RAP

MENTOR NAME: FARAZ TAHIR
WORD COUNT: 7492
ACCA ID: 2325546
Oxford
Brookes
University
Topic-8 An Analysis
and Evaluation of
Business and
Financial
performance of
Indus Motor
Company from 2012-
2014
Kazi Haris Hussain

Oxford Brookes University
1
Contents
PART 1- PROJECT OBJECTIVESAND RESEARCHAPPROACH.............................................................. 2
Reasons for choosing this topic..................................................................................................2
Reasons for choosing the industry and organisation....................................................................2
Project objectives and research questions.................................................................................. 2
Research Approach................................................................................................................... 3
PART 2- INFORMATION GATHERING,ACCOUNTING&BUSINESS TECHNIQUES USED FOR THE
COMPLETION OF PROJECT............................................................................................................. 4
Information Sources.................................................................................................................. 4
Secondary Sources.................................................................................................................... 4
Ethical Issues............................................................................................................................ 5
Techniques usedfor research....................................................................................................6
Part-3 Results, analysis, conclusions and recommendations............................................................ 8
Introduction of the Organisation................................................................................................ 8
Financial Analysis...................................................................................................................... 8
Ratio Analysis ........................................................................................................................... 8
Profitability Ratios.................................................................................................................... 8
Liquidity Ratios....................................................................................................................... 14
Solvency Ratios....................................................................................................................... 16
Efficiency Ratios...................................................................................................................... 18
Investors Ratios...................................................................................................................... 20
Competitor Analysis.................................................................................................................... 23
Business Analysis........................................................................................................................ 28
SWOT Analysis........................................................................................................................ 28
PEST Analysis.......................................................................................................................... 29
Conclusion and Recommendations.............................................................................................. 31
Conclusion.............................................................................................................................. 31
Recommendations.................................................................................................................. 32

2
PART 1- PROJECT OBJECTIVES ANDRESEARCH APPROACH
Reasons for choosing this topic
I have chosenTopic-8,whichis“An analysisandevaluationof the businessandfinancial
performance of anorganizationoverthe three yearperiod”.The mainreasons behindthis
decisionare;
 Beingan ACCA affiliateratioanalysisisnothingnew forme asI have beenusingitinmy
studies,soitwasquite easyto undertake thistopic.
 Beingan accountancystudent,evaluatingandanalysingthe financial performanceand
the companyas a whole isrelatedtomystudiessoitwas reallyeasyandhelpfulforme,
applyingthe knowledge Ialreadyhadandina way I got to testmy competence.
 The data requiredforthistopicand projectwaseasilyavailableandhence nohurdles
were there initsacquisition.
Reasons for choosing the industry and organisation
 I have had inherentinterestinautomotive industryandIwantedtoexplore indepth
aboutthe industryitself
 IMC is one of the biggestmarketplayersandundertakingsuchacompanywould
provide me withalot of knowledge.
 Automotive industryisnotone of the majorindustriesinPakistanandIwantedto
discoverreasonsforthis.
Project objectives and research questions
I prepared listof certainperformance objectiveswhichare asfollows;
 To analyse the company’sfinancial performanceintermsof Profitability,Liquidity,
Solvency,EfficiencyandInvestment.
 To get a clearerpicture of company’sreal positioninthe industry.Competitor’sAnalysis
wouldbe undertakenforthis.
 To assessthat howthe external factorscouldaffectcompany’sperformance.Forthis,I
woulduse PEST analysis.
 To identifyandassesscompany’sinternal StrengthsandWeaknesses.Moreoverto
bringsome opportunitiestolightwhichthe companycouldexploitandidentifythe
external threatsbeingfacedbyIMC. SWOTanalysiswouldbe usedforthis.
 To appraise the performance overlastthree yearsusingthe mostreliable andbest
available information.
 To make recommendationstocompanyonthe basisof my learningaboutthe company.
Research Questions
Followingare myresearchquestions;
 How wouldIgatherthe informationformyanalysisandwhatwill be the methodsfor
assuringthe reliabilityof the informationsources?
 How muchI wouldhave to relyuponthe modelsbeingusedforbusinessanalysis?

3
 What ratioswouldI use foranalysingthe performance?
 What are factorsbehindthe significantcontrastinIMC’sand itscompetitors’profitability?
 Whichfactors are affectingthe automotive industryinPakistan?
Research Approach
Afterselectingindustryandcompanyalongwithsettingaims andobjectivesof the project, next
stepisto devise asuitable approachforachievingthose objectives. Like everyanalysis,main
part of myapproach isinformationgathering.
I will gatherinformationfromdifferentsecondarysourcesincludingbooks,eBooks,online
newspapers,journalsandCompany’sannual reports.Secondarysourcesare easilyaccessible
and readilyavailable.Howeverif informationgatheredfromsecondarysourceswouldnotbe
sufficientenoughthenIwill move tothe primarysourcesasitwouldprovide more authentic
and legitimateinformation.Butitmaygive rise to some issues,mostimportantlyethical ones.
Once data is collected,myunderstandingof the companyanditsindustrywill be sufficientand
thenI wouldidentifyandfix toolsforanalysingcompany’sfinancial andbusinessperformance.
Aftercompletingthe analysisIwill checkthatif myaimsare completedandonce assuredI
wouldgive myconclusionandrecommendation.
I am well aware thatplagiarismisstrictlydisallowedbyOBUand isunethical aswell therefore I
shall make sure that the informationprovidedinmyprojectisproperlyreferenced,legitimate,
relevantandauthentic.

