ISSN 2809-929X (Print)

ISSN 2809-9303(Online)

Journal of Social Commerce

Vol. 3 No. 1, 2023 (Page:10-17)
DOI: https://doi.org/10.56209/jommerce.v3i1.63
Revolutionizing Profitability and Liquidity Analysis in India's Auto Two
and Three-Wheeler Industry: A Comprehensive Study of Hero Motocorp,
Bajaj Auto and Tvs Motor
Ajmera Tushar Rameshbhai1
1
Research scholar, Department of Commerce, Saurashtra University, Near Munjka, Rajkot,
Gujarat – 360005, India

Article History
Abstract

Submitted: 23 February The primary objective of a business organization is to maximize profits

2023, Revised: 12 April and fulfill its short-term financial obligations within a year. The generation
2023, Accepted: 28 April of profit is a fundamental aspect of any business organization, and liquidity
2023 plays a crucial role in facilitating this process. The attainment of an
organization's desired objectives is heavily reliant on its ability to maintain
Keywords profitability and liquidity. This empirical study aims to identify the
profitability and liquidity of companies in the auto two and three wheelers
Profitability, industry that are listed on the stock exchange. The study should encompass
Liquidity, the time period from 2011-12 to 2018-19, during which three companies
Auto Two and Three
will be randomly selected for the purpose of analysis and findings. The
Wheelers Companies,
Compound Annual Growth study found that Baja Auto demonstrated a relatively favorable level of
Rate profitability, while Hero Motorcorps exhibited a comparatively higher
ratio among the selected companies. The comparative liquidity position of
Hero Motorcorps and Bajaj Auto appears to be better than that of TVS
Motors. Regarding the statistical test of ANOVA, it was found that all
selected ratios, except for the Debtors Turnover Ratio, were rejected. This
indicates that the selected companies did not exhibit a significant
difference in their Debtors Turnover Ratio during the study period.

Introduction
The term "profitability" is comprised of two distinct lexical units, specifically "profit" and
"ability." In the realm of business, profit is commonly defined as the surplus of revenue over
total expenses. The term "ability" pertains to the capacity of a business to generate profit
through its operational endeavors. The earning power or operating performance of a business
organization is demonstrated by its ability (Madanhire & Mbohwa, 2016; Saragih et al., 2020).
The word “Liquidity” means the debt repaying capacity of the business organisations (Widyasti
& Putri, 2021). The statement denotes the capacity of an organization to fulfill its financial
obligations to the vendor with regards to the procurement of raw materials, services, and short-
term capital (Kahraman & Kazançoğlu, 2019).

1
Corresponding Author: Ajmera Tushar Rameshbhai, Email: [email protected],
Address: Near Munjka, Rajkot, Gujarat – 360005, India
Journal of Social Commerce is licensed under Creative Commons Attribution-ShareAlike 4.0
International License (http://creativecommons.org/licenses/by-sa/4.0/)
9
 Celebes Scholar pg Journal of Social Commerce

The enduring prosperity of business units is contingent upon short-term actions and plans.
Therefore, it can be posited that the long-term creditworthiness of an organization is also reliant
upon short-term liquidity conditions. This research aims to analyze companies that
manufacture auto two and three wheelers, given that India has emerged as the fourth largest
auto market globally. Additionally, automobile exports from India have increased by 14.50%
during the financial year 2019. The projected growth rate for the specified period of 2016-2026
is a Compound Annual Growth Rate (CAGR) of 3.05%.

