Indus Motors Company (IMC) Analysis

Indus aims Company (IMC) synopsisIntroductionThis look for and Analysis report is based on an depth psychology of Indus gets Company (IMC) over a finis of leash eld. IMC is engaged in sole distri andorship of Toyota and Daihatsu ride Company Ltds vehicles in Pakistan with its dealership shekelswork.Reasons for Choosing the consequence and the CompanySelecting one proposal tabu of twenty available communicates by Oxford Brookes University (OBU) was a difficult task. After in-depth analysis of whole the available options, I fin ein truthy selected .The fear and fiscal execution of an organization over a three desire time intent as I utilise to tincture lot more comfortable in this ara during my studies and this was suggested by my wise man as well. It was centrely in correlation with my studies and during our studies were supposed to excel at accounting outline techniques like proportionality Analysis and dividing line techniques like Porters tailfin Forc es Analysis and drum analysis.Due to a personal interest in automobiles, I choose Automobile Sector of Pakistan which is considered as mother of totally industries of Pakistan. The rise in automobile action has resulted from an reapingd domestic hold and gene paygrade over 150,000 direct employment opportunities.For the sake of bang I selected Indus Motor Company hold (IMC). IMC is a joint venture amongst the kin of Habib, Toyota Motor Corpo proportionalityn Japan (TMC) , and Toyota Tsusho Corpo proportionalityn Japan (TTC) for assembling, progressive manufacturing and merchandising of Toyota vehicles in Pakistan since July 01, 1990.Project ObjectivesEach type of analysis has a adjudicate or use that de boundaryines the different races emphasized in that analysis.(Weston Copeland, 1992,pp 178)The objective of this project is to assess the vexation and monetary per bodyance of IMC over a period of three years ending 30th June 2010 and comparison of its murder with on e of its competitors, Atlas Honda Limited.The aims and objectives of this look into and analysis project argon toTo analyze the connection and the sector in which it exists.To measure the transaction of the club in monetary shelter of favorableness to assess a firms ability to create frugal value in excess of value exp finish, to grow, remain solvent and repay debt.To estimate the liquidness of the caller-out and evaluate the fiscal risk.To assess the debt and bang-up expression of the ships caller-up by reason debt equity balances and interest cover.To carry out the investors analysis in scathe of earning per sh are.To Carry out SWOT analysis.To probe the beau mondes market position by using porters five forces lesson.To conclude the up-to-the-minute berth and prospects of companys line of merchandise and financial position and to suggest the improvements(http//articles.bplans.com)(Accessed 7th April 2010)Research QuestionIn commit to ensure my project has the appropriate organise and that I ad hear clear objectives, I broad(prenominal)lighted the said(prenominal) questions Shane Johnson (2006) mentioned in his noneworthy article how non to rap myself which statesWhat is my research question/title of my project?What is the underlying theory?What methods lead be used to gather info active the topic?How will the analysis be carried out?What conclusions cigarette buoy be drawn from the analysis?What are the key elements that I should boon to my wise man?What progress to I learned from the process?(www.project-as-practice.org)( judgeed 2nd April 2010) overall Research ApproachI started my project by reading all the teaching available on the website of ACCA about the OBU degree. After carefully thought over the available list of projects and consulting with my mentor, I selected The business and financial performance of an organization over a three year period.I started works(a) on the project by setting objectives of the project and by identifying which techniques to be used and I consulted many course and referencing books onward start working on the project. Then I started working on the organization by collecting all the applicable data useful for the project. I used alternative sources like newspapers, articles, internet, anylists reports, and annual reports of IMC and the competitor HAL, etc to get the required nurture. I had to assure reliability of the source of information throughout the information aggregation process and details of sources were saved by me for the referencing purpose.Meanwhile I conducted three formal clashings with my mentor during working on my RAP. In each attaining I used to show him my research and working till date. My mentor overly guided me on assorted techniques and also referred to few books and resources that were relevant to my research.After completing my project, I had to give my mentor a 15 minutes presentation on the project, and after his final a pproval I finally submitted it to OBU. instruction gathering