4
PART 2- INFORMATION GATHERING,ACCOUNTING& BUSINESS
TECHNIQUES USEDFOR THE COMPLETION OFPROJECT
Information Sources
Primary Sources
A primarysource of informationisanyfile orobjectwhichisa resultof a particularstudyand
researchand itdepictsfirst-handinformation.Itprovidesinside informationaboutaparticular
event. (Princeton,n.d.)
Method Information Obtained Limitations
I interviewed Mr.Muhammad
Huzaif (DeputyManager
InternalAuditat IndusMotor
Company Ltd) onSkype.He is
my uncle andhence decidedto
provide me withinformation
relevanttomythesis.
 Informationrelevantto
my RAPwas obtained
fromprimarysource
whichwouldhave been
unavailable otherwise.I
approached Mr.
Muhammad Huzaif
witha prepared
questionnaire inorder
to getthe relevant
informationandsave
time.
 It was time takingas
Mr.Muhammad Huzaif
was busyandhad to
make time forme out
of hishecticschedule.
Thisresultedinmy
projectdelay.
 There were some
confidentialityissues
regardingthe provision
of informationsuchas
Director’spolicy,
workingcapital
managementpolicy
and stocksrelated
information.
 Due to poor internet
connectionbetweenus
there were lagsinour
conversationwhich
causedme to repeat
my questionsacouple
of times.
SecondarySources
A secondarysource of informationiscreatedbysomeone whohasnodirectinvolvementinthe
affairsbeingresearchedabout.Secondarysourceskeeponchangingperiodicallyastheyare
updated asa resultof differentresearchworks.(Illinois, n.d.)

5
Method Information Obtained Limitations
Company’sAnnual Reports  Company’sAnnual
Reportswere the most
convenientlyavailable
source of information.
The financial dataused
for the ratioanalysis
was extractedfrom
them.
 Moreovervarious
reasonsforthe variation
inthe figureswere also
obtainedfromthe
Director’sReportand
Notestothe Accounts
whichwouldhave been
unavailable otherwise.
 Furthermore alotof
informationrelevantto
the businessanalysis
was alsoderivedfrom
them.
 The information
obtainedfromAnnual
Reportsappearedtobe
biasedasit sharedonly
positive andgood
statisticsaboutthe
company
 The inherentlimitation
of misstatingthe
financial statements
was alwaysthere.
 The data was historical
whichcouldnot give a
fairimage of company’s
performance
E-newspapers  Newsarticlesaswell as
analystreportsfrom
well-knownnewspapers
and journalswere one
of the main sourcesof
authenticandreliable
information.
 The basisof articlesand
the purpose of writing
themwere mostly
differentandderiving
the relevantdatafrom
themwas a difficultjob.
 Article writermaybe
deliveringabiased
opinionandhence an
unfairjudgement,
therefore the reliance
on the articleswas
challenging.
 Findingrelevantarticles
was a time takingjob.
SearchEngines  I alsousedsearch
enginesprimarily
Google forgetting links
to relevantinformation
for the project.Itwas of
huge help asit provided
me withconsiderably
large setof information.
 Sortingoutthe most
relevantdataoutof
apparentlyrelevant
data became a tough
job.Thisanalysis-
paralysisconsumedalot
of time.
Ethical Issues
In orderto complywith the guidelines provided by OBU, I referenced all the information obtained
fromdifferentsources,usingHarvardReferencingSystem.The primary purpose of this was to avoid
Plagiarism and to authenticate my research work.

6
Techniques used for research
For analysing financial performance of the organisation, I made use of;
Ratio Analysis
Ratioanalysisisa tool usedfor analysingthe financial conditionandperformanceof anorganisation.
Ratios provide the yardstick needed for this analysis.
(Prenhall, n.d.)
I made use of importantratiosformy analysis.These ratiosthrow lightonall the keycomponents of
financial statements.Theseratioswill be usedforassessing the company’s performance over three
years as well as for comparing it with its competitor. The ratios are;
Profitability:These ratiosassessthe organisation’sabilityandcapacitytogenerate revenueand
profits.
Liquidity:These ratiosthrowa lighton how liquidanorganisationis,whichmeansthatwhatisthe
capacityof the organisationtopay off itsshortterm debts.
Solvency:Solvencyratiosthrowa lightuponhow muchsecure and organisationisintermsof
coveringitsliabilitiesthroughitsassets.
Efficiency: These ratiosshowthathow effectively andefficiently anorganisationusesitsassetsand
managesitsliabilities.
Investment:These ratiosgive anideaabouthow much investmentpotential andprospectsan
organisationhasi.e.whatisthe confidence levelof investorsregardingthe organisation.Theyare
usedbythe potential investors.
Limitations of Ratio Analysis
 There may be difficultyincomparabilityasdifferentcompaniesmayhave different
accountingpolicies e.g.FIFOorAVCOincase of inventory.
 There couldbe a difference betweenanasset’sbookvalue anditscurrentvalue.
 A ratiodoesnot disclose itscomponents andhence there couldbe multiple reasonsfor
change in ratios.
 An industryaverage maynotbe the bestone for comparisonpurposes.
(Wiley,n.d.)
PEST Analysis
A PEST analysisisusedtoanalyse the external macro-environmental factorsthataffectafirmand
are beyonditscontrol. If tackledproperlythesefactorscouldbe worthyopportunitiesandcouldalso
cause threatsotherwise.

7
It isusedby the businesses tounderstandthe bigpicture of the external environmenttheyare
operatingin.
(Mindtools,n.d.)
Limitations of PEST Analysis
PEST analysis may be limited because;
 The external factorsbeingexaminedchange ataveryfast pace thus makingpredictionof
external changesaffectingthe organisationadifficulttask.
 PEST analysis considersonlyexternal environment.Therefore itneedstobe seenalongwith
othercomponentsinorderto geta clear picture.Itcannot depictthe organisation’s
conditioninisolation.
 Gatheringlarge amountof relevantdataand external informationisadifficultjobasit
makesPEST analysistime consumingandcostlyaswell.
(Thakur, 2010)
 PEST Analysis ishighlybaseduponassumptionswhichmaybe groundlessandwithoutany
reference.
(Haughey,n.d.)
SWOT Analysis
SWOT isusedfor analysingacompany’senvironmentandalsogivesanideaaboutitsposition init.
It focusesonboth internal andexternal factorsthataffectan organisation’sperformanceand
existence.Internalfactorsinclude assessmentof the company’sStrengthsandWeaknesseswhile
external factorscomprise of the analysisof opportunities andthreatspresentinthe organisation’s
environment.
(The Economic Times, n.d.)
Limitations of SWOT Analysis
Althoughitisof limitlessuse,SWOTanalysisalsohassome limitations;
 SWOT doesnotprovide anin-depthanalysisandhence couldnotbe usedforcomplex
issues.
 SWOT doesnotprioritise anissue.
 It can generate ideasbutcannothelpwithchoosingwhichone isthe best.
 It isdifficulttoreporttwo-sidedfactors i.e.whetherafactoris opportunityorthreat.
(Queensland,2014)