Literature Review
Narayan V. Iyer (2013) The technical assessment of the potential reduction in emissions and
fuel consumption from two and three wheelers in India has been analyzed. This paper examines
the rapid growth of two and three-wheeled vehicles in India and highlights the need to reduce
emissions and fuel consumption from these vehicles (Saxena, 2019). Additionally, it was
determined that the implementation of emission standards and emission control technologies
designated for passenger vehicles had not been fully integrated into this particular vehicle
category. The researcher is contemplating the evaluation of technical alternatives to address
forthcoming emissions. The paper's conclusion highlights a diverse range of technological
options that have the potential to decrease the fuel consumption of two and three-wheeled
vehicles.
Vijayakumar (2012) The study has identified a relationship between assets utilization and firm
profitability through empirical evidence gathered from Indian automobile firms. This study
examined the appraisal of asset utilization as a multifaceted task that involves the effective
utilization of resources. The utilization ratio of assets in any business organization serves as a
metric for evaluating the effectiveness of management (Batchimeg, 2017). This research aims
to evaluate the profitability of the Indian automobile industry through the utilization of the
assets turnover ratio and the identification of the contributing factors. The study's results
suggest that the ratios of asset utilization exhibit a fluctuating pattern due to factors such as
sales rates, market conditions, pricing policies, government policies, and competition.
Dharmaraj Arumugam (2016) An analysis has been conducted to identify the factors that
determine profitability in the Indian automobile industry. According to a study conducted by a
researcher, the Indian automobile industry witnessed a growth of 14.89% in exports as
compared to the corresponding period of the previous year. In order to achieve global standards
in terms of cost and manufacturing, prominent domestic companies have entered into more
than 200 technical cooperation agreements with international firms. The objective of this paper
is to measure profitability and identify the effects of various factors on profitability in the
Indian automobile industry. The study involved the selection of 16 companies and the analysis
of 21 variables using multiple correlation and multiple regression techniques. The study's
primary discoveries indicate that the Indian automobile industry exhibits a significant reliance
on its operating ratio. Dave (2018) An empirical study has been conducted on the liquidity
analysis of selected automobile companies in India. The primary focus of this study pertains to
the production of automobiles, including cars, two- and three-wheelers, and heavy vehicles.
The present study undertook an analysis and interpretation of the growth of the automobile
industry. The researcher's focus was on the liquidity of selected car and heavy motors
manufacturing units, which were chosen using simple random sampling techniques. The
primary discovery of the investigation was that the yearly-based current and quick ratios
exhibited conformity with established norms, whereas the unit-based ratio demonstrated
nonconformity with established norms throughout the duration of the study.

Ajmera Tushar Rameshbhai

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Research Gap
To fill in the blanks between prior studies and the present one, researchers use research gaps.
In this research, the authors (Vijayakumar, 2012) analyzed a technical evaluation of the
possibilities for lowering emissions and fuel consumption in India's fleet of two- and three-
wheeled vehicles. There is a dearth of research into issues of profitability and liquidity in the
two- and three-wheeled auto sector, despite the fact that numerous empirical studies have been
conducted on the profitability and liquidity of Indian automobile firms (Dharmaraj Arumugam)
and the Indian automobile industry more generally (Dave).
The identification of a research gap is a valuable tool for researchers to discern the disparity
between prior investigations and the current study. The present study aims to address the gap
in literature regarding the profitability and liquidity of the two and three-wheeler sector of the
Indian automobile industry. Prior research conducted by Narayan V. Iyer (2013) analyzed the
technical assessment of emission and fuel consumption reduction potential, while Vijayakumar
(2012) identified assets utilization and firm profitability in Indian automobile firms.
Additionally, Dharmaraj Arumugam (2016) analyzed factors determining profitability in the
Indian automobile industry, and Dave (2018) conducted an empirical study of liquidity analysis
in selected automobile companies of India. However, there is a dearth of research on the
profitability and liquidity of the two and three-wheeler sector, which this study aims to address.

Methods
The purpose of this study is to accomplish the following goals: (1) To evaluate the profitability
of Hero Motocorp, Bajaj Auto, and Tvs Motor during the study period; (2) To assess the
liquidity of Hero Motocorp, Bajaj Auto, and Tvs Motor during the study period; and (3) To
determine which of the selected companies has the highest profitability and liquidity.
Time Spent Conducting Research: The investigation was carried out over a period of five years,
beginning in 2011–12 and ending in 2018–19.
The boundaries of the study's focus will be established. Within the realm of automobiles, two-
wheelers, and three-wheelers, the purpose of this research is to evaluate the levels of
profitability and liquidity enjoyed by a certain set of businesses. This is an example of
something that comes under the heading of functional scope.
The geographical reach of a selection of Indian businesses, namely Hero MotoCorp, Bajaj
Auto, and TVS Motor, is the subject of the current research project. These businesses all
compete in the Indian market. As a result, the geographical requirement for this study inquiry
is the whole of the Indian subcontinent.
Hypotheses
There is no statistically significant difference in the profitability ratios of chosen organizations,
namely the operating profit margin ratio, the gross profit margin ratio, the net profit margin
ratio, and the return on capital employed ratio, according to the null hypothesis, which states
that there does not exist such a difference. The assumption behind the null hypothesis is that
the Liquidity Ratio, which is comprised of the Current Ratio, Quick Ratio, Inventory Turnover
Ratio, and Debtors Turnover Ratio, and a set of selected businesses do not differ from one
another in a manner that can be considered statistically significant.
Selection of Samples
The sample was chosen using the random sampling technique, which falls under the category
of probability sampling techniques. The lottery method was employed for the selection of the

