Indian Hotels

8/3/2019 Indian Hotels

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CASE SUMMARY

Numerous quality research, educational and cultural institutes in India .The group was awarded

the Carnegie Medal of Philanthropy in 2007 in recognition of its long history of philanthropicactivities .Tata gets more than 2/3 of its revenue from outside India. In June 2011, based on

market value Tata Group has become India's wealthiest group with $98.7 billion.

Tata Group is an Indian multinational conglomerate companyheadquartered in Mumbai,Maharashtra, India .It is one of the largest conglomerates in India by market capitalization and

revenue. It has interests in communications and information technology, engineering, materials,services, energy, consumer products and chemicals. Tata Group has operations in more than 80countries across six continents and its companies export products and services to 80 nations. Itcomprises 114 companies and subsidiaries in eight business sectors, 27 of which are publicly

listed. 65.8% of the ownership of Tata Group is held in charitable trusts .Companies which form

a major part of the group include Tata Steel (including Tata Steel Europe), Tata Motors(including Jaguar and Land Rover), Tata Consultancy Services, Tata Technologies, Tata Tea(including Tetley), Tata Chemicals, Titan Industries, Tata Power, Tata Communications, Tata

Sons, Tata Teleservices and the Taj Hotels.

The group takes the name of its founder, Jamsedji Tata, a member of whose family has almostinvariably been the chairman of the group. The current chairman of the Tata group is Ratan Tata,who took over from J. R. D. Tata in 1991 and is one of the major international business figures in

the age of globality.The company is currently in its fifth generation of family stewardship.TATA Group's 114 companies are held by its main company Tata Sons and the main owner ofTata Sons are various charitable organizations developed and run by Tata Group. Out of which

JRD Tata Trust & Sir Ratan Tata Trust are the main holders. About 65% ownership of Tata Sonswhich is the key holding company of the other 114 Tata Group Company is held by various

charitable organizations.

The 2009, annual survey by the Reputation Institute ranked Tata Group as the 11th mostreputable company in the world .The survey included 600 global companies. The Tata Group has

helped establish and finance

The beginning of the Tata Group can be traced back to 1868 ,when established a trading companydealing in cotton in Mumbai, India. This was followed by the installation of 'Empress Mills'

Nagpur in 1877. Taj mahal hotel in Bombay (now Mumbai) was opened for business in 1903Sir

Durab Tata, the eldest son of Tata became the chairman of the group after his father's death in1904. Under him, the group ventured into steel production (1905) and hydroelectric power

generation (1910). After the death of Dorab Tata in 1934, Nowroji Sakhtalawat headed the grouptill 1938. He was succeeded by Jahangir Ratanji Tata .The group expanded significantly under

him with the establishment of Tata Chemicals (1939), Tata Motors, Tata Industries (both 1945),Voltas (1954), Tata Tea (1962), Tata Consultancy Services (1968) and Titan Industries (1984).

Ratan Tata, the incumbent chairman of the group succeeded JRD Tata in 1991. JamsetjiNusserwanji Tata.


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Accquisition

February 2000 Tetley Tea Company, $407 million

March 2004 Daewoo Commercial Vehicle Company, $102 million

August 2004 NatSteel's Steel business, $292 million

November 2004 Tyco Global Network, $130 million

July 2005 Teleglobe International Holdings, $239 million

October 2005 Good Earth Corporation

December 2005 Millennium Steel, Thailand, $167 million

December 2005 Brunner Mond Chemicals, $120 million

June 2006 Eight O'Clock Coffee, $220 million

November 2006 Ritz Carlton Boston, $170 million Jan 2007 Corus Group, $12 billion

March 2007 PT Kaltim Prima Coal (KPC) (Bumi Resources), $1.1 billion

April 2007 Campton Place Hotel, San Francisco, $60 million

January 2008 Imacid Chemical Company, Morocco[12]