8
Part-3Results,analysis,conclusions and recommendations
Introduction of the Organisation
Incorporatedin1989, IMC isa jointventure of HOH,TMC and TTC. Main products include variantsof
famous‘Corolla’model insedancategory,‘Hilux’inLCV categoryandFortunerinSUV segment.The
assemblyplantsandofficesare locatedat105-acre site at Port QasiminKarachi.It has a wide
networkcomprisingof 37 independent3Sdealerships.
(Brecorder,2014).
IMC also sellslimitedunitsof DaihatsuBrandvehicles.The companyhasplayedamajorrole in the
developmentof entire value chainof the local autoindustry.
(Toyota Indus, n.d.)
Financial Analysis
Ratio Analysis
Profitability Ratios
2011 2012 2013 2014
Gross Profit Margin 6.63% 8.53% 9.18% 10.15%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
11.00%
12.00%
Gross Profit Margin

9
FY 2012
GPM rose by 29% whichis 4% more than the 25% increase insalesrevenue.Thiswasdue to
company’scontinuouseffortsatcost reductionresultinginreduced COSandpursuitof operational
excellence,increasingthe qualityof products.
(Annual Report, 2012)
An increase inpricesof cars isone of the reasonsof thisrise. Moreoverdue to closure of car plantof
HACL (maincompetitorof IMC) fromDecember2011 to February2012 the customersshiftedto IMC
resultinginrelativelymore sales. Furthermoregrowthinhome remittances playedtheirpartby
strengtheningthe purchasingparof customerswho boughtcars despite the price rise.
(Khan, 2012)
Announcementof muchanticipated new Corolla2011 model alsoenhancedthe sales.The new
featuresaddedtothe Car were well receivedbythe customerslongingforchange inthe car design.
Introductionof newdesignalsopersuadedthe customerstobuythe car regardlessof the price hike.
(Tribune,2011)
Introductionof newvariantsof itssedansand the launch of 4x4 VigoChamp waswell receivedby
the customers and hence increased the sales.
FY 2013
Salesrevenue declined by 17%,the primaryreasonof thisbeingdiscontinuationof “DaihatsuCuore”
and therefore leavingthe 850cc-1000cc segmentempty.Moreoverthe Rupee depreciationand
introductionof newcar modelsbyitscompetitor Hondaalsoplayedavital role inbringingthe sales
down.
(Mehdi,2013)
Relaxationonthe policyregardingimportof usedcars worsened the situation.
HoweverGPMstill showsanincrease by 8%.Main reasonfor thisisthe introductionof “Fortuner”,
the sole locally manufactured SUV launchedby IMCwithitsprice being 40% lowerthanitsimported
version(Brecorder,2013a). Its 812 unitswere soldwithin 4months of itsintroduction (Annual
Report, 2013).
Introductionof new variantsof existingcarsalsoplayedanimportantrole inrise of GPM.
(Brecorder, 2013b)

10
Depreciationof YenagainstPakRupee alsohelpedIMCinincreasedGPMby loweringthe costof
CKD kits.
(Zaheer,2013)
Moreover,the COSfell by22.44% mainlydue todecline inpurchaseswhichdroppedby22.32%
followingthe dropindemand.
FY 2014
GPM showedanupwardtrendof 11% despite the fall of 11% innet sales.This fall wasdue tolossof
1500 units’ productionandsalesasa resultof productionplantclosuresforretoolingthe machinery
to make it readyforthe productionof new model. Alsotherewasanoverall fall of 8%in the
automotive industrydemand.
The drastic fall of 70% inthe salesof “Fortuner”alsoexplainsthe salesdecline (Rind,2014).
One of the reasonsof such a highincrease inGPMis 7% rise in Pakistani Rupee inthe thirdquarter.
Thisresultedindecreasedcostof importedpartsandhence a low COS,therefore increasingGPM
despite the price-cuts.
(Zaheer,2014a)
Moreoverthe companyintroduced customizedversionof HybridCar“Prius”whichenableditto
target a newsegmentwhichwaspreviouslyoccupiedbythe usedimportedcars (Tribune,2013a).
Reductionof 30% in depreciationcharge also reducedthe COSandtherefore positivelyaffectedthe
GPM (Annual Report, 2014).

11
FY 2012
NPMamplified by25.74% due to an increase of 56.8% innetprofit.NPMincreasedbecause of
significantfall inthe financecosts. The finance costsfell becauseof the 9.7% decline inMark-upon
advancesfromcustomersfollowedby50.47% exchange lossfurthercuttingthe finance costs.
Increase of 17.6% inotheroperatingincome due toincome fromtreasurybillsandsale of a fixed
assetalsoplayeditspart inraisingthe NPM.
(Brecorder, 2012)
Distributionexpensesincreasedat lowerrate of 18.9% as comparedto 47% in 2011. Thisrepresents
efficiencyof IMCat controllingcosts.
Salariesdrasticallyincreasedby29.5% whichwasmainlydue to rise inemployeeprovidentfund
(Annual Report, 2012).The minimumwage rate wasalsoincreasedthus raisingthe salariesof
workers(Dawn,2012).
Increase of 35.7% inadministrativeexpenseswasdue to16.8% rise in salaries.Moreoverthere was
a significantincrease of 151%in the staff trainingcosts. Furthermore the advertisingcostsalsorose
by 11.6% followedbyincrease of 45%in OtherExpenses.
FY 2013
2011 2012 2013 2014
Net Profit Margin 4.45% 5.59% 5.26% 6.79%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Net Profit Margin