Ajmera Tushar Rameshbhai

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sample. The process of gathering information or data. The research primarily relies on
secondary data sourced from the annual reports of various entities. The process of analyzing
and interpreting data. The data that was gathered has been meticulously edited, categorized,
and organized into tables that align with the specific objectives and hypotheses of the study.
The researcher utilized the Anova test in the present study, deeming it suitable at a significance
level of 5%. The present study advocates for the utilization of ratio analysis as an accounting
tool and Anova as a statistical tool.

Results and Discussion

Table 1. Various Ratios of Profitability and Liquidity Ratios
PROFITAILITY RATIOS
Operating Profit Margin Ratio Gross Profit Margin Ratio
Years Hero Moto Bajaj Auto TVS Moto. Hero Moto Bajaj Auto TVS Moto.
2011-12 15.34 19.04 6.58 10.69 18.3 4.93
2012-13 13.81 18.17 5.78 9.01 17.35 3.94
2013-14 14 20.37 6 9.62 19.48 4.35
2014-15 12.84 19.04 5.98 10.88 17.81 4.46
2015-16 15.54 21.17 7.29 14 19.81 5.16
2016-17 16.26 20.31 7.06 14.53 18.9 4.69
2017-18 16.38 19 7.46 14.65 17.75 5.22
2018-19 14.65 16.46 7.87 12.86 15.59 5.67
Average 14.8525 19.195 6.7525 12.03 18.12375 4.8025

Net Profit Margin Ratio Return on Capital Employed

Years Hero Moto Bajaj Auto TVS Moto. Hero Moto Bajaj Auto TVS Moto.
2011-12 10.08 15.38 3.49 54.44 68.19 19.81
2012-13 8.91 15.21 1.64 47.86 53.51 17.08
2013-14 8.34 16.09 3.28 51.41 47.92 19.91
2014-15 8.64 13.01 3.44 53.42 41.01 18.85
2015-16 10.95 17.39 4.4 55.34 41.82 24.94
2016-17 11.84 17.58 4.59 46.13 31.11 21.25
2017-18 11.47 16.16 4.37 44.61 30.25 23.87
2018-19 10.05 15.45 3.68 39.03 29.22 22.04
Average 10.035 15.78375 3.61125 49.03 42.87875 20.96875

LIQUIDITY RATIOS
Current Ratio Quick Ratio
Years Hero Moto Bajaj Auto TVS Moto. Hero Moto Bajaj Auto TVS Moto.
2011-12 0.49 0.95 0.71 0.31 0.81 0.44
2012-13 0.67 0.88 0.85 0.52 0.74 0.51
2013-14 0.65 0.8 0.87 0.47 0.67 0.57
2014-15 0.94 0.89 0.87 0.72 0.72 0.66
2015-16 0.83 1.27 0.72 0.67 1.05 0.58
2016-17 0.86 1.1 0.71 0.72 0.9 0.54
2017-18 0.85 0.94 0.66 0.69 0.77 0.51
2018-19 1.36 1.14 0.65 1.14 0.97 0.56
Average 0.83125 0.99625 0.755 0.655 0.82875 0.5462

