Financial statement analysis of SML ISUZU LTD.

Submitted by:
Preeti Goyal-18mba7073
Rihayshee Kaur-18mba7114
Sidharth Kapoor-18mba7121
Sahil Singla-18mba7073

Apex institute of Technology(AIT)

CHANDIGARH UNIVERSITY
Mohali, Punjab
November,2019
 SWOT ANALYSIS OF SML ISUZU LTD.
Strengths
 Diverse Revenue models - Over the years SML Isuzu Ltd has ventured into various
businesses outside the Consumer Cyclical sector. This has enabled the company do
develop a diversified revenue stream beyond Consumer Cyclical sector and Auto &
Truck Manufacturers segment.
 Strong brand recognition - SML Isuzu Ltd products have strong brand recognition in the
Auto & Truck Manufacturers industry. This has enabled the company to charge a
premium compare to its competitors in Auto & Truck Manufacturers industry.
 First mover advantage in the increasingly crowded market place. The new products are
rapidly increasing SML Isuzu Ltd market share in the Auto & Truck Manufacturers
industry.Market Leadership Position - SML Isuzu Ltd has a strong market leadership
position in the Auto & Truck Manufacturers industry. It has helped the company to
rapidly scale new products successes.
 Success of new product mix - SML Isuzu Ltd provides exhaustive product mix options to
its customers. It helps the company in catering to various customers segments in the
Auto & Truck Manufacturers industry.

Brands catering to different customers segments within Auto & Truck Manufacturers
segment - SML Isuzu Ltd extensive product offerings have helped the company to penetrate
different customer segments in Auto & Truck Manufacturers segment. It has also helped the
organization to diversify revenue streams.

 Geographically Diversified:
It has 12 ZONAL OFFICES. It is present pan in location such as Ahmedabad,
Bangalore,
Bhopal, Chennai, Cochin, Delhi, Hubli, Hyderabad, Kolkata, Lucknow, Pune, Mumbai.
Weakness

 Low investments into SML Isuzu Ltd.’scustomer-oriented services - This can lead to
competitors gaining advantage in near future. SML Isuzu Ltd needs to increase
investment into research and development especially in customer services-oriented
applications.
 Declining per unit revenue for SML Isuzu Ltd - competitiveness in the industryname
industry is putting downward pressure on the profitability. A starting guide to
manage this situation for company’s name is – objectively assessing the present
value propositions of the various products.
 Loyalty among suppliers is low - Given the history of SML Isuzu Ltd coming up with
new innovations to drive down prices in the supply chain.
 Gross Margins and Operating Margins which could be improved and going forward
may put pressure on the SML Isuzu Ltd financial statement.
 Extra cost of building new supply chain and logistics network - Internet and
Artificial Intelligence has significantly altered the business model in the Consumer
Cyclical industry and given the decreasing significance of the dealer network SML
Isuzu Ltd has to build a new robust supply chain network. That can be extremely
expensive.
 Declining market share of SML Isuzu Ltd with increasing revenues - the Auto & Truck
Manufacturers industry is growing faster than the company. In such a scenario SML
Isuzu Ltd has to carefully analyze the various trends within theConsumer Cyclical
sector and figure out what it needs to do to drive future growth .

OPPORTUNITIES

 Increasing customer base in lower segments - As customers have to migrate from

un-organized operators in the Consumer Cyclical industry to licensed players. It will
 provide SML Isuzu Ltd an opportunity to penetrate entry level market with a no-frill
offering.
 Customer preferences are fast changing - Driven by rising disposable incomes, easy
access to information, and fast adoption of technological products, customers today
are more willing to experiment / try new products in the market. SML Isuzu Ltd has
to carefully monitor not only wider trends within the Auto & Truck Manufacturers
industry but also in the wider Consumer Cyclical sector.
 Accelerated technological innovations and advances are improving industrial
productivity, allowing suppliers to manufacture vast array of products and services.
This can help SML Isuzu Ltd to significantly venture into adjacent products.
 Trend of customers migrating to higher end products - It represents great
opportunity for SML Isuzu Ltd, as the firm has strong brand recognition in the
premium segment, customers have experience with excellent customer services
provided by SML Isuzu Ltd brands in the lower segment. It can be a win-win for the
company and provides an opportunity to increase the profitability.
 Increasing government regulations are making it difficult for un-organized players
to operate in the Auto & Truck Manufacturers industry. This can provide SML Isuzu
Ltd an opportunity to increase the customer base.
 Rapid Expansion of Economy As the US economy is improving faster than any other
developed economy, it will provide SML Isuzu Ltd an opportunity to expand into the
US market. SML Isuzu Ltd already have know-how to operate into the competitive
US market.