12
NPMshowedadecline by5.9% despite the increaseinGPM. Main reasonof this waspoor cost
control as comparedto lastyear.Distributionexpensesreducedby 0.74% despite unitsalesdecline
of 28%. Moreoveradministrative expensesincreasedby2.6%.Despite the fall insales,thisincrease
depictslackof control over operational expenses.
Decrease of 41.6% in otherincome alsocontributedtowardsthe fall in NPM.OtherIncome
deteriorateddue tofall of 60.86% in returnon bankdeposits. Fall of 44.8% in income fromTreasury
billsalsoplayeditspartinthisdecline (Annual Report,2013).A cut inthe discountrate by300 basis
pointsresultedinlowerotherincome (Zaheer,2013).
Salariesandwagesrose by10.2% (Annual Report, 2013).This was due to the statutory increase in
the minimumwage rate (Tribune,2013b).
Otheroperatingexpensesreducedby15.5%.The reductionof 21.3% in the WPPFwas the main
reasonof this fall.
FY 2014
NPMshowedahuge increase by29.04% despite the decline in sales.ThishikeinNPMwasdue to
efficientcostcontrol exhibitedbyIMC.Onlyfinance costshowedanincrease of 24.6% as compared
to lastyear since itcouldnot be controlledinternally.Howeverdropof 29.1% intaxationcharge
somewhatcounteredthe effect.
(Brecorder, 2014)
Administrative expenses decreasedby1.4%.Thisdecrease wasmainlydue tothe plantclosure for
18 days regardingthe retoolingof machinerybutitalsodepictsthe goodcontrol overcosts byIMC.
Distribution expensesdeclinedby2.5% due to the dropin sales.IMCdidn’tmake muchexpense on
advertisementhence reducingthemby9.8%. Staff trainingcostsincreased by26.5% due to the
special trainingsessionsbyinternationallyrenownedspeaker.
Otheroperatingincome escalatedby7.3%.Althoughthe returnonbank depositsdeclinedby17.6%
but itseffectwasmitigatedby35.5% increase inthe gainonredemptionof investmentsinlisted
mutual fundunits..

13
FY 2012
ROCE increasedbyhuge 29% followingthe significantincrease of 55.83% inNPM. ROCE amplified
from28.96% to 37.45%.
PBIT increaseddue tosignificanthike inthe sales. IMCissuednosharesduring the periodhowever
reservesshowedanincrease by21.7%.Thiswas mainlydue to the transferof Rs.1.56 billionfrom
the profitto general reserve.
Equityincreasedby20.5% due to the increase inreserves.
FY 2013
ROCE droppedby24.53% duringthe year.This wasdue to 21.51% fall inthe NPM.NPMdropped as
a resultof 17.06% fall inthe netsales.
The decrease inPBIT wasdue to both poorsalesandlack of control onexpenses.Noshare issue was
made duringthe period. Despite the fall inprofit, reserves still increasedby4.18% due to the
transferof Rs.1 billionfromprofitto general reserves.
Equityincreasedby 3.99% and itwas mainlydue tothe transferto reserves
FY 2014
Afterhuge dropin FY 2013, ROCE still droppedbutbya lowerpercentage of 10.19% despite the
minimal increase of 1.08%inPBIT.
2011 2012 2013 2014
Return On Capital Employed 28.96% 37.45% 28.26% 25.38%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
Return On Capital Employed

14
Increase inreservesresultedinlowerROCE.Reservesincreasedmainly due totransferof Rs.1.5
billionfromprofit.The issuedsharesremainedconstant.Equityincreasedby12.56% which once
againwas almostequal tothe increase of 13.14% in reserves,thusexplainingthe cause of this
increase.
Liquidity Ratios
FY 2012
CR increased by26% while the QRshowedahike by16%. Salesforthe yearwere the highestof IMC
(Zaheer,2012). The huge increase of 32.33% in the stock-in-trade wasprimarilyforcoping upwith
customerdemandandisthe cause of the gap in CR and QR.
Cash andbank balancesalsoincreasedby22.2% followingthe huge salesincrease.
Otherreceivablesalsoshowedamassive increase of 199.31%. Thisupsurge wasmainly due torise in
Warranty Claims,agencycommissionandotherreceivablesdue fromTTC, a relatedparty.Itwas 32
timesmore thanthe amount inFY 2011. Moreover,unrealizedgainarisingfromrevaluationof
foreignexchange contractsalsoincreasedsignificantlyby 176 timesthusstrengtheningthe
company’sassetbase.
Currentliabilitiesshowedadecline by15.2%. Trade andother payablesincreasedby13.44% but this
was easilycounteredbyfall of 41.35% in advancesfromcustomersand dealerswhichreduced
Current Ratio Quick Ratio
2011 1.84 1.38
2012 2.32 1.59
2013 2.99 1.93
2014 3.35 2.61
0
0.5
1
1.5
2
2.5
3
3.5
4
Current and Quick Ratios

15
despite hike insales. Moreover55.23%fall inaccrued mark-upplayeditspartin dropping current
liabilities.
FY 2013
CR furtherstrengthenedby29.18% and QR showeda hike of 21.14% despite the fall of 7.89% in
currentassets. Thiswas primarilydue to fall of 28.70% incurrent liabilities.The dropof 63.42% in
advancesfromcustomersanddealers resultingfromfall insales wasthe mainreasonof thisdecline.
Thissalesdecline also reducedtrade andotherpayablesby7.66% furtherreducingthe liabilities.
Storesand spares droppedby13.76%. Moreover trade debtsfell by5.29% due to low sales.
Followingthe salesdecline,stock-in-tradeincreasedby4.70% as production wasmore than sales.
Once again itresultedinlowerQR as comparedtothe CR.
Most significantfactorbehindthe decline incurrentassetswashuge 61.05% fall in cash and bank
balances.
Otherreceivablesdroppedby63.75%.This dropwas mainlydue to90.99% fall inwarranty claims&
otherreceivables. The 7.89%decline inCurrent Assetslimitedthe CRand didnotletit improve
further.
FY 2014
Despite fall of 9.67% in currentassets,CR still increasedby12.02%.QR alsoshowedasignificanthike
of 35%.
Thiswas mainlydue tofall of 19.38% in liabilitieswhichwasmore thanthe rate by whichcurrent
assetsdropped.Mainreasonbehind reductionincurrentliabilitieswasthe 29.28% fall intrade and
otherpayables whichreducedmostsignificantlybecause of 68.45% dropin trade creditors. However
advancesfromcustomersanddealersincreasedby23.20% whichwasa resultof improvedsales.
Stock-in-trade significantlydroppedby 43.30%, effectof whichcouldalsobe seeninthe QR. This
was mainlydue todiscontinuationof the 10th
generationcorolla.Moreover trade debts increasedby
25.64% due to the improvedsales.The 180.15% increase indebtsdue fromgovernmentagencies
alsoplayedtheirpartinrise of trade debts. Strengtheningof salesalsoledtoimprovementincash
and bankbalanceswhichincreasedby huge 63.46%.

