherwise used up in the near future, usually with one year. Current assets includes cash, cash equivalents, accounts receivable, inventory, the portion of prepaid accounts which will be used with in a year and short term investments, these all should be effectively managed. Current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. The current assets are therefore ones that can be quickly realized and changed frequently. The main current assets are stock, debtors and cash. Current asset management plays an important role in decision making. AUTOMOBILE INDUSTRY The automotive industry in India is one of the largest industries and a key sector of the economy. The Indian automotive industry started from 1991 with the government s delicensing of the sector and subsequent opening up for 100 percent FDI through automobile route. Since then many large global companies have set up their facilities in India taking the production of vehicle from 2 million in 1991 to 9.7 million in It contributes about 4 percent in India s gross domestic product (GDP) and 5 percent in India s industrial production. The annual growth rate in automobile industry is between 16% to 18% passenger car market in India remains very attractive on the back of robust economic growth, rising disposal incomes and abundance of finance at reasonable rates of interest. Auto industry has achieved a cumulative annual growth rate (CAGR) by 22 percent between outstripping industries production growth by about 30 percent. In 2009, a monthly sale of passenger cars in India exceeded 100,000 units and has since grown rapidly to a record monthly high of 182,992 units. From 2003 to 2010, car sales in India have progressed at a CAGR of 13.7%, and with only 10% of Indian households owning a car in The well developed automotive industry ably fulfills this catalytic role by producing a wide variety of vehicles like passenger cars, medium and heavy commercial vehicles, multi-utility vehicles such as jeeps, scooters, motor cycles, mopeds, three wheelers, tractors etc. A well developed transportation system plays a key role in the development of an economy and India is no exception to it. With the well developed transportation system the auto industry of India is also growing at rapid speed, occupying an important place on the

3 53 canvas of Indian economy. Advanced materials and manufacturing technologies for using alternative fuels, emission abatement, fuel economy improvement, safety enhancement, engine management systems and embedded vehicle control system are some of the area where effort must be taken. OBJECTIVES OF THE STUDY The major objective of the study is to analyze the efficient asset utilization of the selected automobile companies. The following are the specific objectives of the study. 1) To assess the efficient utilization of the assets of the selected automobile companies. 2) To determine the financing pattern of the assets of the selected automobile companies. 3) To offer suggestions on the basis of the results of the study. METHODOLOGY To achieve the above mentioned objectives of the study the following methodology has been adopted. Ratio analysis and Correlation Analysis is used to assess the utilization and financing pattern of the assets. FRAMEWORK OF ANALYSIS To analyze the Asset Management of Auto Mobile Industry, Ratio analysis has been applied as a prime tool. Further Mean, Standard deviation, Co-efficient of Variation, Compound Annual Growth Rate (CAGR). RATIO ANALYSIS Inventory Turnover Ratio. Debtors Turnover Ratio. Working Capital Turnover Ratio. Fixed Assets Turnover Ratio. Total Asset Turnover Ratio. Sales to Capital Employed. SOURCES OF DATA This study covers the period of ten years from The data used in this study are secondary in nature. The financial data of companies belonging to automobile companies are taken from Capital Line plus Database.

4 54 REVIEW OF LITERATURE Parvinder Aroa And Bhavna Rajan(2005) in their study The asset and liability management practices in commercial banks in India exhibited that asset and liability management provides solutions to a number of problems encountered by banks-test had been used for analyzing the asset and liability management position in commercial banks. Some of the reasons for increased importance of asset and liability management are financial volatility, introduction of new financial products and heightened awareness of the top management.the risk arises from holding from holding assets with different amounts when the bank has negative mismatch that is its maturing liabilities are more than assets, its net interest margin or earnings will decline in a rising interest rate and reverse will happen in a falling interest rate. Kapil Sharma And P.R. Kulkarni (2006) in their study Asset liability management approach in Indian banks Focused asset and liability management as a part of overall risk management system. Correlation and multiple regression analysis were used and ten Indian banks were taken for the study. It attempts to provide a degree of protection for the institution and makes risk acceptable. The scope of asset and liability management includes liquidity risk management, management of market risks, capital planning and profit planning.the usage of asset and liability management in banks is not much beneficial now. It is better to give a standard model so as to overcome the deficiencies. Banks should prepare contingency plans to measure their ability in assets and liabilities. The supervisors would require developing skills in strengthening the asset and liability management. TABLE 1 INVENTORY TURNOVER RATIO YEAR Apollo Ashok Bharat Bosch Cummins

