CHAPTER VI SUMMARY OF FINDINGS, SUGGESTIONS AND CONCLUSION INTRODUCTION India has become one of the fastest growing economies in the world. Indian tyre industry play a significant role in contributing to the industrial production. Growth of an economy is evidenced by its Growth in GDP. The instances of Chinese invasion and global, melt down has given lesson to everyone to improve their capabilities. In this situation, it is meaningful to reduce the costs within the doors of the company without spoiling the quality of the products. Hence an attempt has been made to study the cost of operation and also financial performance in order to improve productivity and profitability. RESEARCH FINDINGS According to the objectives of the study, various analysis and statistical tools used for the cost and financial performance analysis of the selected tyre companies, the following are to be taken as the findings of the study: COST AND PROFIT ANALYSIS The following are the findings related to the cost and profit pattern of the tyre companies. Raw Material pattern: The lowest raw material cost on sale value of production ratio is possessed by Balkrishna tyre company whereas the highest belongs to Apollo tyre company. Employee cost pattern: The lowest employee cost on sale value of production ratio is possessed by Apollo tyre company whereas the highest belongs to JK tyre company. Power and Fuel expenses pattern: The lowest power and fuel cost on sale value of production ratio is possessed by Balkrishna tyre company whereas the highest belongs to JK tyre company. Depreciation cost pattern: The lowest Depreciation cost on sales value of production ratio is possessed by Ceat tyre company whereas the highest belongs to Balkrishna tyre company. 250
Interest cost pattern: The lowest interest cost on sale value of production ratio is possessed by MRF tyre company whereas the highest belongs to JK tyre company. Other Expenses Pattern: The lowest other expenses on sale value of production ratio is possessed by MRF tyre company whereas the highest belongs to Ceat tyre company. Total cost pattern: The lowest total cost on sale value of production is possessed by Balkrishna tyre company whereas the highest belongs to Ceat and JK tyre company. Profit pattern: The lowest profit on sale value of production is possessed by JK tyre company whereas the highest belongs to Balkrishna tyre company. Hence the overall low cost maker on the basis of total cost to sale value of production ratio is Balkrishna tyre company and the overall highest profit maker is also Balkrishna tyre company. One way ANOVA used to find the significant differences in the mean cost and profit pattern of the tyre companies shows that there are significant differences between the tyre companies at 5 percent significant level. Kruskal-Wallis test used to test the significant differences in the median cost and profit pattern of the tyre companies shows that there are significant differences between the tyre companies at 5 percent significant level. PERFORMANCE AND EFFICENCIES The following are the findings related to the performance and efficiencies of the tyre companies: I. Measuring financial efficiency by ratio analysis: Working capital Policy Index: The average working capital policy Index of MRF is greater and is also showing consistency when compared with others. Higher ratio indicates -greater liquidity-lower risk and return; JK tyre company has lower ratio. It indicates - poor liquidity, high risk and return. Leverages: The operating leverage is high for JK and MRF. The business risk is relatively more beneficial to JK and MRF if the capacity of operation 251
improves. The financial leverage of Balkrishna is higher indicating high risk high benefit if the debt is promptly employed. Total asset leverage is higher for MRF indicating the effective use of assets to bring greater profits. Turn over ratios: The Assets turnover ratio of Ceat-MRF are high which indicates low profit margin and sign of more growth.capital Turnover Ratio indicates the efficiency of the capital usage. Balkrishna has high ratio whereas Ceat and MRF has low ratios. The working capital turnover ratio measures how efficiently a business uses working capital to produce sales. Balkrishna has high ratio whereas Ceat has low ratio. A low inventory turnover is usually a bad sign high ratio is good sign. It is high for Ceat and low for Balkrishna. High debtors ratio indicates problems in collecting the debtors. This ratio is high for Apollo whereas low for JK. Liquidity Status: Balkrishna has high current ratio, Apollo has high solvency ratio; MRF has high health ratio. Hence it is concluded that their short term solvency position is good. The long term solvency position of JK tyre company is high as evidenced by Debt-Equity and credit strength ratios. Hence, the long term solvency of JK tyre company is good. Equity Multiplier of JK is also greater. Profitability Position: Balkrishna tyre company has high operating profit ratio, high earnings power ratio, high profit margin ratio, high return on equity ratio, high return on capital employed ratio. Hence, it is concluded that the highest profitability achiever is Balkrishna tyre company. Sales Growth: Sales growth ratio of Balkrishna tyre company is high; EBIT growth and contribution growth of MRF is high. However, the contribution ratio of Balkrishna is higher. Taking all these ratios together it is concluded that MRF and Balkrishna tyre companies are better positioned when compared with others II. Artificial Neural Network (ANN) This analysis is used to find the degree of significance contributed by the ratios in measuring the performance of the homogeneous group of companies. In this case the dependent variables are health and return on capital employed. The explaining variables are 18 ratios. The result of the 252