16
Solvency Ratios
Gearing Ratio
2011 2012 2013 2014
GearingRatio% 0.00 0.00 0.00 0.00
IMC is whollyanequitybasedorganisationasitfinancesall itsoperationsthroughequity. Longterm
liabilitiessectiononlyconsistsof DeferredTaxation.Therefore itsDebttoequityratioremainedzero
from2012 to 2014.
Since IMC istotally equitybasedcompanytherefore finance costusedforthe calculation of Interest
Coverconsistsof interestonshorttermborrowings,mark-uponadvancesfromcustomersandalso
containseffectsof foreignexchange gainsandlosses.
FY 2012
Interestcoverrose from53.02 timesto108.34 times.Thishike of 104.35% was primarilybecause of
55.83% increase inthe PBIT.
Moreoverfinance costdroppedby23.74% whichresultedinrobustinterestcover. Financecost
droppedbecause of unrealizedgainonrevaluationof creditors.The decreaseinexchange lossby
50.47% alsocontributedtothe fall infinance cost.
2011 2012 2013 2014
Interest Cover 53.02 108.34 162.86 132.14
0
20
40
60
80
100
120
140
160
180
Interest Cover

17
FY 2013
Despite the significantfall inPBIT,interestcovershowedanincrease of 50.32% as it jumpedfrom
108.34 timesto 162.86 times. Mainreasonof thiswas 47.79% drop infinance costs.Thisdropwas
mainlyledbythe reductioninmark-uponadvancesfromcustomers whichreducedfromRs.22.507
milliontojustRs.0.270 million,areductionby98.80%.
PBIT reducedby21.51% whichrestrictedthe growthof interestcover.
FY 2014
Despite the increase of 1.08% in PBIT,interestCoverdeterioratedby18.87% followingthe upsurge
of 24.59% infinance costs.
The mark-upon advancesfromcustomersfurtherdroppedsignificantlyby89.63%,finance coststill
increasedbecause of the augmentationof bankchargesby24.08%. Moreoverexchange lossalso
increasedby27.49% playingitspartin increasingthe finance cost. Unrealisedlossoncreditor’s
revaluationalsocontributedtothe finance costsrise.

18
Efficiency Ratios
FY 2012
Debtor Days: Despite the huge increase insales,debtordaysreducedfrom 8.64 days to 7.31 days.
Main reasonof this wasthe stringent creditcontrol policiesexhibitedbyIMC.
(Huzaif,2015)
CreditorDays: Creditordays increased from5.60 days to 6.52 days. Thiswas due to the increase in
trade payablesfollowingsignificant hikeinthe sales.
InventoryDays: The inventorydaysslightlyreducedfrom34.49 days to 34.27 days. Thiswasdue to
the efficientinventorymanagementthroughapplicationof kaizentechnique.
(Huzaif,2015)
Despite the huge increase insales, WCCslightlyincreasedfrom 39.09 daysto 39.83 days. Thiswas
due to the good inventorymanagementandincrease increditordays.
FY 2013
Debtor Days: Debtordaysalmostremainedthe same byshowingaminimal increase of 1.25 days.
Againthiswasdue to tighteneddebtpolicies.
(Huzaif,2015)
0 5 10 15 20 25 30 35 40 45 50 55
2011
2012
2013
2014
2011 2012 2013 2014
Inventory Days 36.05 39.04 49.63 31.82
Creditor Days 5.6 6.52 5.92 2.11
Debtor Days 8.64 7.31 8.56 11.98
Efficiency Ratios

19
Moreoverboththe trade debtsandnet salesdroppedwhich restrictedthe debtordaysfroma
significantrise.
CreditorDays: The creditordays fell to5.92 days.Thiswas mainlydue tothe fall intrade creditors.
IMC facedlowersalesandhence lowlevel of creditsthereforedecliningthe trade creditors.
InventoryDays: Followingthe lastyears’trend,highsaleswere expectedandforwhich highstock
was maintained.Howeversubstantial dropinsalesleadtothe stockpile upwhichresultedinthe
significantrise of inventorydaysfrom39.04 daysto 49.63 days.
(Huzaif,2015)
WCC increasedto 52.27 days.Thiswas due to the huge increase of 10.59 days ininventorydays
followedbyminimal fallincreditordays.
FY 2014
Debtor Days: Debtordaysincreasedfrom8.56 to 11.98 days. Mainreasonof thisincrease wasthe
revival afterhuge salesdroplastyear.Moreoverincreased ordersfromgovernmentagencies raised
the trade debts.
CreditorDays: Creditordaysdroppedfrom 5.92 to 2.11 daysdue to huge decline inthe creditors
(Annual Report, 2014). Followingthe improved sales,cashandbankbalance increasedbysignificant
63.45%. Thisstrong cash balance resultedin the on-time paymentsand thusreducingcreditordays
(Huzaif,2015).
InventoryDays: The inventorydays droppedfrom 49.63 daysto 31.82 days.Inventory alsoreduced
by huge 43.30%. Thisimprovementwasalsoa resultof increasedsales.The new corollamodel had
highdemandwhichcausedquickinventoryturnover.
WCC exhibitedamajordecrease from52.27 daysto 41.69 days. Efficientinventorymanagementand
increasedsales reducedthe inventorydaysandhence counteredthe increaseindebtordays. This
was furtherbackedbythe creditordaysfall.