5 55 Mean SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 1 reveals the inventory turnover ratio of selected automobile companies in India from to The inventory turnover ratio ranges between 6.66 percent and 9.36 percent. The lowest inventory turnover ratio is found in Bharat Forge Ltd and the highest inventory turnover ratio is found in Apollo Tyres Ltd. The companies namely Bharat forge Ltd, and Ashok Leyland Ltd show low inventory turnover ratio when compared to other companies. The standard deviation of inventory turnover ratio ranges between 1.04 percent and 2.59 percent. The lowest standard deviation is found in Bharat Forge Ltd and the highest standard deviation is found in Bosch Ltd. It shows high variation in the inventory turnover ratio. The co-efficient of variation of inventory turnover ratio ranges between 0.14 percent and 0.24 percent. The lowest co-efficient of variation is found in Apollo Tyres Ltd and the highest co-efficient of variation is found in Ashok Leyland Ltd. It is also inferred that the compound annual growth rate of inventory turnover ratio has been registered from 0.02 to TABLE 2 DEBTORS TURNOVER RATIO YEAR Apollo Ashok Bharat Bosch Cummins

6 MEAN SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 2 reveals the debtor turnover ratio of selected automobile companies in India from to The debtor turnover ratio ranges between 3.63 percent and percent. The lowest debtor turnover ratio is found in Cummins India Ltd and the highest debtor turnover ratio is found in Apollo Tyres Ltd. The companies namely Bharat Forge Ltd and Cummins India Ltd show low debtor turnover ratio when compared to other companies. The standard deviation of debtor turnover ratio ranges between 0.35 percent and 3.29 percent. The lowest standard deviation is found in Bharat Forge Ltd and highest standard deviation is found in Apollo Tyres Ltd. It shows high variation in the debtor turnover ratio. The co-efficient of variation of debtors turnover ratio ranges between 0.09 percent and 0.42 percent. The lowest co-efficient of variation is found in Bharat Forge Ltd and highest coefficient of variation is found in Ashok Leyland Ltd. It is also inferred that the compound annual growth rate of debtors has been registered from 0.01 to TABLE 3 WORKING CAPITAL TURNOVER RATIO YEAR Apollo Ashok Bharat Bosch Cummins

7 MEAN SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 3 reveals the working capital turnover ratio of selected automobile companies in India from to The working capital turnover ratio ranges between 3.43 percent and 6.69 percent. The lowest working capital turnover ratio is found in Bosch Ltd and the highest working capital turnover ratio is found in Ashok Leyland Ltd. The companies namely Bharat Forge Ltd and Cummins India Ltd shows low working capital turnover ratio when compared to other companies. The standard deviation of working capital turnover ratio ranges between 0.55 percent and percent. The lowest standard deviation is found in Bosch Ltd and highest standard deviation is found in Apollo Tyres Ltd. It shows high variation in the working capital turnover ratio. The co-efficient of variation of working capital turnover ratio ranges between 0.14 percent and 0.71 percent. The lowest co-efficient of variation is found in Bosch Ltd and highest co-efficient of variation is found in Ashok Leyland Ltd. The Compound annual growth rate of Working Capital turnover ratio has been registered from 0.06 to 0.11.

8 58 TABLE 4 FIXED ASSET TURNOVER RATIO YEAR Apollo Ashok Bharat Bosch Cummins MEAN SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 4 reveals the fixed assets turnover ratio of selected automobile companies in India from to The fixed assets turnover ratio ranges between 0.87 percent and 3.09 percent. The lowest fixed assets turnover ratio is found in Bharat Forge Ltd and the highest fixed assets turnover ratio is found in Cummins India Ltd. The companies namely Bharat Forge Ltd and Ashok Leyland Ltd shows low debt collection period when compared to other companies. The standard deviation of fixed assets turnover ratio ranges between 0.16 percent and 1.05 percent. The lowest standard deviation is found in Bharat Forge Ltd and highest standard deviation is found in Cummins India Ltd. It shows high variation in the fixed assets turnover ratio. The co-efficient of variation of fixed assets turnover ratio ranges between 0.19 percent and 0.31 percent. The lowest co-efficient of variation is found in Bharat Forge Ltd and highest co-efficient of variation is found in Ashok Leyland Ltd.