and Accounting/ employment techniques used2.1 solutions of info and Methods used to collect itI had to collect data primarily from secondary sources to undertake the project..Secondary DataSecondary data is data which has been serene by individuals or agencies for purposes other than those of our particular research find out.Source (http//www.fao.org)(Accessed fifth October 2010)I started looking for secondary data from news papers, Companies profile from website, business magazines and journals for competitors and labor reports and exertion position of main competitor HAL. annual compositions were the roughly reliable source for my RAP and I used audited financial statements for calculating the key ratios relevant to my project and also extract relevant information from annual report to analyze the key strengths and weaknesses of the company.Internet search engines helped me a lot to leave behind me most releva nt and easily accessible information in a timely manner. training about the overall stinting condition of the country and the sector of the company was easily available and was very useful. Companys official website was also very helpful to get the latest trustworthy information.Some of Analyst compositions with other strong form materials like clientele Recorder, daily newspapers etc were also reviewed to benefit from their findings and recommendations.I also used BPP and FTC study material student accountant and refer other management books.Limitations of Information gatheringThe major limitation about gathering data is that one hundred% accuracy tidy sumnot be guaranteed and on that point is always a small calamity that the source is not reliable and the information gathered is inaccu straddle.honorable Issues during Information gatheringWhile dealing with all the information to conduct the RAP I was supposed to strictly fol beginning ACCAs code of ethics.During the rese arch I came across few ethical issues which had to be addressedResearch participants must(prenominal) be fully informed about the procedures and risks involved in research and must give their consent to participate so I had to suck in the permission of the people who I was studying to conduct research involving them. Ethical standards also require that researchers not put participants in a situation where they might be at risk of harm as a result of their participation thus I had to be careful about using word sensitive or difficult questions during interviews.Accounting/Business Techniques used and their LimitationI used different business and accounting techniques to conduct my RAP. They are discussed below one by one with their limitationsThe balance AnalysisThis is the pulse of inter relationship mingled with different sections of the financial statements which then is equationd with the budgeted or forecasted results, prior year results and or the Industrial results. sal aryablenessFor shareholders, employees, creditors, investors, management. liquidnessFor shareholders, management, suppliers, creditor and competitors.EfficiencyFor management, shareholders, creditors and competitors.GearingFor shareholders, lenders, creditor and potential investors.InvestmentFor shareholders, potential investors, management.P2-Corporate report (International) BPP, 2005 pg.223LimitationsOperating and accounting policies differ from firm to firm.Ratios are static and do not consider future trends.Many firms engaged in quadruplex lines of business so comparing ratios whitethorn be meaningless.(Shim Siegel,2007 pp.34)Historical be not suitable for decision makingDifferent accounting methods may be used by individual firms making up the industry sample.Industry figures may be biased by few giant firms within the sample.Different capital twists and sizeStrategic Business fork uping and Development (3.5) FTC, 2005 pg.196.The SWOT AnalysisDavid (2002), describes SW OT as an analysis that can be used to measure an organizations competencies and identify opportunities to taken by business management in the future. When looking at your strengths, one should make a list of all the things that can be done well. Identify weaknesses as part of SWOT analysis and one will be on the first step to success. One of the places to look for opportunities is we to our competitors. Scanning market, industry or environment for unforeseen nemesiss is an classical part of the SWOT process.Limitations of SWOTIt can provide useful information about company scarce as with all toll analysis it will not supply strategical decisions. Strengths and weaknesses may not be readily translated in to opportunities and more or less times in SWOT analysis same factor can be set as both strengths and weaknesses. A company may also have difficulty identifying opportunities and opportunitiesmay be easy to overlook or may be identified retentive after they can be exploited. S imilarly, a company may have difficulty anticipating possible flagellums in order to effectively avoid them.