Automobile Sector in Pakistan

8/8/2019 Automobile Sector in Pakistan

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Computer Applications 1

Toyota Indus

CompanyLubna Siddiqui

Muhammad Ahmed (8668)

Syed Hamza Hashmi (8937)Razi Abid (10110)

12/6/2010


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1 Toyota Indus Company

Contents

Introduction ............................................................................................................................... 2

History ....................................................................................................................................... 3

Vision Statement ........................................................................................................................ 3

Mission Statement ..................................................................................................................... 4

Overview .................................................................................................................................... 4

Current Ratio .............................................................................................................................. 6

Quick Ratio ................................................................................................................................. 6

Inventory Turnover..................................................................................................................... 7

Total Asset Turnover .................................................................................................................. 7

Fixed Assets Turnover................................................................................................................. 8

Total debt to Total Assets ........................................................................................................... 8

Profit Margin on Sales ................................................................................................................ 9

Basic Earning Power ................................................................................................................... 9

Return on Total Assets (ROA) .....................................................................................................10

Return on Common Equity (ROE) ...............................................................................................10

Price/ Earning ............................................................................................................................11

Market/Book value ....................................................................................................................11

Liquidity ................................................................................................................................12

Degree of Financial Leverage .................................................................................................12

Profitability ............................................................................................................................13

Efficiency ...............................................................................................................................13

Value .....................................................................................................................................14

Conclusion .................................................................................................................................16


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Automobile Sector in Pakistan

Introduction

Automobile sector is one of the fastest growing sectors in Pakistan. It contributes towards the

nations economy in the form of Technology Transfer, Employment, Investment and much more.

Automobile sector contributed over Rs.23 billion to the national exchequer in the year 2003-04.

As the industry's growing, so are the Automobile companies. Every manufacturer is in the

process of increasing production capacity to meet customer demands. Throughout the 90's the

annual automobile production remained constant around 45,000 but due to consistent policies

and positive macro-economic conditions the industry boomed to over 120,000 units/annum in

just 4 years.


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Toyota Indus Company

History

Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor

Corporation Japan (TMC), and Toyota Tsusho Corporation Japan (TTC) for assembling,

progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC

is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd. vehicles in

Pakistan through its dealership network.

The company was incorporated in Pakistan as a public limited company in December 1989 and

started commercial production in May 1993. The shares of company are quoted on the stock

exchanges of Pakistan. Toyota Motor Corporation and Toyota Tsusho Corporation have 25 %

stake in the company equity. The majority shareholder is the House of Habib.

IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area

measuring over 105 acres.

Indus Motor Companys plant is the only manufacturing site in the world where both Toyota and

Daihatsu brands are being manufactured.

Heavy investment was made to build its production facilities based on state of art technologies.

To ensure highest level of productivity world-renowned Toyota Production Systems are

implemented.

IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux

Single Cabin 4x2 and 4 versions of Daihatsu Cuore. We also have a wide range of imported

vehicles.

Vision Statement

"IMCs Vision is to be the most respected and successful enterprise, delighting customers with a

wide range of products and solutions in the automobile industry with the best people and the

best technology".

y The most respected.y The most successful.y

Delighting customers.y Wide range of products.y The best people.y The best technology.


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Mission Statement

Mission of Toyota is to provide safe & sound journey. Toyota is developing various new

technologies from the perspective of energy saving and diversifying energy sources.

Environment has been first and most important issue in priorities of Toyota and working toward

creating a prosperous society and clean world.

Overview

Indus Motors is the country's second largest auto manufacturer, after the Pak Suzuki Motors,

located near Bin Qasim Karachi, having an assembling capacity of 55,000 units per annum. Its

core business is to manufacture and market cars. In addition, the company also sells auto parts

and accessories.

IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area

measuring over 105 acres.Indus Motor Companys plant is the only manufacturing site in theworld where both Toyota and Daihatsu brands are being manufactured.Heavy investment was

made to build its production facilities based on state of art technologies. To ensure highest level

of productivity world-renowned Toyota Production Systems are implemented.

Last year, the company has completed its expansion plan that increased its capacity to 55,000

units per annum from 37,000 units earlier. The company has further expansion plan to almost

double its capacity to 100,000 units by FY11 for which it has already acquired land.

Toyota Motor Corporation of Japan has recently announced its decision to acquire an additional

9.83m shares in Pakistan's Indus Motor Company by taking over stock 3.93m shares (5.0% of the

paid up capital) from overseas investors (AG Limited) and remaining 5.90m shares (7.5% of the

paid up capital) from general public through a buy-back offer at the purchase price of Rs. 370per share.However, such public offer would not include the stock held by the companies and the

individuals, who represent members of the House of Habib (HoH). Toyota Corporation and its

affiliate Toyota Tsushu Corporation currently held 9.83m shares each in Indus Motor, which

together constituted 25% of the company's paid-up capital. After the said transaction, Japanese

giant car maker's stake in Indus Motor Company would raise to 37.5% from currently 25%.