THREATS

 Saturation in urban market and stagnation in the rural markets - For SML Isuzu Ltd
this trend is an ongoing challenge in the Auto & Truck Manufacturers segment. One
of the reasons is that the adoption of products is slow in rural market. Secondly it is
 more costly for SML Isuzu Ltd to serve the rural customers than urban customers
given the vast distances and lack of infrastructure.
 Competitive pressures - As the new product launch cycles are reducing in the
Consumer Cyclical industry. It has put additional competitive pressures on players
such as SML Isuzu Ltd. Given the large customer base, SML Isuzu Ltd can't respond
quickly to the needs of the niche markets that disruptors are focusing on.
 Changing political environment with US and China trade war, Brexit impacting
European Union, and overall instability in the middle east can impact SML Isuzu Ltd
business both in local market and in international market.
 Trade Relation between US and China can affect SML Isuzu Ltd growth plans - This
can lead to full scale trade war which can hamper the potential of SML Isuzu Ltd to
expand operations in China.
 Competitors catching up with the product development - Even though at present
the SML Isuzu Ltd is still leader in product innovation in the Auto & Truck
Manufacturers segment. It is facing stiff challenges from international and local
competitors.
 Growing technological expertise of local players in the export market - One of the
biggest threats of tie-up with the local players in the export market for SML Isuzu Ltd
is threat of losing IPR. The intellectual property rights framework is not very strong
in emerging markets especially in China.
Particulars SML SML SML
2017-18 2016-17 2015-16
Working results
Income from operations 1177.25 1520.34 1172.58
PBILDT 48.38 114.14 93.03
Interest 10.52 6.17 5.16
Depreciation 28.4 23.82 19.55
PBT 9.46 84.15 68.32
PAT 8.5 62.81 51.16
Gross cash accruals 39.21 84.33 73.74
Financial position
Equity share capital 14.48 14.48 14.48
Total net worth 398.06 403.8 354.46
total debt 232.66 38.63 55
Term Loan 140.16 33.52
Current Maturity of Long-term debt 22.5
Working Capital Loans 70 5.11
Unsecured Loans 55
Keys ratios
Profitability ratios
PBILDT/TOTAL OI 0.04 0.08 0.08
APAT/TOTAL OI 0.01 0.04 0.04
Solvency ratios
Long term debt equity ratio 9.68 2.31 0
overall gearing 0.58 0.10 0.16
PBILDT interest coverage ratio 4.60 18.50 18.03
Term debt/GCA 3.57 0.40 0
Total debt/GCA 5.93 0.46 0.75
Liquidity times
Current ratio 1.36 1.61 1.52
Quick ratio 0.47 0.56 0.47

INTERPRETATION

Income from operations (OI): Income from operations in FY19 (Rs.1413.71) surged by 20% as
compared to FY2018 (Rs.1177.25) In 2018, OI decreased by (22.56) % crore as compared to
2017. During this year sales occurred because govt. banned BSIII Vehicle. Existing stock was
non-saleable. All such vehicles had to be modified to make them BSIV complaint.

The Indian economy witnessed a slow-down during fiscal 2017-18 due to persisting impact of
demonetization, transitory disruptions caused by implementation of Goods and Service Tax
(GST) and weak agricultural growth. Commercial Vehicle Industry (all segments including
exports) grew 15.9 percent to reach volume of 9,53,300 vehicles supported by Government's
push towards infrastructure development, road construction & mining activities; an increased
demand from consumption driven sectors as well as e-commerce logistics service providers;
and strict implementation of overloading norms in some states. Light vehicles (LCVs) grew
higher at 19.5 percent to reach 5,68,900 and Medium & Heavy vehicles (M&HCVs) grew 11.0
percent to reach 3,84,400.