analysis shows that capital turnover ratio, solvency ratios, earnings power ratio, total assets turn over ratio, current ratio and return on shareholders fund ratio are playing the significant role in predicting the health and ROCE of tyre companies. III. Data Envelopment Analysis (DEA) Financial efficiency: DEA technique is used to determine the relative efficiency of the companies. The results of the DEA analysis by taking the 6 inputs as 6 ratios and 2 output ratios indicates the efficiency scores as: Apollo tyre company-score 0.992, Balkrishna, Ceat, JK and MRF scored 1.00 respectively. Hence the inefficient tyre company is Apollo and others are efficient companies. Operational Efficiency: In this analysis various elements of cost are taken as input and sales in numbers, Contribution and production in numbers are taken as output. The efficiency scores are: Apollo : 0.97 Balkrishna : 1.00 Ceat : 1.00 JK : 0.711and MRF : 1.00. Hence the inefficient tyre companies are Apollo and JK tyre companies. All others are efficient companies. IV. TIME SERIES ANALYSIS Every firm s performance is indicated by the profit earned by them. Based on the past performances, the forecast of profits can be arrived for the selected companies. The result shows that MRF has been consistently showing increase in forecasted profits and possess green signal. JK though shows slight increase in profit and possess red signal. Apollo and Ceat has slight variation in the first two years of forecasting. Whereas Balkrishna started improvements in operating profit since 2016-17.. 253
SUGGESTIONS This empirical study used many statistical tools for analyzing the data. Various fruitful findings have been extracted. The following suggestions are made for the improvement of the financial and operational efficiency of the selected tyre companies. The study shows that the material cost of all the tyre companies except Balkrishna tyre company is almost the same. The study notices greater variation in other expenses of the companies. It shows that Balkrishna tyre company, other tyre companies have chances to reduce the raw material cost. Hence improvement in productivity should be initiated. The tyre companies should try to reduce the material cost by using appropriate material management techniques. Any reduction in material cost would have huge direct impact on profit. Total Cost management (TCM) technique should be used to achieve productivity at the optimum cost with better quality output. The following are some of the suggested total cost management tools Every process has to be carefully re-engineered to find the wasteful movements and costs. This would reduce the production cycle time as well as the cost of each process. There would be a chance of reducing the wastes and to increase the yield. Monitoring of processes enhances the quality of output. Business Intelligence Software provides facilities by supplying data to take decisions for running the day to day affairs with least costs. Activity Based Costing may be introduced to find the actual allocation of overheads and to arrive the actual cost of production. This would reduce the wasteful movements and cost as it is a basis for arriving accurate cost of production by allocating the overheads as per the activities undertaken. This rework on cost of manufacturing guides a company to take significant decisions. Target costing is a technique to arrive cost of production by deducting profit from the expected least price to be paid by a consumer. Hence, a new variety of product needed by the consumers at the expected price may be carried out by properly using the target costing. Price fixation is a 254
vital role to capture market. This technique may be used for introducing new products. Lean Six Sigma are the two very powerful tools to improve productivity, quality and efficiency. This technique when used in the process, the production cycle time can be reduced and at the same time variations and wastes are reduced.lean Six Sigma takes care about both the waste and speed issues in the processes. Integrating Lean tools into Six Sigma process mapping leads to many benefits. As the tyre companies are producing different varieties of tyres, the best product mix planning would increase the profitability of the tyre companies. Here ranking should be made on the basis of contribution of each variety of products. The monthly production schedule based on the production mix selected and the arranging the machine, labour allocation etc. to achieve the targets, monitoring of production and waste would improve the productivity. Improving the employee productivity would also enhance the operational efficiency and profitability. Use of financial leverage tool may reduce the interest burden.timely leveraging would magnify the profit. Long-term funds in the form of issue of bonds for specific period and short term funds like commercial paper may be planned in addition to the other sources of finding funds so as to get optimal capital-mix to lever profit. Business Intelligences a process through which the performance of an organization is monitored with KPI s (Key Performance Indicators) and reported for immediate action and follow up. It is a Measure- Monitor- Manage- Analyze-Plan system. It provides Dash boards and multiple scorecards with visual indicators along with traffic signals- red, green and yellow. It gives alerts and work flow corrections to take corrective actions and to run the affairs at the least cost. Apollo tyre company must take effective steps to collect the dues from debtors in time to minimize the debtors turnover ratio. The earnings power and profit margin ratio is poor in Ceat and JK. These companies should improve the profitability by increasing the turnover and cost reduction. 