Inventory Turnover Ratio Debtors Turnover Ratio

Years Hero Moto Bajaj Auto TVS Moto. Hero Moto Bajaj Auto TVS Moto.
2011-12 37.35 30.18 12.19 117.05 49.9 28.24
2012-13 40.3 33.2 15.17 50.72 33.6 26.43
2013-14 40.56 33.08 15.78 31.88 25.77 25.09
2014-15 35.93 27.66 13.19 23.88 28.57 24.1

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2015-16 45.85 33.21 17.36 21.4 31.48 20.53

2016-17 47.04 31.7 13.64 20.04 26.05 18.64
2017-18 39.91 34.42 16.04 20.92 20.58 17.88
2018-19 31.38 31.46 15.49 15.5 17.93 15.29
Average 39.79 31.86375 14.8575 37.67375 29.235 22.025
Source: Calculated with Annul reports from selected companies
The table presented displays the profitability and liquidity ratios of a number of chosen
companies. The selection of appropriate ratios for analysis and interpretation of financial
performance is crucial. In the case of profitability, ratios such as operating profit margin, gross
profit margin, net profit margin, and return on capital employed are recommended. For
liquidity analysis, the current ratio, quick ratio, inventory turnover ratio, and debtor turnover
ratio are deemed suitable. Throughout the study period, the selected companies exhibited a
fluctuating trend in their operating profit margin ratio. In the fiscal years 2015-16 and 2012-
13, Bajaj Auto reported the highest operating profit margin ratio of 21.17%, while TVS Motor
reported the lowest ratio of 5.78%.
The study period revealed that Hero Motocorps, Bajaj Auto, and TVS Motor had average ratios
of 14.85%, 19.19%, and 6.75%, respectively. The gross profit margin serves as an indicator of
the operational efficiency of a business organization. Bajaj Auto and TVS Motor exhibited the
highest and lowest ratios, respectively, with a maximum of 19.81% and a minimum of 3.94%.
The chosen companies exhibit a fluctuating trend from 2011-12 to 2018-19. The Hero
Motocorps, Bajaj Auto, and TVS Motors had average gross profit margin ratios of 12.3%,
18.12%, and 4.81%, respectively. The net profit margin ratio is a crucial metric for evaluating
the profitability of a business organization (Cobham & Janský, 2019). The selected companies
exhibited an average net profit margin ratio of 10.03%, 15.78%, and 3.61%.
Baja Auto and TVS Motor exhibited the highest and lowest ratios of 17.58% and 1.64%,
respectively. The study period revealed that certain companies experienced fluctuations in their
net profit margin ratios. Bajaj Auto demonstrated a higher average net profit margin ratio of
15.78%, followed by Hero Motocorp with an average ratio of 10.035%. In contrast, Tvs Motor
exhibited a lower average ratio of 3.61% during the study period. The return on capital
employed is a metric used by business organizations to measure the profitability generated by
their capital employed in the business. This metric is also commonly referred to as return on
business investments. The aforementioned companies, namely Hero Motocorps, Bajaj Auto,
and TVS Motor, have exhibited varying trends in their performance. Specifically, Hero
Motocorps and Bajaj Auto have demonstrated a decline in their respective trends, while TVS
Motor has shown an upward trend (Kanagavalli & Devi, 2018). In the fiscal year 2012-13,
Bajaj Auto exhibited a higher return on capital employed of 68.19%, while TVS Motors
displayed a comparatively lower return on capital employed of 17.08%. The companies Hero
Motocorps, Bajaj Auto, and TVS Motor have reported average returns on capital employed of
49.03%, 42.87%, and 20.96%, respectively.
The present study employs liquidity analysis techniques, specifically the current ratio, quick
ratio, inventory turnover ratio, and debtor turnover ratio, to evaluate a subset of companies over
the period spanning from 2011-12 to 2017-18 (Sreegeetha & Revathi, 2022). The conventional
current ratio is 2:1, signifying that current assets should be twice the amount of current
liabilities. The selected companies, namely Hero Motocorps, Bajaj Auto, and TVS Motor,
exhibited an average current ratio of 0.83:1, 0.99:1, and 0.75:1, respectively, for the period
spanning from 2011-12 to 2018-19. In the fiscal year 2018-19 and 2011-12, Hero Motocorps
exhibited a higher current ratio of 1.36:1 and a lower ratio of 0.49, respectively. During the
study period, Hero Motocorps demonstrated an upward trend, whereas Bajaj Auto and TVS
