A Project Report

on
DuPont Analysis of Varun Beverages & Bharat Forge

Submitted By:
GROUP 7

Ashish Dubey B2023014

Avi Gopal Tayal B2023016
Mihir Chauhan B2023031
Namit Mehta B2023032
Tushar Kumar B2023051
 BHARAT FORGE LTD.

Bharat Forge Limited is an Indian multinational company involved in forging, automotive, energy,
construction and mining, railways, marine, aerospace and defence industries. The data is downloaded
from Bloomberg and CMIE software.
After analysing FY from 2017 to FY 2023 we have found the following observations

 Return on Equity (ROE)

1. The Return on Equity has been inconsistent with figures going up from
a. 15% in 2017
b. 21% in 2019
c. but most probably due to the global pandemic, it slumped sharply down to 5% in
2022 to back again at
d. around 17% in 2022.
2. The company has bounced back pretty well post-pandemic and is recovering slowly
3. The best year of the period [2017-2022]was 2019

Despite comparing its volatile ROE(5yr) @13.27% it shows better performance than its peers with
CIE Automation giving @4.77% and Ramkrishna Forgings Ltd. @ 11.69% *

After looking at the inconsistent figures of ROE looking at the two major drivers of ROE, we go a
step down looking at two major drivers of ratios i.e., Return on Assets and Leverage

 Return on Assets (ROA)

1. ROA like ROE has been quite volatile but has shown an increasing trend which shows
that the company has been using its Assets efficiently for its income from operations and
hence the growth in the ROE
2. The Profit Margin was around @11% in 2017 and went down to 4% in 2021 where the
ROE was also the lowest and increased to 12% in 2022
Compared to its peers Bharat Forge has 7.25% while CIE Automation stands at 3.72% and
Ramakrishna Forgings at 4.10% *

 Leverage Ratio
1. The Leverage Ratio has been declining consistently from around 96% to 84 % from 2017
to 2023 which indicates that the company is taking less debt to finance its operations
Compared to its peers Bharat Forge has a little high

After looking at the inconsistent figures of ROA looking at the two major drivers of ROA, we go a
step down looking at two major drivers of ratios i.e., Profit Margin Ratio and Asset Turnover Ratio
 Profit Margin Ratio
1. The Profit margin initially showed an increasing trend which shows the company
were making good profit on its operating income and the assets utilization was
efficient
2. It increased from 2017 to 2019 then probably due to the pandemic was badly hit and
has started recovery
Compared to its peers the profit margin stands lower than CIE Automation and Ramakrishna
Forgings Ltd*
 Asset Turnover Ratio
1. The asset turnover ratio though volatile has increased over time which is a
positive sign from around 52% to 60% showing an almost 13% increase over
time
2. 2019 was the best year and then probably due to the pandemic showed a sharp
decline shows the rate

The increasing cash conversion cycle shows that customer/supplier is taking more time to pay which
means the company is receiving cash almost 21 days later than in 2017

Liquidity
The Current Ratio and Acid Ratio of the company show the trend that the company has enough assets
to more assets than its short-term liabilities
However is low on liquid cash in the short-term.
  Analysis of Return on Equity (ROE)
The company's capacity to make a profit from shareholders' equity is gauged by return on equity.
ROE has had changes over time. It saw a sharp decline in 2020 after a rapid rise from 2017 to 2019,
then recovered in 2021 and 2022. This suggests that the company's profitability may be unstable.

 ROE drivers:
A) Return On Assets (ROA): ROA measures the effectiveness with which a corporation generates
profit from its assets. Similar to ROE, ROA exhibits a downward trend in 2020 followed by an
upward trend. As a result, it can be concluded that the company's asset utilisation efficiency decreased
in 2020.
B) Leverage Ratio: The leverage ratio shows how much equity and debt are being utilised to finance
the company's assets. In general, the leverage ratio has risen.

 ROA's propellers
A) Profit Margin: The company's capacity to control costs and make a profit from its sales is shown
by its profit margin. Over time, the profit margin has been shrinking. Because of the company's falling
sales profitability, it may be necessary to strengthen cost control.
B) Asset Turnover Ratio: This ratio shows how well the organisation uses its assets to produce sales.
Asset turnover has changed over time. 2021 had a drop, and 2022 saw a recovery. The business should
concentrate on making the best use of its resources to produce sales.4. Turnover Ratios:

 Turnover ratio
A) Accounts Receivable Turnover: The company's ability to collect its receivables has improved
steadily, indicating efficient management of accounts receivable.
B) Inventory Turnover: The inventory turnover ratio has decreased, suggesting the company might be
holding onto inventory for longer periods. This could tie up capital and increase carrying costs.
C) Accounts Payable Turnover: The company is taking longer to pay its suppliers, which could
negatively impact relationships with suppliers.
D) Fixed Asset Turnover: The company's utilization of fixed assets to generate sales has shown some
fluctuations.

 Liquidity Analysis: According to the current ratio and quick ratio, the company's liquidity
position has generally gotten better over time. This demonstrates an improvement in the
capacity to fulfil urgent duties.
The cash ratio is still low, which indicates that there is little bank and cash liquidity.

 Solvency/Leverage Ratio: The debt asset ratio has stayed largely constant, pointing to a
steady debt management approach.
Although there have been significant changes, the long-term debt to capital ratio has largely
stayed within a sustainable range.

 Coverage Ratio: The ability of the corporation to pay interest costs is shown by the interest
coverage ratio. It has changed dramatically through time, possibly reflecting shifts in
operational efficiency.
The debt service coverage ratio has also shown fluctuations. A higher ratio indicates better coverage
of debt-related payments.

 Cash Conversion Cycle: There have been blips in the cash conversion cycle. A longer cycle
shows that the business is taking longer to turn its inventory and receivables investments into
cash.

Conclusion:
Various financial measures for the organisation have fluctuated throughout time, according to the
financial research. There have been times of excellent performance, but there are also indications of
unpredictability and areas that need attention, such as diminishing profitability and changing asset
utilisation. Improved cost control, effective inventory management, and maintaining a balance
between debt and equity finance should be the company's major priorities. Long-term growth and
innovation depend on ongoing investment in research and development. It is advised to keep a close
eye on these important financial indicators and to have plans in place to deal with any problems that
have been found.