February 2008 General Chemical Industrial Products, $1 billion

March 2008 Jaguar Cars and Land Rover, $2.3 billion

March 2008 Serviplem SA, Spain

April 2008 Comoplesa Lebrero SA, Spain

May 2008 Piaggio Aero Industries S.p.A., Italy

June 2008 China Enterprise Communications, China June 2008 Neotel, South Africa

October 2008 Miljo Grenland / Innovasjon, Norway

The international brand consultancy Brand Finance has ranked the $68-billion conglomerate,Tata Group, as 50th most valuable brand in the world .The most recent Global 500 report byBrand Finance shows that despite the controversies, Tata Group's brand value has soared to

$15.08 billion for the current year compared to $11.2 billion last year in 2010.

The Tata Group portfolio expanded greatly over J.R.D. Tatas 53-year tenure as chairmanfromjust 13 companies in 1938 to 300 in 1991 (including subsidiary and associate companies). J.R.D.Tata encouraged group companies to be independent and entrepreneurial in their expansion. As a

result, the businesses of many group companies overlapped. Tata Group companies increasedfrom $8.2 billion in FY 199596 to just under $60 billion in August 2007. In 2007, the TataGroup consisted of 96 operating companies, the largest of which focused on sectors as wide-


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ranging as steel, IT consulting, hotels, automobiles, telecommunications, tea, watches, andchemicals. As Indias largest private sector employer, the Tata Group had collective revenues of

$28.8 billion in FY 200607. The six largest Tata operating companiesTata Motors, TataSteel, Tata Consultancy Services, Tata Power, telecommunications provider VSNL, and TataChemicalsaccounted for 77.6% of the groups collective revenue in FY 200607. The Tata

Group portfolio expanded greatly over J.R.D. Tatas 53-year tenure as chairmanfrom just 13companies in 1938 to 300 in 1991 (including subsidiary and associate companies). J.R.D. Tataencouraged group companies to be independent and entrepreneurial in their expansion. As a

result, the businesses of many group companies overlapped.Tata Sons owned just a smallfraction of group companies when Ratan Tata became the Group chairman, and for decades,

operating companies had been allowed to use the Tata brandand benefit from its reputationwithout compensating the group center. Ratan Tata sought to institutionalize a stronger sense of

the group through several organizational adhesives. The Group developed a brand equityscheme, under which group companies were required to pay for the use of the Tata brand. The

proceeds were used for umbrella promotion of the group. Ratan Tata also sought to increase TataSons stakes in group operating companies from small minority shares to at least 26%, giving the

group veto rights over any potential takeover of an operating company and enabling the groupcenter to play a more active role in the operations of group companies. Tata Group companieshad been active in the international marketplace long before their international acquisitions made

headlines. The group established representative offices in London in 1907 and in the U.S. in1945, but until recently, the groups international growth was almost exclusively organic. To

most of the companies in the group, international business meant exports.The Tata Group was atthe leading edge of emerging market companies asserting themselves more aggressively in a

booming global market for mergers and acquisitions (M&A).

INDIAN HOTELS:

The purpose of this case study is to examine measure, evaluate and the problems occur in

the Financials ratios various financial rules in Indian hotels.

In this Assignment, we analysis the Indian hotels financial analysis of their 5 years

annual reports 2003-2007 we have discussed ratio analysis to various perspectives calculations.


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RATIO ANALYSIS:

DEFINITION:

Ratio analysis shows the Quantitative relationship between financial

statement accounts within firms and between the firms.