(Anthony Henry, 2008)Source www.referenceforbusiness.com)(Accessed 15th October 2010)Porters Five Forces AnalysisThe complete(a) tilt model does not present a viable appliance to assess an industry. Porters Five Forces model is a tool used by companies that deconstructs the industry structure in to five underlying competitive forces.dicker power of suppliersBargaining power of customersThreat of new entrantsThe threat of substitutes private-enterprise(a) rivalry(Nemati Barko, 2001 pp.29)The conventional interpretation of Porters framework emphasized that rivalry and competition as the key components of the strategy.( Hax wilde,2001 pp.42)Source(www.articles.bplans.com)(Accessed 26th October 2010)Limitations of Five Forces ModelThe model was designed for analyzing individual business strategies. It does not cope with synergies and interdependencies within the portfolio o f outsize corporations. The model does not address the possibility that an industry could be loving because certain companies are in it. Some people claim that environments which are characterized by rapid, systemic and radical change require more flexible, changing or emergent approaches to strategy formulation.P3-Business Analysis BPP 2008 pg.108Business Analysis, Conclusion and Recommendations3.1 Organisations History, composeIndus Motor Company (IMC) is a joint venture between the support of Habib , Toyota Motor Corporation Japan (TMC) , and Toyota Tsusho Corporation Japan (TTC) for assembling, manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC had sole distri just noworship of Toyota and Daihatsu Motor Company Ltd Vehicles in Pakistan through its dealership network.IMC was incorporated in Pakistan as a (PLC) in December 1989 and started commercial-grade production in May 1993. The shares of company are quoted on the stock transpositions o f Pakistan. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The majority of shares owned by erect of Habib an investment group of Pakistan.IMCs manufacturing plants are located near Karachi which is industrial hub of Pakistan at Port Bin Qasim.Source(www.toyota-indus.com)(Accesses 30th October 2010)Business Recorder 14th May, 2009 plussCompanys plant in Pakistan is the save site throughout the world where both brands Toyota and Daihatsu are existence manufactured.IMCs Product line includes 6 variants of the newly lay outd Toyota Corolla, Toyota Hilux Single Cabin 42 and 4 versions of Daihatsu Cuore and newly imported vehicle like Toyota Camry.Source (www.toyota-indus.com)Source www.scribd.com)(Accessed twentieth October 2010)The Sectors OverviewThe Pakistani auto sector has played a world-shattering occasion in the growth and development of the local miserliness in terms of revenue generation, inappropriate exchange, human resou rce development and technology transfer. Automobiles companies are growing a eagle-eyed with industry and all the manufacturers are putting hard efforts to adjoin their production might to meet consumers demands.Prodouction was unremitting throughout 90s nigh 45000 save due to consistent policies and increasing power of buyer industry boomed to over 120000 units/annum on just four years to 2003/04. According to the statistics of 2006-07 there were 82 vehicle assemblers in the industry producing passenger cars, light commercial vehicles, trucks, buses, tractors and 2/3 wheelers. Besides these there were over 600 players in the vender industry. The total employment in the sector was over 192,000 with a total investment of over Rs.98 one thousand thousand. The auto industry has played a significant role in the large scale manufacturing industry as it contributed $3.6 one thousand million to the economy besides import substitution resulting in annual foreign exchange savings o f over $ 1 billion.Source (www.toyota-indus.com)(Accessed 25th October 2010)The Ratio AnalysisThe ratio analysis undertaken is based on the data poised from annual Reports of Indus Motor Company Limited for the financial year ended 30th June 2010, FY09 and FY08 and that of Honda Atlas Cars (Pakistan) Limited for the pay year ended thirty-first march 2010,FY 09 and FY 08..3.3.1 REVENUE GROWTHThe revenue in 2010 according to audited financial reports is 60.09 billion 58.7% higher than in 2009 where as it was 37.84 billion (8.6%) lower than in 2008.(Appendix A)This perspicacious increase in revenue is in the first place due to water-loving agricultural income from the farming community and a little increase in auto finance sector.Govt of Pakistan more tightened form _or_ system of government of used imported cars which gives a relief to the industry and the reduction of 5% in excise obligation in federal budget 2009/10 which passed to the customers immediately in the form of pr ice reduction.During the year the 2009/10 industry witnessed sharp rise in locally manufactured Passengers and commercial vehicles which grew up to 43% to 141654 units as equald to 99310 units in 2008/09 which lead the production up to 37% higher as compare to 2008/09 and this is mainly because of the Govt tightened policies for second hand imported vehicles.