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Ratio Analysis

Ratios Formulae 2009 2008 2007

Current Ratio Current Assets/Current Liabilities 1.69 2.56 1.83

Quick Ratio

(Current Assets - Inventory)/Current

Liabilities 1.28 1.86 1.44

Inventory turnover Sales/Inventories 9.26 9.26 13.66

Fixed assets turnover Sales/Fixed Assets 9.63 10.27 18.66

Total Assets turnover Sales/Total Assets 1.83 3.01 2.49

Total debt to total assets Total Debt/Total Assets 0.50 0.31 0.61

Profit Margin on Sales Net income/Sales 0.37 0.06 1.06

Basis Earning Power EBIT/Total Assets 0.10 0.26 0.27

Return on Total Assets(ROA) Net income/Total Assets 0.07 0.17 0.18

Return on common

equity(ROE) Net Income/Common Equity 0.13 0.24 0.34

Price/Earning Price per share/Earning per share 6.08 6.86 8.75

Market/Book

Market price per share/Book value per

share 10.77 20.01 30.55


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Current Ratio

Quick Ratio

-

0.50

1.00

1.50

2.00

2.50

3.00

2009 2008 2007

-

0.20

0.40

0.60

0.80

1.00

1.20

1.40

1.60

1.80

2.00

2009 2008 2007


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Inventory Turnover

Total Asset Turnover

-

2.00

4.00

6.00

8.00

10.00

12.00

14.00

2009 2008 2007

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2009 2008 2007


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Fixed Assets Turnover

Total debt to Total Assets

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

2009 2008 2007

-

0.10

0.20

0.30

0.40

0.50

0.60

0.70

2009 2008 2007


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ProfitMargin on Sales

Basic Earning Power

-

0.20

0.40

0.60

0.80

1.00

1.20

2009 2008 2007

-

0.05

0.10

0.15

0.20

0.25

0.30

2009 2008 2007


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Return on Total Assets (ROA)

Return on Common Equity (ROE)

-

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

2009 2008 2007

-

0.05

0.10

0.15

0.20

0.25

0.30

0.35

2009 2008 2007


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Price/ Earning

Market/Book value

-

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

2009 2008 2007

-

5.00

10.00

15.00

20.00

25.00

30.00

35.00

2009 2008 2007


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Ratios can be divided in five heads that are:

Liquidity

In the state of short run solvency, decrease in both the current ratio by (0.86) and quick

ratio (0.57) as was recorded in the year 2009.The current assets liquidity is also affected by thecollections of the receivables from the debtors, the average collection period of the company

has increased by 1 day in year 2009. The Inventory Turnover shows an increase of 3.52

times.This ratio is important for the current and potential creditors and suppliers along with

management.

The current ratio is vital to the suppliers because they primarily focus on the companys ability

to pay off its current obligations through their current assets, whereas the quick ratio enlightens

a companys ability to settle its obligations with its most liquid assets without relying on the

turnover of inventories. Suppliers need these ratios to make the decision about the term of

credit, companys financial soundness etc. Hence the companys trend of current and quick ratio

enables supplier to feel in a less risky situation. The creditors are also interested in the currentratio and quick ratios analysis in order to decide about their credit policies and the amount of

money lent (if any) and whether to provide restrictive or lenient credit policies to

company.Almost every ratio is significant for the management. As far as current and quick ratios

are concerned, the management requires them to manage day to day business activities e.g.

payment to creditors, payment of short term loan etc. They require these ratios to strategize

their daily operations. For management the companys trend is favorable, as they have more

liquid assets to meet the short term loan payments. Such ratios are also important for financial

analysts and advisors.

Degree ofF

inancialL

everage

Long-term Debt to Total Capitalization ratio has not shown a consistent increasing trend during

the past 3 years. As LTD / Total Capitalization shows the financial leverage of a firm, calculated

by dividing long-term debt by the amount of capital available, the concerned company is eye-

catching for the investors and financial advisors as it does not raise funds through debt

financing, it is more involved in equity financing which is more attractive to the shareholders.

Debt management ratios are of great importance to the owners, management and financial

advisors as well. Management is entrusted with the responsibility of utilizing the business assets

efficiently and effectively and at the same time the management has to seek methods of

reducing business costs. On the other hand, owners are concerned with the settlement ofobligations towards the financial institutions and the degree of financial leverage.

Competitors of a company are also concerned with the debt management ratios of the company

as they want to know about the debt management policies of the company due to which the

financial institutions are happier to provide them with loans and as in the case of Toyota, now

its more involved in internal financing, this leads to high returns and thus competitors may wish


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to merge with Toyota, so that they can avail the companys resources and have access to the

new markets. This can help the company to have diversified resources and more room for

expansion in a cost effective way.

The Times Interest Earned ratio is of importance to the management, owners and creditors.

With regard to the concerned company, the ratios have increased over the years. The times

interest earned ratio indicates a company's ability to meet its debt obligations. It is usually

quoted as a ratio and indicates how many times a company can cover its interest charges on a

pretax basis. The management and owners, both are interested in such ratios in order to avoid

any bankruptcy. In others instances, creditors are informed whether the company is able to pay

the interest on bonds. Hence the companys situation is favorable for creditors as TIE has

increased drastically, for management its a favorable growth sign, for competitors its a sign of

high level of competitiveness.