CALCULATION OF RATIO ANALYSIS:

1. CURRENT RATIO:Year 2003 2004 2005 2006 2007

Current ratio 1.152 1.95 1.63 1.51 0.89

GRAPHICAL REPRESENTAION

0

0.5

1

1.5

2

2.5

2003 2004 2005 2006 2007

Current ratio

Currentratio


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COMMENTS:

Currentratio measures how much ofthecurrentassetsarefinanced by

thecurrent liabilities. Usually itisthe measureofshortterm liquidity. Generally a higherratio

indicates better liquidity. A measureof2:1 meansthatcurrent liabilitiescan be paidtwiceover

ourexisting liabilities. Ifwe lookatthetrendsofcurrentratioof5 years,wecometoknowthatcurrentratioof FY 02-03isgreaterthan1 & inthenext year,thisratiofurtherincreased. The

current liabilitiesin year03were4687.7whilethecurrentassetswere5401.8. Thereisaincrease

of15%currentassetsascomparedtocurrent liabilities. It meansthatinthis year & inthenext

yearcompany hasenough assetsthatitcan paidits liabilitieseasily. Nowifwe lookatthe

trendsof FY 04-05 & 05-06thereisdeclineintheratio butstill enough assetsto pay its liabilities.

Thecurrentassetsin04-05were63%greaterascomparedtoits liabilities howeverifwe

comparethisincreasewith previous yearthereisadecreaseofnearly 32% butstill company is

ableto pay its liabilities becausecurrentratioisstill greaterthan1. Similarly in FY 05-06the

currentratioisindecreasingtrend butcompany isstill ableto pay liabilities butin FY 06-07,

thereisdecreaseofcurrentratiosuch thatit become lessthan1.Company will befacing

difficultiesto pay its liabilities. Thecurrent liabilitiesarenearly 11% morethanitscurrent

assets. The mainreason behindthisisthatthereare moreacquisitions & investmentsinthis

yearascomparedto last year.

DEBT RATIO:

Year 2003 2004 2005 2006 2007

calculation 0.647 0.714 0.67 0.55 0.60

GRAPHICAL REPRESENTATION:


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Comment:

Itisthe measureofcompany financial Gearingor leverage. Itindicateswhat

proportionofequity anddebtthecompany isusingtofinanceitsassets. Usually therearethree

approachestofinancecompany assetsi.e.Conservativeapproach, Moderateapproach &

Aggressiveapproach. A high debtratiogenerally meansthatacompany has beenaggressivein

financingitsgrowth with debt. Thiscanresultinvolatileearningsasaresultoftheadditional

interestexpense. Ifa lotofdebtisusedtofinanceincreasedoperations,thecompany could

potentially generate moreearningsthanitwould havewithoutthisoutsidefinancing. Similarlyiftheearningincreasesascomparedtodebtcostthentheshareholders benefit because more

earningsarespreadamongsamenumberofshareholders. Howeverifthecostofthisdebt

financing may outweigh thereturnthatthecompany is Generatingonthedebtthrough

investmentand businessactivitiesthenit becometoo much forthecompany to handle. This

can leadto bankruptcy,which would leaveshareholderswith nothing Debtratioalsodepends

upontheindustry inwhich itoperatesasinthecaseof TATA,therearediversifiedoperations.

Ifwe lookatthetrendsof Debtratiofrom year03to07,thereisarandom trend. The Debtratio

in year04is moreascomparedto03. Thisis becauseofdifferentacquisitions & mergersin

differentsectors & these mergers & acquisitionsare mostly financed by Debt. Thatswhy the

debtratioisinincreasingtrendin year04ascomparedto03. Nowfrom year05,06 & 07,thedebtratioisindecreasingtrend. It meansnowcompany isusing more Equity ascomparedto

debttofinanceitsassets.

0

0.1

0.2

0.3

0.4

0.50.6

0.7

0.8

2003 2004 2005 2006 2007

Debt ratio

Debtratio


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2. Profit Margin Ratio:

Year 2003 2004 2005 2006 2007

Calculation 3.13% 6.92% 9.60% 13.2% 14%


COMMENTS:

Profit marginratioisthe measureof profitability ofacompany. It measures

how much outofevery Rupeeofsalesacompany actually keepsinearning. Usually thisratioisperceivedto beagood benchmarkagainstcompetitors. If profit marginratiois low,it means

company isunabletocontrol itscostof production. Low profit marginratioalsoindicatesthat

company has lessearningsto pay foritsdifferentcostusually Fixedcostandalsocompany is

unabletogainits profits. Thisratiois particularly useful for TATA group ofcompanies because

thisratioisinincreasingtrendfrom year03to07.A profit marginof3.13%in year03 means

thatforeach rupeeofsalesthat TATA group ofcompaniesisgenerating,itiscontributing17to