20
Investors Ratios
Share capital remained constantfrom2012-2014.
FY 2012
EPS showedasignificantgrowthof 56.84%. The main reasonwashuge increase innetprofitwhich
increasedby56.84% followingthe impressive sales.
FY 2013
EPS declinedby21.97% because of the decline innetprofits.Netprofitsdroppedby21.97% due to
significantlylowersalesascomparedtolastyear.
FY 2014
EPS improvedasitincreasedfromRs.42.72 to Rs.49.28 exhibitinga15.37% growth.Saleswere
betterthanthe last yearwhichresultedinanincrease by15.37% inthe netprofitwhichultimately
liftedthe EPS.
2011 2012 2013 2014
Earning Per Share (Rs.) 34.9 54.74 42.72 49.28
0
10
20
30
40
50
60
Earning Per Share (Rs.)

21
FY 2012
Despite the rise inshare price,P/Eratiodeclinedfrom6.30 to 4.48, showingadecrease of 28.97%.
Thiswas due to the huge increase of 56.84% inEPS whichoutweighedthe share price rise.
FY 2013
P/E ratiosignificantlyincreasedby62.61%. The mainreasonfor this massive growthwasthe
noticeable declineinEPS.
Moreoverthe Share price grewfrom Rs.245.10 to Rs.311 (Annual Report,2013) whichfurtheredthe
improvementinP/Eratio.
FY 2014
P/E ratiofurtherclimbedfrom7.28 to 10.92, exhibitinga49.92% rise.AlthoughEPSincreasedbut
the significantgrowthinthe share price fromRs.311 to Rs.537.9 (Annual Report, 2014) outweighed
itsrise and resultedin higherP/Eratio.
2011 2012 2013 2014
Price Earning Ratio 6.3 4.48 7.28 10.92
0
2
4
6
8
10
12
Price Earning Ratio

22
FY 2012
Dividendyieldmassivelyincreasedfrom6.82% to 13.06% exhibitingagrowthof 92.06%. The main
reasonwas huge rise individendwhichincreasedfromRs.15to Rs.32.
Thisdividendrise alsoresultedinincreasedmarketprice of shareswhichrose by11.41%.
FY 2013
The dividendyielddeclinedto8.04%.Main reasonof thisfall wasthe drop individendforthe year
whichwasRs.7 lessthanlastyears’dividend.
Moreoverthe rise inshare price alsocontributedtowardsthe decline of dividendyield.
FY 2014
Despite the increaseddividend,dividendyieldfurtherdeclinedto5.48%. The dividendrose from
Rs.25 to Rs.29.5 (Annual Report, 2014). This increase ledtomassive growthinthe share price.Share
price increasedfromRs.311 to Rs.537.9 exhibitinga 72.96% growth.Thisrise inshare price resulted
inreduceddividendyield.
2011 2012 2013 2014
Dividend Yield 6.82% 13.06% 8.04% 5.48%
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
Dividend Yield

23
Competitor Analysis
CompetitorAnalysiswithHACLwouldthrow lightontrue marketshare andperformance of IMC.
IMC had a betterprofitabilityintermsof Grossand NetProfitmargins.HoweverHACLshoweda
significantupsurge inthe ROCE.
IMC’s grossprofitwas 102.77% higherthanHACL. Thiswas due to significantincrease inthe sales.
Both companieshadalmostsame levelof salesinsmall passengervehiclesbutIMChad an edge
because of increase insalesof PickupandSUV segments.AlthoughIMC’smarketshare declined
followingthe decline inoveralldemandinautomotive industry, stillitwas17% more thanHACL.
The all-time secondhighestsalesof HACLenabledittoshrinkthe gap betweenIMC’sanditsGPM.
(HACL Annual Report, 2014)
Moreoverthe COS of HACL was alsohigherthusresultinginalowerGPM. Despite the factthat
HACL’sCOS dropped thisyear.
IMC had significantlybetterNPMthanHACL. Althoughfinance costof HACLexhibitedamassive drop
but still itwas notable partof the operatingprofit.
On the otherhand IMC’s finance costswere only0.76% of the profitfromoperations. Moreover
IMC had a higheroperatingincome followingthe contributioninsolidinvestments.The expensesof
IMC were inline withthe income andsales.
Gross Profit Net Profit
Return On Capital
Employed
IMC 10.15 6.79 25.38
HACL 7.3 2.74 89.3
0
10
20
30
40
50
60
70
80
90
100
Profitability Ratios

24
HACL exhibitedagood cost control thisyear butstill itscostswere higherthanIMC thus reducingits
NPM.
IMC’s returnto the shareholders decreased byaminorrate as a resultof the huge set back in
previousyear.HACLprovidedahuge returnon capital employed toitsshareholdersfollowingthe
huge increase initsProfits.
WCC of IMC and HACL exhibitasignificantdifference.HACLdoesnotencourage creditsales.
Therefore ithaszerodebtordays (HACL Annual Report, 2014). On the otherhand IMC’strade debts
majorlycomprise of Governmentorganizationswhichresultedinaverage 10.76debtordays (Annual
Report 2014).
IMC pays off its trade debtsin 2.11 dayswhichis due to itstremendousliquidityposition.Contrarily
HACL takes 5.5 daysto pay itscreditors.Despite the fall initscreditordays,HACLstill takesmore
than twice the time of IMC to pay off itstrade creditors.
IMC takes31.82 days to turnoveritsinventorydue tohigherdemandandhence resultinginhigh
sales(Annual Report, 2014). On the otherhand HACLtakes 38.74 days to covertitsinventoryto
cash (HACL Annual Report, 2014). Althoughitsliquidityimprovedbutstill IMCexhibitsbetter
positionintermsof liquidity.
Conclusively,HACLhasslightlybetterWCC.The difference amongthe workingcapital cycle of the
twois due to the nil debtordaysof HACL.Both the companieshave revivedfrompoorperformances
and hence regainingtheirefficiencylevels.
Debtor Days Creditor Days Inventory Days
IMC 11.98 2.11 31.82
HACL 0 5.5 38.74
0
5
10
15
20
25
30
35
40
45
Efficiency Ratios