Profitability

The tremendous growth in the year 2009 was due to the increase in the sales due to therising inflation rate and the greater number of units sold by the company in the year but

there was also a rise in the cost of the sales.

The return on total assets is an indicator of how profitable a company is relative to its total

assets. ROA gives an idea as to how efficient management is at using its assets to generate

earnings. ROA tells you what earnings were generated from invested capital (assets). By

observing the real purpose of Return on Assets ratio, it is quite clear that owners would be

interested in knowing that to what extent the assets / capital have been utilized to generate

earning. Hence from the decreasing trend of ROA, shows the companys inefficiency in properly

utilizing its available assets to generate sales. It is the responsibility of the companys

management to make the optimum use of available resources, so they should implementstrategies to increase the efficiency of assets either by selling idle assets or improving their

efficiency.

The ROE is a measure of a corporation's profitability that reveals how much profit a company

generates with the money shareholders have invested, it is also known as "return on net worth"

(RONW). From this explanation of ROE it is evident that the management, owners, shareholders,

independent financial advisors and financial press etc. Stock Exchanges may also have interest in

the return on assets and equity ratios. The management tries to generate maximum profit with

the utilization of shareholders investment. Obviously, the shareholders want to maximize their

savings / investments, which in turn urge the management to invest the accumulated funds in

prolific ventures. On the other hand the owners wish to retain the confidence of their investors,as higher earnings means higher returns to the investors.

Efficiency

Indus Motors fares reasonably above the industry average in terms of inventory turnover;

this being a virtue of its continuous innovation, and understanding and catering to the


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market needs. However, in terms of collection of receivables IMC lags behind its

competitors. Although the operating cycle is decreasing, but showing efficiency in terms of

its cash conversion cycle, it needs to bolster it further to be at par with the industry

standards. But year 2009, has brought radical decline in all the operating activities of Indus

motors. Total assets turnover has reduced to 0.18 at year end. Fixed asset turnover has also

decreased to 2.48 which are due to selling of fixed assets by the company in 2009.

Value

EPS is a portion of a company's profit allocated to each outstanding share of common stock. EPS

serves as an indicator of a company's profitability. EPS is an important ratio for shareholders,

owners and financial advisors. Investors want to know their earning per share and dividends

which depends on the net income of the company. In economic turbulence of 2007-08 the

investors would be more risk averse, especially after the economic crises situation when the

dividend per share was declined as well due the declining profits in the year 2007-08competitors

will also be affected by the EPS of the company as the companys shows an increasing trend till2007, they can estimate the current and future earning of the company in order to plan their

own more aggressive approach, but in 2008 , the EPS declined depicting a negative growth.

P/E ratio is a valuation ratio of a company's current share price compared to its per-share

earnings. However in past, we can see that company had an increasing trend of P/E ratio as well

as it increased the Dividend per share to make their investors happy by sharing profits with

them and attracting the new investors as well. This increasing trend of PE ratio would bring the

competitors into the alarming situation, as more of the investors will be attracted towards the

company due to greater price earnings ratio.

The Dividend per share is a proportion of declared dividends for every ordinary share issued.

Investors and financial advisors are interested in DPS ratio, as every investor wants to earn themaximum rewards for tying up their savings and financial advisors could instruct their clients to

invest their money in a firm which has a track record of paying higher dividends. Company had

an increasing trend till 2007, but then it declined in 2008, hence reducing its attractiveness to

potential and current investors. This also made current investors to decide upon whether to sell

or keep the shares.

Dividend yield is a financial ratio that shows how much a company pays out in dividends each

year relative to its share price. In the absence of any capital gains, the dividend yield is the

return on investment for a stock. Dividend yield is a way to measure how much cash flow you

are getting for each dollar invested in an equity position. Investors who require a minimum

stream of cash flow from their investment portfolio can secure this cash flow by investing instocks paying relatively high, stable dividend yields.

Dividend Payout Ratio is a percentage of earnings paid to shareholders in dividends. It is

calculated as (Dividends / Net Income). From this explanation it is evident that DPR is important

from the viewpoint of management and owners. The ultimate decision-making power vests in


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the owners. This ratio helps them to observe that how much of the companys earnings have

been retained and what part has been paid out as dividends.


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Conclusion

The importance of ratio analysis in todays dynamic corporate world cannot be underestimated.

Ratio analysis is a diagnostic tool that helps to identify problem areas and opportunities within a

company. The most frequently used ratios by Financial Analysts provide insights into a firm's:

y Liquidityy Degree of financial leverage or debty Profitabilityy Efficiencyy Value

Ratios are guidelines and must be considered together with other factors, such as, volatile

economic conditions, collateral, asset turnover, industry performance, confidence and track

record of the owners, etc. A financial ratio is a useful tool only when compared with other

ratios. By itself, it is ineffective and useless and will not help you to determine the health or

performance of a business. Ratios used in financial statements reflect the mathematical

relationship between two amounts and are expressed in percentages, fractions or decimals.

While ratios will not provide solutions for existing problems, they can pin-point operational

difficulties for management to take corrective action.

Documents

Automobile Sector in Pakistan