PBILDT: PBILDT also decrease. The main reason behind it profit of these years was decline due
to non-saleable of BSIII Vehicles.

Profit after Tax (PAT): PAT Margin of the company stood at 5.6% in FY2019 as compared to
4.11% in FY2018.

Overall gearing: The overall gearing of the company stood at0.58x in FY18 as compared to 0.10
in FY17 owing to the increased debt exposure since the company took a term loan (External
Commercial Borrowings (ECB)) of Rs. 140.00 crores for the capex having initial outlay of Rs.200
crore. This capex is for the purpose of technological advancement, product up-gradation /
development and up-gradation of plant infrastructure to improve manufacturing efficiency is in
its final stages of completion. However, the total net worth of the company declined
marginally. However, the net worth of the company declined marginally

LIQUIDITY RATIOS

Current ratio: Current ratio of the company was at moderate level of 1.36x in FY18 as
compared to 1.61 x in FY17. But the ideal ratio is 2:1. Company needs to increase current assets
so that firm’s ability to pay off its short-term liabilities with its current assets. Quick ratio of the
company stood at 0.47 but the ideal ratio is 1:1. Quick ratio decreased because closing stock of
the company increased and sales for the year declined due to change in regulatory norms by
the government.

Leveraged debt structure: The debt structure of the company is highly leveraged. The term to
Gross cash accruals ratio stood at 3.57x owing to addition of term loan of Rs. 140 crores. (PY:
0.40x). The interest coverage ratio of the stood at 4.90x. (PY: 4.60x)

Formula

PBILDT
[(PBILDTt × 12 / No. of Months)–(PBILDTt-1 × 12 / No. of Months)]× 100 [PBILDTt-1 × 12 / No. of
Months]

PBILDT- To arrive at the PBILDT, all operating expenses are deducted from TOI. Operating
expenses include raw material cost, stores & spares, power and fuel, employee costs, selling
and distribution expenses and administrative and general expenses, and includes lease rental,
royalty/ technical knowhow/ commission incurred, insurance cost, directors fees, exchange rate
loss (not related to debt), bad debts etc.

PAT-

1. PAT is arrived at by deducting (-) /adding (+) the following from PBILDT: (-) interest and
finance charges net of interest cost which has been capitalized- This includes all finance
charges incurred by the entity including interest on term loans, interest on working capital
borrowings, interest on unsecured loans from promoters, premium on redemption of
bonds, exchange rate profit/loss on debt etc. (-) depreciation/amortization on assets (-)
Lease rentals (+/-) non-operating income/expense (including profit/loss on sale of assets
and investments) (+/-) prior period items (-) tax expense

Gross Cash Accruals (GCA) - GCA is computed by adding all non-cash expenditure (like
depreciation, provision for deferred tax) to PAT

Liquidity Ratio

ratios formula
Current Ratio Total Current Assets
/Total Short Term Debt
(includes Current Portion of
Long-term Debt/Fixed Deposits
and bills discounted) + Total
Current Liabilities and
Provisions
Quick Ratio Total Current Assets – Total
Inventories /Total
Short Term Debt (includes
Current Portion of Long-term
 Debt/Fixed Deposits) + Total
Current Liabilities and
provisions

Levage and coverage ratios

Ratios Formulas
Debt Equity Ratio Total Long-term Debt (including current portion
of debt) /Tangible Networth
Overall Gearing (Including Acceptances / Total Debt (including Acceptances/Creditors on
Creditors on LC) LC)/ Tangible Networth
Interest Coverage PBILDT/ Total Interest & Finance Charges –
Amortization of Premium on Debentures (if any)
– Interest Capitalized
Term Debt / Gross Cash Accruals Total Long-term Debt (including current portion
of debt)/ Gross Cash Accruals
Total debt and cash accruals Total Debt (including Acceptances/Creditors on
LC) /Gross Cash Accruals