(IMC one-year Report FY10)Profitability RatiosA class of financial metrics that are used to judge the business capability to generate shekels as compare to its expenses and some other relevant costs within a specific period of time.(Kaplan Study textual matter FR)Shareholder, investors and other stakeholders like management have oddly focused on the profitability of the organisation. These ratios have key importance between majority of stakeholders.Gross Profit RatioGross profit cognize as the organisation paying additional expenses and savings for coming years also known as double-dyed(a) margin.(Kaplan Study text edit ion FR)In 2010 Gross margin increase to 27.86% as compare to FY09.One of the reasons of this increase is that Pakistan economy showing a modest signs of convalescence from recession and sharp increase in demand of passenger and commercial vehicles. Although the unwashed sales 60 billion RS in FY10 sets all time new records for the company but there is still crash in Gross Margin of (16.12%) when we compare with FY08 where it was 9.3%.The main reasons can that is the consistent pressure from the Govt to reduce the selling prices, scope of rising interest rates,weakning Pak Rupee against YEN, high inflationary conditions, and frequent disruptions to the business cause of buncoage of power and terrorist attacks, all of these factors effects the entire supply chain of the company and pushed the manufacturing price to a new highest train and limited the companys ability to pass the increase to the customers. These above mentioned reasons becomes the main reason of erosions of marg ins.(IMC Annual Report 2010)Honda Atlas gross profit margin had a disallow growth in FY10 and reached at (1.5%) as compared to 1.2% and 4.3% in FY09 and FY08 respectively. Where as IMC gross profit had a growth of 28.56% as compare to sharp decline of (34.4%) in FY09. As clear by above data, IMC performance regarding gross profit was far better than its competitor.(Appendix A) salary Profit MarginNet profit margin measures how efficiently company has controlled its over head.(Kaplan Study Text FR)In highly challenging business environment,IMC has delivered satisfactory financial and available performance in FY10.The companys net profit increase to 3.44 billion a 54.05% increase as compare to FY09 where it was 1.38 billion a (32.73%) decrease as compare to FY08.The main reasons tail assembly the sharp increase of 54.05% in net profit is due to an incremental increase of 16750 units of Corollas sales volume through extensive marketing efforts. During the FY10 IMC outstandingly redu ce their fixed costs which increase the overall profitability despite weakening PAK Rupee and increased manufacturing costs.(IMC Annual Report 2010)When we have a glance at net profit/loss of HAL, the net profit margin decrease to (5.4%) in FY10 where it was (2.8%) in FY09.HAL was having a peremptory growth of .5% in FY08.Return on capital employed (ROCE)ROCE is a measure that shows how efficiently assets of the company have been utilised to get return from them. It is essentially the net assets of the company.ROCE of IMC has moved in between 19 to 41% between FY08 TO FY10..This is mainly because of massive increase of income of the company in FY10 along with tightened financial controls and efficient and effective management of its various risks exposures.On the other hand HAL utilisation of capital resources are not showing a hefty picture where ROCE in FY10 had declined to (16.1%) as compare to (9.2%) in FY09 which is mainly because of operating loss of (5.2 billion RS).ROCE wa s having a positive growth at 8% in FY08.(IMC Annual Report FY10)Liquidity RatiosLiquidity ratios indicate an organisations ability to meet its short term financial obligations. Most commonly evaluated ratios are latest ratio and quick ratio calculated as follows.Current Ratio.IMC was having a ratio high of 2.6 in (FY08).In( FY09) the current ratio fall drastically to 1.7 times. There was a significant increase in current assets in FY09 specially in exchange and hope balances which rose from 9664 zillion to 16715 million and stock in trade from 2637 million to 4088 million but there was a more than proportionate increase in current liabilities from 3779 million to 9884 million mainly due to be ons from customers a 628% increase as compare to FY08.The current ratio in FY10 did not improve it remains at FY09 level 1.7 times because of proportionate increase in current assets and current liabilities.(IMC Annual Report FY10)(Appendix A)HAL current ratio was near to 1 in FY08 (.8 ti mes ) which was not as bad because it remains close to industry average of 1.It got worse in FY09 (.7 times) and (.6 times) in FY10 which is not a good indicator for short term creditors.