25
IMC is showinganupwardtrendinits liquidityratiosandhence resultinginaheftydifference
between liquidityof the two.Thiscontrastisdue to huge difference amongstthe currentassetsand
currentliabilitiesof both.IMC’scurrentandquickratiosare higherthanHACL’s ratios.
IMC has no shortterm borrowingsandmaintainshighinventoryprimarily due tothe strongdemand.
Alsothe applicationof KaizentechniquehelpsIMCwiththe inventorylevel.
MoreoverIMC has highlevel of short-terminvestmentswhichmake itsliquiditypositioneven
better.
On the otherhand HACL hasno short terminvestmentsmakingliquiditypositionweaker.Moreover
HACL has significantlyhighertrade payablesfurtherworsening the liquiditypositionandthus
affectingitscurrentandquickratios.
(HACL Annual Report,2014)
Current Ratio Quick ratio
IMC 3.35 2.61
HACL 0.89 0.5
0
0.5
1
1.5
2
2.5
3
3.5
4
Liquidity Ratios

26
IMC has no gearingas itis totallyequitybasedorganisation (Annual Report, 2014) and hasbeenlike
thisfor pastsevenyears.Onthe otherhand despite asignificantfall HACLstill hashighergearingas
IMC’s long-termliabilitiesonlyconsistof deferredtaxation (Annual Report, 2014) whilstHACLhas
othercomponentstooprimarilyincludingthe deferredliabilities (HACLAnnual Report, 2014).
As IMC isfullyfundedthroughequity,therefore itsinterestcoverratioissignificantlyhigher asits
finance costsare minute ascomparedtothose of HACL’s (Annual Report, 2014). HACL is still reviving
fromnegative gearingandhence itsinterestcoverratioissignificantlyinferior.Despite the factthat
itsinterestcoverratiohas improved(HACLAnnual Report, 2014).
Gearing Ratio Interest Cover
IMC 0 132.14
HACL 2.35 56.08
0
20
40
60
80
100
120
140
Solvency Ratios

27
Despite the lowerP/EratiothanHACL, IMC’s EPSis significantlyhigher.Thisdifference wasdue to
the highernetprofitof IMC. HACL has a lowernetprofitandhas highernumberof issuedshare
capital thusdecreasingitsEPS. HACL’sP/E ratiois higherbecause of itssignificantlylowerEPS.
(HACL Annual Report,2014)
IMC announcedincrease individendtherebyincreasingthe marketprice of itsshares.The increased
price alsodepictsthe confidence shareholdershave inIMC.
The dividendyieldof boththe organisationsisalmostthe same.Thisisbecause the dividendsof
boththe companiesare inalignmentwiththeirmarketprices.
Earning per Share Price Earning Ratio Dividend Yield
IMC 49.28 10.92 0.055
HACL 7.52 7.32 0.054
0
10
20
30
40
50
60
Investor Ratios

28
Business Analysis
SWOT Analysis
Strengths
 IMC has a favourable positionand investorsseemreallyconfidentabouttheirspendingin
IMC as it iscontinuallygrowingintermsof share price.
(Tribune, 2015a)
 Financial analysisandcompetitoranalysisprove thatIMC isa financiallysoundcompany.
 IMC is a pioneerintermsof workplace safetyasthere were noworkplace injuries,
consecutivelyinlastthree years.
 IMC manufactures sedancars from1.3L to 1.8 L whichenablesittotarget a large segment
and hence doesnotgive verymuchroom to itscompetitorsinthissegment.
(Zaheer,2014b)
 Toyota Pakistanisthe onlycar manufacturerwithall of itsdealersproviding3S(Sales,
Service,Spare parts) facilitiestoitscustomers.Moreoveritisfurtherexpandingitsnetwork
across Pakistan.
 The Pakistani variantof Toyotacorollais the highestsellingToyotaCorollainAsiaPacific.
Moreoveritis the 5th
largestworldwideproducerof ToyotaCorollacars.
(Ullah,2015)
 Toyota is mostpopularautomotive branddue toitsfirmestablishment.
(Hembel,2014)
Weaknesses
o Despite the huge salesvolume, CorollaXli variantlacksthe featureslike Power
windowsandABSbrakeswhichare readilypresentinitsmaincompetitorHonda
City.
(Hira, 2014)
o Of the 13% market share,almost80-90% cars are the 1.3L variantsdespite the
manufacture of higherhorsepowervariantsaswell.IMCisunable tostrengthenthe
salesin1.6L-1.8L segmentwhichisdue topoor marketingstrategy.
(Hembel,2014)
o The pricesof cars are highlysensitivetothe exchange ratesas importantpartsare
importedandhence highlyaffectedbythe rupee depreciation.
(Abduhu,2012)

29
Opportunities
 IMC couldprovide warrantyfacilityforimported Priuscars.Thiswouldwinthemthe
customer’sconfidence andwill satisfyhesitantpotentialcustomersaswell.
(Abbas,2014)
 IMC couldmanufacture more fuel efficientcarsas customersare readyto compromise
luxury forthe fuel efficiency.
(Zaheer,2014b)
 Small car segmentcouldbe enjoyedbymanufacturingbelow 1000cc cars as thissegmentis
no longerbeingenjoyedbyIMCfollowingthe discontinuationof DailhatsuCuore.
(Hassan, 2012)
 Toyota Prius hasa goodperceptionamongstdriversingeneral asitisan environment
friendly“green”vehicle(Huzaif,2015).IMC shoulduse effectivemarketingtoincrease its
salesinthissegmentbecause alotof people preferalternative-fuelledcarshavingavery low
carbon footprint.
Threats
o Importedcars have severelyaffectedsalesof the local car manufacturersandcould
alsodo so inthe future as propositionsforrelaxationinage limitsof usedcarsare
providedbyAPMDA.
(Tribune,2015b)
o The competitionisincreasingasSuzuki hasintroducedabighorsepowercarand the
possibilityof more introductionof suchcompetitioncannotbe ignored (Memon,
2015). MoreoverGermanyis showinginterestinthe automotiveindustry.This
wouldfurtherincrease the competition(Imaduddin,2015).The governmentis also
takingmeasurestopave wayfor new entrants (Bhutta,2015).
o Economyof Pakistanisexpectedtofall (Tribune,2015c).Thiscould leadtoa fall in
the salesof IMC.
PEST Analysis
Political
o The governmentisconsidering penalisingcardealers uponlate cardeliveriesby
imposinginterestpayments. There appearstobe noroom forgenuinelydelayed
deliveries.
(Tribune,2015d)
o The industryissufferingfrom badlaw andorder situationinthe country thus
affectingIMCby increasingthe cost.
o Inconsistentgovernmentpoliciesregardingthe autoindustryingeneral andimport
of usedvehiclesinparticularis affectingthe automotiveindustryadversely.