Motor exhibited a fluctuating trend. The customary quick ratio for business entities is 1:1,
Ajmera Tushar Rameshbhai
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denoting the presence of comparable quick assets in relation to quick liabilities. During the
study period of 2018-19, Hero Motor's quick ratio was observed to be 1.14:1, indicating a
higher value that satisfied the standard ratio. In the fiscal year of 2015-16, Bajaj Auto
successfully met the standard ratio with a ratio of 1.05:1. However, during the study period,
TVS Motor failed to meet the standard ratio in any given year. The selected companies, namely
Hero Motocorps, Bajaj Auto, and TVS Motors, exhibited an average quick ratio of 0.65:1,
0.82:1, and 0.54:1, respectively. The inventory turnover ratio is a metric that denotes the
frequency with which inventory is transformed into sales (Radasanu, 2016). The term "stock
turnover ratio" is also commonly used. The selected companies exhibited an average inventory
turnover ratio of 39.79, 31.86, and 14.85 times for Hero Motocorps, Bajaj Auto, and TVS
Motors, respectively. The trend of the inventory turnover ratio was found to be fluctuating for
the selected years. The debtor turnover ratio is a metric that reflects the frequency with which
debtors are transformed into credit sales (Kozarević et al., 2019). The selected companies,
namely Hero Motocorps, Bajaj Auto, and TVS Motors, exhibited debtor turnover ratios of
37.67, 29.23, and 22.05 times, respectively. During the study period, Hero Motocorps and the
selected companies exhibited a fluctuating trend, with the higher ratio being 117.05 and the
lower ratio being 15.5.
Hypotheses Using One Way Anova
Table 2. Anova Test for Selected Ratios
Sr. No. Profitability and Liquidity Ratios p – value Accepted or Rejected H0
1. Operating profit margin ratio 7.91E-15 Rejected
2. Gross profit Margin ratio 4.17E-13 Rejected
3. Net Profit Margin ratio 3.54E-14 Rejected
4. Return on capital employed ratio 4.06E-06 Rejected
5. Current ratio 0.044 Rejected
6. Quick ratio 0.0086 Rejected
7. Inventory turnover ratio 4.36E-12 Rejected
8. Debtors turnover ratio 0.3321 Accepted
Source: Calculated from MS Excel
The table presented above displays the results of a one-way ANOVA analysis conducted on a
set of selected ratios. The Anova test was conducted at a significance level of 5%. The results
indicate that all hypotheses, except for the Debtors turnover ratio, were rejected, suggesting a
significant difference between the selected ratios. However, there was no statistical evidence
to support a significant difference in the Debtor turnover ratio. Alternatively, it can be inferred
that the null hypothesis was not rejected, indicating that there is no significant difference in the
Debtors turnover ratio.

Conclusion
The analysis of the operating and gross profit margin ratios of the selected companies reveals
that Bajaj Auto demonstrates superior operating efficiency when compared to Hero Motocorps
and TVS Motor. This is evidenced by the fact that the average ratio of Bajaj Auto is higher
than that of the other two companies.
It is evident that an increase in operating efficiency results in a corresponding increase in the
net profitability of a company. Bajaj Auto demonstrated a superior net profit ratio, while Hero
Motocorps possessed the second highest ratio at 10.03%. In contrast, TVS Motor exhibited
comparatively lower profitability when compared to the aforementioned companies.

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The study period revealed that Hero Motorcorps exhibited a higher average return on capital
employed of 49.03% compared to Bajaj Auto's average of 42.87% and TVS Motors' average
of 20.96%.
During the study period, it was observed that no single company was able to meet the standard
current ratio of 2:1. However, it was noted that Hero Motors was able to satisfy the standard
quick ratio of 1:1 in the year 2018-19.
The inventory turnover ratio and debtors' turnover ratio of Hero Motorcorps suggest a favorable
position in both metrics. Baja Auto also exhibits a similar performance, while TVS shows a
comparatively weaker performance in terms of inventory and debtor turnover ratios.

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