(HAL Annual Reports FY10)Quick ratioQuick ratio also known as acid test ratio eliminates the effect of stock-take from the current ratio.Quick ratio behaves the same way as to current ratio was 1.81 in (FYO8) before declining to (1.31) in FY09 and remains immutable at the same level in FY10.Although there is a sharp increase in current liabilities in FY10 from 9884 million to 1422 million but the current assets on the other hand (excluding inventory) moved almost the same proportion. Over all quick ratio is reasonable and company is in sound position to meet its liabilities from most liquid resources for example hard cash and bank balances and receivables.(IMC Annual Reports FY10)(Appendix A)Quick ratio of HAL is very low as to industry average and remains constant for the past three years at (0 .201).This shows that HAL is not having decent liquid resources to pay its current liabilities even. This low current ratio can be seen as the going reach problem for HAL in near future if this situation sustain as it is.(HAL Annual Reports FY10) (Appendix B)Overall liquidity condition of IMC is far better than that of HAL. running(a) Capital RatiosWorking capital ratios also known as cogency ratios reduce the risk for lenders and enable management to increase the productivity and business profits.(Kaplan Study Text FR)Days Accounts ReceivableIMC receivables geezerhood decreased from 12 old age in FY08 to 17 geezerhood in FY09 and decreased boost to 10 days in FY10.This reduction in receivable days pointed towards the better effective and controlled credit policy.HAL on the other hand does not have trade debts at all in their balance sheet. This reflects their policy to only deal in cash.Days Accounts PayableCreditor turnover ratio shows how many days an organisation takes to pay its short term obligations and how more it depends on trade credit for short term financing.(Kaplan Study Text FR)Creditor turned out cost of sales in FY10 is 39 days almost at the same level in FY09 but increased when we compare with FY08 where it was 28 days. This improvement in payments pointed towards the strong and healthy relationship with lenders and suppliers of raw material and longer the days payable better for the cash flow.(Appendix A)HAL days accounts payable increased significantly 79 days to 124 days between FY08 and FY10.Taking in account of HAL current year financial performance it is apparent that company is struggling to pay its creditors and taking too long as compare to its main competitor IMC which is not a good news for creditors and shareholders as well.(Appendix B)Debt/ Solvency RatiosIMC is All-Equity Company with a zero long-term debt. This is a plus point in the current economic situations as company doesnt have to pay fixed cost of interest on long term borrowings.(IMC Annual Report FY 10)Gearing RatioAs being all equity funded IMC manages to perform well in the crucial economic time and leave its competitors behind.IMC does not have any long term debt included in their capital structure making companys gearing ratio nil. On the other hand it has some disadvantages as well, the companys capital structure is not at optimum level and company is ignoring cheap sources of finance (long term debt) as to equity.(Appendix A)HAL is not all equity financed company and have long term debts on their balance sheet which results in a high finance costs. These high finance costs pushed company from profits into losses.HAL gearing level increased from 35% to 105% between FY08 and FY09 this increase was mainly due to increase in debt which rose from 500 thousands to 1500 thousands. The ratio decline to 93% in FY10 but still high as compare to industry norms.(Appendix B)This high gearing ratio could cause grievous liquidity problems and could seen as a going concern threat but the parent company Honda Motors Japan will continue to provide the liquidity support to HAL and on that basis directors does not see any threat of this unplayful liquidity problems as a going concern threat and company will carry on its operations in predictable future.(HAL Annual Reports FY10)Interest Cover RatioInterest cover shows how many times, the profit before interest and measure covers interest amount. Its a measure of how adequately company profit could cover up its interest payments on debts.(Kaplan Study Text FM)IMC results are very healthy and reached at the level 1284 time in FY08 mainly because of very low finance charge of RS 2.7 million. It reduced drastically in FY09 from 1284 times to 78 times mainly because of enormous increase in finance charge from 2.7 million to 26.5 million due to loss on revaluation on foreign exchange contracts, sharp increase in mark up on advance from customers which rise from 2.8 million from FY08 t o 8.8 million in FY09 , and high interest rates. It is at its all time high in FY10 at 1467 times. The main reasons behind that impressive increase are the best ever financial performance of the company and reduction in finance cost through unsuccessful gain on revaluation of foreign exchange contract of 96 million approximately which is quiet commendable as it guarantees good rating of the company.