30
(Ghumman,2014)
o Howeverthe withdrawal of 10% Federal Excise Dutyonmotorvehicles bythe
governmentexceeding1800cc is a blow of freshair andwouldresultinincreased
salesbyloweringthe prices.
(Brecorder,2014)
Economic
o Pakistan’seconomicgrowthisexpectedtobe secondlowestinthe region(Rana,
2015). This slowgrowthrate isdue to challengingpolitical andsecurityconditions
(ADB, 2015).
o Inflationrate of Pakistaniscontinuouslyfalling mainlybecauseof the dipinfuel
prices(Trading Economics,2015). Thiswould positively impactthe purchasingparof
buyers.
o The interestrate has beendecreasedandisatan all-time low in13 years (The News,
2015). This wouldenable the customerstogetloans forbuyingcars at lowerinterest
rates.
Social
o IMC participatesactivelyinthe welfare of communitiesneighbouringitsplantsand
facilities.
o IMC has beenan active participantof the welfare workneededwheneverthe
countryfacesany natural calamityor emergency.
o In the past decade,middleclasshasincreasedrapidlyandthishasledtoan
increasednumberof private cars (Farooq,2012). IMC shouldpayattentiontothis
factor and produce cars targetingthe needsof middle class.
o IMC has setup a wastewatertreatmentplantwithacapital investmentof Rs.50
million,torecycle waterusedforplantation.MoreoverIMCwasthe firstautomobile
companyto commence environmentfriendlygasincar air-conditioners.
Technological
o The introductionof navigationsystembyIMCinitscars has beenwidelyappreciated
by the customers(Annual Report, 2013).
o IMC was the firstto introduce hybridvehicles inPakistanbylaunchingPrius.
o An agreementhasbeensignedbetween SMEDA andJICA whichwouldprovide
technical assistance toPakistantherefore improving the productivityandqualityof
auto-parts.
(JICA,2015)

31
Conclusion and Recommendations
Conclusion
Financial Analysis
Profitabilityof IMCshowedamixedtrend.Thiswasdue to fluctuationinbothIMC’ssalesand
industryperformance.
IMC facedits all-time highsalesinFY2012 due to marvellousindustryperformance andgood
customerreaction.Thisrecordmakingyearwas followedbyahuge dipin saleswhichwasdue to
poor economicconditionandoverallfall indemand.The Costof salescontinuouslydecreasedinthe
past 3 years thusshowinganefficientcontrol overthe costas comparedto itscompetitor.
The liquidityof IMCalsoexhibitedacontinuousimprovement.The cashandbankbalancesof the
companyare alsohandsome thusenablingthe companytopayoff itsshort-termliabilities.Current
and quickratiosshowa firmposition.
IMC has no gearingas itis totallyanequitybasedorganisation.Moreoveritisalsostrongfromthe
view of interestcover.Thismeans thatIMC hasenoughincome to pay off the finance costs.
Howeveritsinterestcoverhasdecreasedinthe currentyearfollowingincrease inthe finance costs.
Afterthe huge decline inWCC,IMC witnessed slightdipintermsof efficiency. Thiswasprimarily
because of fall increditordays. Due to goodcash situationIMC wasin positionof payingitscreditors
quicklythusreducingitscreditordays. The debtordaysincreasedfollowingthe increaseinordersby
the governmentagencies.Inventorydaysalsodecreaseddue tothe huge turnoverinthe stock
followingthe introductionof newmodels.
Investorsof IMC are satisfiedasIMChas maintainedtopaythema dividendhenceincreasingthe
share price.EPS alsoincreasedfollowedbyincreased P/Eratio.
Competitor Analysis
IMC has outperformedHACLintermsof profitability.HACLhasrelativelypoorcost control therefore
leadingtolowerprofitmargins.HoweverROCEof HACL ishigherfollowingthe increaseinearnings.
Moreoverthe liquiditypositionof HACLisalsopoor as comparedto that of IMC. The solvencyof
HACL isalso worse thanIMC as exhibitedbythe ratioanalysis. WCCof HACL showedsome
improvementascomparedtoIMC.
Business Analysis
SWOT
IMC isthe most popularbranddue to itsfirmbrand establishment.Ithasthe widestandmost
efficientdealershipnetwork.Itcouldfurtherimprove itspositionbyintroducingfacilitiestoalign
withitscompetitors.The companyisfacingpotential competitionbutitcouldbe overcome withthe
introductionof more fuel efficientcarssince the customerslongforthem.

32
PEST
The inconsistentGovt.policieshave ledtoanuncertaintyregardingthe future of automobile
industry.Howeverthe expectedeconomicgrowth anddecline ininterestrates isablow of freshair.
Active participationinsocial activitieshasmade IMCa goodcorporate citizen.Moreoverwiththe
introductionof latestnavigationsystemsIMChas got an edge overitscompetitors.
Recommendations
 IMC shouldproduce more fuel efficientvehiclessince the middle classwanteconomymore
than the speed.
 IMC shouldintroduce lowhorsepowercarstargetingthe 800-1000cc sector whichwasleft
emptyafterthe discontinuationof Cuore.
 IMC shouldincrease itslocal productioninordertodecrease itsdependencyonJapan
regardingthe maincomponents.ThiswouldhelpIMCbymitigatingthe foreignexchange
risksit facescurrently.
 IMC shouldbringthe hybridtechnology tolowerhorsepowercarstoo. Thiswouldbroaden
itsspan by producingrelativelycheapervehiclesfrombothcostandfuel efficiency
viewpoint.

RAP

Recomendados

Recomendados

Más contenido relacionado

La actualidad más candente

La actualidad más candente (20)

Similar a RAP

Similar a RAP (20)

RAP