9 59 The Compound annual growth rate of fixed assets turnover ratio has been registered from 0.06 to TABLE 5 TOTAL ASSETS TURNOVER RATIO YEAR Apollo Ashok Bharat Bosch Cummins MEAN SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 5 reveals the Total assets turnover ratio of selected automobile companies in India from to The total assets turnover ratio ranges between 0.64 percent and 1.46 percent. The lowest total assets turnover ratio is found in Bharat Forge Ltd and the highest total assets turnover ratio is found in Hero Honda Motors Ltd. The companies namely Bharat Forge Ltd, Bosch Ltd and Cummins India Ltd show inefficiency in using the assets for achieving higher sales of the company when compared to other companies. The standard deviation of total assets turnover ratio ranges between 0.14 percent and 0.28 percent.the lowest standard deviation is found in Bharat Forge Ltd and the highest standard deviation is found in Apollo Tyres Ltd. It shows high variation in the total assets

10 60 turnover ratio. The co-efficient of variation of total assets turnover ratio ranges between 0.10 percent and 0.28 percent. The lowest co-efficient of variation is found in Apollo Tyres Ltd, and the highest co-efficient of variation is found in Ashok Leyland Ltd. The Compound annual growth rate of total assets turnover ratio has been registered from to TABLE 6 SALES TO CAPITAL EMPLOYED YEAR Apollo Ashok Bharat Bosch Cummins MEAN SD CV CAGR Source: Compiled and Calculated from the data published in CMIE Table 6 reveals the Sales to capital employed of selected automobile companies in India from to The Sales to capital employed ranges between 1.15 percent and 2.94 percent. The lowest Sales to capital employed is found in Bharat Forge Ltd and the highest Sales to capital employed is found in Apollo Tyres Ltd. The companies namely Bharat Forge Ltd, Cummins India Ltd show that capital employed was not properly used in generating sales when compared to other companies.

11 61 The standard deviation of Sales to capital employed ranges between 0.43 percent and 0.80 percent. The lowest standard deviation is found in Bharat Forge Ltd and the highest standard deviation is found in Ashok Leyland Ltd. It shows high variation in the Sales to capital employed. The co-efficient of variation of Sales to capital employed ranges between 0.23 percent and 0.38 percent. The lowest co-efficient of variation is found in Bosch Ltd and Cummins India Ltd and the highest co-efficient of variation is found in Bharat Forge Ltd. The Compound annual growth rate of Sales to capital employed has been registered from to TABLE 7 CORRELATION ANALYSIS OF APOLLO TYRES LTD WCTR ITR DTR FATR TATR STCE WCTR Pearson Correlation 1 ITR Pearson Correlation -.532* 1 DTR Pearson Correlation FATR Pearson Correlation TATR Pearson Correlation ** 1 STCE Pearson Correlation **.924 ** 1 ** Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed). Table: 7 reveals the correlation between the independent variables namely, Inventory turnover ratio, Debtors turnover ratio, Fixed asset turnover ratio,total assets turnover ratio and Sales to capital employed as well as the correlation between the dependent variable, Working Capital Turnover Ratio of Apollo Tyres Ltd. It can be seen from the above table that the positive correlation is between Total assets turnover ratio to Sales to capital Employed (.924) at 1 per cent level of significance, however the negative correlation records between Working capital turnover ratio to Inventory turnover ratio (-.532) at 5per cent level of significance. However, there is a moderate level of correlation between dependent variable and independent variables.

12 62 TABLE 8 CORRELATION ANALYSIS OF ASHOK LEYLAND LTD WCTR Pearson Correlation 1 ITR Pearson Correlation DTR Pearson Correlation.868 **.643 * 1 ** Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed). WCTR ITR DTR FATR TATR STCE FATR Pearson Correlation **.740 * 1 TATR Pearson Correlation **.714 *.966 ** 1 STCE Pearson Correlation **.819 **.912 **.939 ** 1 Table:8 reveals the correlation between the independent variables namely, Inventory turnover ratio, Debtors turnover ratio, Fixed asset turnover ratio, Total assets turnover ratio and sales to capital employed as well as the correlation between the dependent variable, Working Capital Turnover Ratio of Ashok Leyland Ltd. It can be seen from the above table that the positive correlation is between fixed asset turnover ratio to total assets turnover ratio (.966) at 1 per cent level of significance and there is no negative correlation between the dependent variable and independent variables. However, there is a moderate level of correlation between dependent variable and independent variables. TABLE 9 CORRELATION ANALYSIS OF BHARAT FORGE LTD WCTR ITR DTR FATR TATR STCE WCTR Pearson Correlation 1 ITR Pearson Correlation DTR Pearson Correlation FATR Pearson Correlation ** TATR Pearson Correlation ** STCE Pearson Correlation.908 ** ** 1 **Correlation is significant at the 0.01 level (2-tailed). Table:9 reveals the correlation between the independent variables namely, Inventory turnover ratio, Debtors turnover ratio, Fixed asset turnover ratio, Total assets turnover ratio and sales to capital employed as well as the correlation between the dependent variable,