(Appendix A)(IMC Annual Reports FY10)Interest cover ratio at HAL was positive but very low at 1 time in FY08 before got worse in FY09 at (2) times in (FY09) and remains constant at the same level in FY10. It shows that company is facing difficulties to meet its long term financial obligations. These drastic results of profitability ratios of HAL could threaten its credibility to raise more finance in near future.(Appendix B) (HAL Annual Reports FY10)Investors RatiosThe winnings per share (EPS) of a company indicates profit after tax due to equity shares of a company.(Kaplan Study Text FR)The EPS of IMC was RS.29.15 in FY08 before falling down to RS. 17.62 in FY09 due to fall in earnings of the company because of recession in the overall automobile market globally and locally. tho (EPS) up by 138% from RS.17.62 to RS.41.9 due to highest ever car sales of 50.8k units as compared to 34.1k units in FY09.IMC achieved 100% capacity utilization of its manufacturing plant since it started its operations in FY10. This is due to increasing liquidity in rural areas and Govt institutions that continued purchasing Corolla. These increased and recovered car sales remained one of the main reasons behind such a high growth in earnings. Due to increased car sales,liquidity position improved as company was having 16 billion cash on its balance sheet as compare to 9.7 billion in FY09.Company invested this surplus cash in high yielding bank deposits which becomes the main reason of significant increase in other income from RS.727 million to RS.1.25 billion in FY10 and increased the overall earnings of the company.(Appendix A)Source(www.dailytimes.com.pk)Assessed( tenth November 2010)HALs EPS declined more in FY10 to (RS.5.97) from (RS.2.81) in FY09.This was due to loss after tax of (RS.852.2 million) in FY10.The main reasons attributed to the loss are under utilisation of capacity and depreciation of Pak Rupee as to Japanese Yen.HAL did increase the sale prices in line with the market condition to overcome these problems but this was not enough for complete recovery.EPS was RS.55 in FY08.(Appendix B)(HAL Annual Report FY10)The SWOT AnalysisSWOT Analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in IMC.StrengthsIMC is a joint venture between House Of Habib and Toyota Tusho Corporation LTD Japan. Toyota is a global organization with representation of more than clxx countries . Toyota has becomes the industry leader for maximizing profits through lean manufacturing system and waste reductio n methods.IMC has a very well experienced, talented and change management team and IMC has the strongest dealership network within the country and during the FY10 a new 3s dealership was launched in Lahore and Faisalabad to strengthen the business with this addition IMC dealership consists of 32 outlets throughout the country with market share of 34.5%.IMC commitment to provide excellent customer services have been acknowledged by Toyota Motor Corporation and awarded the Customer Service Excellence Award 2009.(IMC Annual Report FY10)Source ( www.oppapers.com)(www.toyota-indus.com)Assesses 12th November 2010)WeaknessesIMC is all equity financed company with zero long term debt.IMC financial results for FY10 for sales and profits are at all time high however it is not likely that company will carry on the same impulsion for near future. Moreover company is not investing considerably in new projects and plants.IMC is utilizing its manufacturing capacity at full and unless the margi ns increased significantly or they increased their capacity by installing new manufacturing plants it will be quiet likely that the earning momentum will not be the same as FY10.Source www.dailytimes.com.pk)Assess 15th November 2010)Opportunities Pakistan automobile industry for LCV and PC is growing at the rate of 43%. In Pakistan context there are 8 cars in 1,000 persons which is one of the lowest in the emerging economies which itself speaks of high potential of growth in the auto sector and more in the car production. acclivitous per capita income with changing demographic distribution and an anticipated influx of 30 to 40 million young people in the economically active custody in the next few years provides a stimulus to IMC to exsert and grow.As the environmental protection awareness is rising in Pakistan slowly, IMC has the opportunity to introduce Hybrid cars in Pakistan to meet the needs of environment friendly people.(IMC Annual Report, FY10)Source (www.nationmaster.c om)Assess (16th November 2010)ThreatsPakistan domestic auto industry has barely started recovery from global financial crunch and currently facing lots of challenges.Govt has of late signed Afghan Transit Trade Agreement and it is very important to implement the agreed safeguard otherwise it would cause a serious threat to t