255
Sales growth is low in Ceat, JK and Apollo when compared to MRF and Balkrishna. Hence these companies should improve the turnover to meet the competition. OTHER SUGGESTIONS The production system in the Indian tyre industry has been traditionally very labour intensive. The firms should resort to automation in order to tackle problems related to labour unionization and indiscipline in the sector. In order to safeguard the Indian tyre industry share in the export market there is also an urgent need to increase the degree of radialisation. Global tyre manufacturers have been tanking constant efforts to innovate and offer a diverse range of products flat tyres, eco-friendly tyres and energy efficient tyres. In this context the Indian domestic companies should pursue a growth strategy of continuous innovation and increasing emphasis on product differentiation. The increase in import duty on natural rubber from 20 percent to 25 percent would be another challenge for the tyre industry. The change in duty is likely to result in further increase in import of cheap tyres at 10 percent duty and will hinder the growth of capacity investment by domestic tyre industry. The tyre industry has urged the government to increase the customs duty on tyre import. For successful implementation of Make in India campaign to promote domestic manufacturing and to make the product competitive it is important that import of finished goods magnetize duties at least as much if not more than what is levied on raw materials. The government of India has to take initiatives to facilitate the growth of tyre industry includes a. No restriction on the import of raw materials. b. Increasing thrust on development of road infrastructure. The domestic tyre manufacturers should adopt technology generation that leads to development research. The sources of technology for the domestic firms have been through reverse engineering, joint ventures and collaborations. The emphasis should be given by Indian tyre industry to 256
applied research and setting up of well equipped in house R & D centers which are manned by experts and experienced professionals who have also helped the technology upgradation. Indian tyre technology should exhibit versatility in maintaining inflow technology through foreign collaborations and tailoring the same to the Indian needs. The Indian tyre companies should expand the distribution network. The global tyre manufacturers launch airless or non-pneumatic tyre for the passenger vehicles. The airless tyre technology features a unique spoke structure designed to support the weight of a vehicle effectively eliminating the need to periodically refill the tyres with air. Therefore the domestic manufacturers should develop the airless tyres to avoid a spare tyre which leads to better fuel economy. 257
CONCLUSION The tyre industry has been playing vital role in contributing industrial production. The major factors affecting the performance of the tyre industry are the fluctuation in fuel prices, natural rubber prices and import duty on rubber. The permanent reduction in rubber import duties is required to ensure long term health of the Indian tyre industry as price volatility of key raw materials could return and clearly, there are limits to how as much of such cost escalations can be passed on to the end customers, especially to OEMs and institutional buyers, who are extremely price sensitive. The demand for tyres depends upon many external factors like economic growth and infrastructure development in the country. The tyre industry is also directly affected by the performance of the vehicle manufacturing sector which in turn is dependent on the overall economic growth. Maintaining continued edge in technology through innovation and creativity in R&D has been the focused area at tyre industry in india. The concept of green tyres becomes a paradigm of the country s competitive edge. Technologies like self-inflation by Goodyear and run flat tyre (RFT) by Bridgestone are pave the way in Indian market. Tubeless tyres gain ground in Indian market as almost all the automobile industry launches their vehicles with tubeless tyres. Reduction in excise duty and imposing ban on import would encourage their surivial. Government should encourage export of tyres. Among the performance of the five tyre companies Balkrishna stands first followed by MRF. To become a world class manufacturer and a global leader has to concentrate on the firm improving productivity, capturing of markets and tune all its operations and face the healthy competition to reach improvement in profit. 258