13 63 Working Capital Turnover Ratio of Bharat Forge Ltd. It can be seen from the above table that the positive correlation is between Total assets turnover ratio to Sales to capital Employed (.980) at 1 per cent level of significance, however the negative correlation records between Working capital turnover ratio to total assets turnover ratio (-.889) at 1 per cent level of significance. However, there is a moderate level of correlation between dependent variable and independent variables. TABLE 10 CORRELATION ANALYSIS OF BOSCH LTD WCTR Pearson Correlation 1 WCTR ITR DTR FATR TATR STCE ITR Pearson Correlation DTR Pearson Correlation FATR Pearson Correlation TATR Pearson Correlation.766 ** ** * 1 STCE Pearson Correlation.785 ** * **.972 ** 1 ** Correlation is significant at the 0.01 level (2-tailed). *Correlation is significant at the 0.05 level (2-tailed). Table:10 reveals the correlation between the independent variables namely, Inventory turnover ratio, Debtors turnover ratio, Fixed asset turnover ratio,total assets turnover ratio and Sales to capital employed as well as the correlation between the dependent variable, Working Capital Turnover Ratio of Bosch Ltd. It can be seen from the above table that the positive correlation is between Total assets turnover ratio to Sales to capital Employed (.972) at 1 per cent level of significance, however the negative correlation records between inventory turnover ratio to sales to capital employed (-.705) at 5 per cent level of significance. However, there is a moderate level of correlation between dependent variable and independent variables. TABLE 11 CORRELATION ANALYSIS OF CUMMINS INDIA LTD WCTR Pearson Correlation 1 ITR Pearson Correlation.739 * 1 DTR Pearson Correlation.835 ** WCTR ITR DTR FATR TATR STCE FATR Pearson Correlation *.853 **.618 1

14 64 TATR Pearson Correlation ** ** 1 STCE Pearson Correlation.691 *.859 ** **.961 ** 1 *Correlation is significant at the 0.05 level (2-tailed). **Correlation is significant at the 0.01 level (2-tailed). Table:11 reveals the correlation between the independent variables namely, Inventory turnover ratio, Debtors turnover ratio, Fixed asset turnover ratio,total assets turnover ratio and Sales to capital employed as well as the correlation between the dependent variable, Working Capital Turnover Ratio of Cummins India Ltd. It can be seen from the above table that the positive correlation is between Fixed asset turnover ratio and Total assets turnover ratio to Sales to capital Employed (.961) at 1 per cent level of significance, however the negative correlation records between Working capital turnover ratio to fixed asset turnover ratio (-.747) at 5 per cent level of significance. However, there is a moderate level of correlation between dependent variable and independent variables. SUGGESTIONS The following suggestions are made so as to improve the financial strength of automobile industry in India. Investment in current assets should be reduced and to proportional volume of sales. Collection policy may be modified for speeding up of receivables. Inventory turnover ratio has to be increased in order for efficient management of stock and increase the profit. The automobile companies should try to plough back for expansion and diversification and avoid dependence on external borrowings. This will improve profits. Cost cutting measures must be taken by the automobile companies in order to increase their profits by avoiding wastages and by reducing unproductive expenses. CONCLUSION The Asset Management of the selected automobile industry has been analyzed using different parameters. The selected automobile companies are Apollo Tyres Ltd, Ashok Leyland Ltd, Bharat forge Ltd, Bosch Ltd, Cummins India Ltd. The globalization is pushing auto majors to consolidate, upgrade technology, enlarge product range, access new markets and cut costs. The selected automobile companies has performed well in efficient utilization of asset and financing pattern of asset and this will help the companies to take the important financial decisions on the fixed and current assets. The asset management is a process of continuous improvement. Its aim is always to optimize asset related activities to achieve the primary goal of asset management and it helps to take decisions efficiently to avoid loss in assets. The automotive industry across the world has great potential to trigger sustained

15 65 employment, mobility, inter-sectoral industry growth and thus conduce conditions for general economic and social well being. There is need of co-ordinate research and development, standardization of designs and broader technologies, effective cost cutting and loosening of barriers across the globe. REFERENCES Khan M.Y and Jain P.K, Financial Management: text and problems, Tata MC Grew Hill Publications, New Delhi Parvinder Aroa, Bhavna Rajan (2005), The asset and liability management practices in commercial banks in India the ICFAI journal of applied finance, vol.13, no.10, pp Kapil Sharma And P.R. Kulkarni (2006), Asset liability management in Indian banks, the journal of accounting and finance, vol.20, no.2, pp.4-13 Maheswari S.N, Principles of Management Accounting, Sultan Chand & Sons Educational Publishers, New Delhi. OmPrakash, Ratio Analysis for Management in new prospective- Management ratio, Himalaya publishing House, New Delhi. Ravi M. Kishore, Financial Management, Taxmann Allied services Pvt Ltd. JOURNALS AND MAGAZINES The Hindu Survey of Indian Industry The Journal of Financial Management The ICFAI Journal of Management Research WEBSITES industry.com