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

2003 2004 2005 2006 2007

profit margin ratio

profit marginratio


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itsnetincome. Similarly from year04to07,thereisaincreaseofnearly 11%in Gross margin

ratio. Thisisavery healthy indicationthatnet Incomeareconstantly increasingandthis hasa

positiveimpactoncompany financial statementsaswell asforinvestors. Usually careshould be

taken becauseif profit marginratioisinincreasingtrendthenusually costisindirect

proportionwith sales & sometimes by poor managementcostusually increasedascomparedto

sales. Inthatsituationcostshould bereduceddown.

3. Gross Margin Ratio:Year 2003 2004 2005 2006 2007

Calculation 17.96% 18.7% 44.5% 28.7% 31.1%


0.00%5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

2003 2004 2005 2006 2007

gross margin ratio

gross marginratio


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Comments:

Thisratiorepresentsthe proportionoftotal salesrevenuethatthecompany retainsafter

incurringthedirectcostsassociatedwith producingthegoodsandservicessold by acompany.

The higherthe percentage,the morethecompany retainsoneach rupeeofsalestoserviceits

othercostsandobligation. Thisratioalsoindicatesthe marginofthe Markup andalsothepricingstrategy ofthecompany. The level ofthisratiovariesaccordingtodifferent business

sectors. Withoutadequate profit margin,company isunableto pay foritsexpenses mainly

operatingexpenses. Usually a Gross marginratioshouldnotfluctuateascomparedto last

periodotherwisetherewill bedrasticeffectsoncompanys pricing policy & costofgoods. Ifwe

lookatthetrendsof TATA group ofcompanies,thereisagreatfluctuationin year07as

comparedto03. Thereisagross marginratioof17.96%in year03which increasesnearly 27%

till year05andthenstartdecreasingin year06 & then07. Thisfluctuationindicatesthat

company isfacing problemsindetermine pricing & alsothecostofgoodssold. It might be

possiblethatthisfluctuationingross marginratiois becauseofgeneral fluctuationinthe

industry. A high marginratioin year05andthenin07indicatesthatitretain0.445 & 0.311from

each rupeeofrevenuegenerated,to be puttowards payingoffselling,general

andadministrativeexpenses,interestexpensesanddistributionstoshareholders.

4. TOTAL ASSETS TURNOVER:

Year 2003 2004 2005 2006 2007

Calculation 0.17 0.20 0.26 0.36 0.50



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Comments:

Thisratioindicatesacompany efficiency usingitsassetsingeneratingsalesor

revenue,the higherthenumber,the bettertheratio. Italsoindicates pricingstrategy,companies

with low profit marginstendto have high assetturnover,whilethosewith high profit margins

have lowassetturnover. Thisisalsoa measureofgrowth tocheckthererevenueisincreasingas

comparedtosales. A lowassetturnoverratioindicatesa problem with oneor moreoftheasset

categoriescomposingtotal assetsi.e.inventory,receivablesorfixedassets. Ifwe lookatthe

trendsofassetturnoverratio,itconveysa positiveindication becausethatratioisincreasing

simultaneously from year03to07. Theassetturnoverratioin year03is0.17which indicates

that TATA group ofcompaniesisabletogeneratesalesforevery rupeeofassetitownsand

usedforthe year howevertheassetturnoverratioisnotgoodifwecompare year03asset

turnoverratiowith year07 becauseapproxthereisaincreaseof0.23. Theincreasingtrendof

assetturnoverratioalsoindicatesthat TATA group ofcompanies have majorinvestmentsinits

assetsandnowcompany isgeneratingitssalesasthe yeargoeson. Thatswhy assetturnover

ratioisinincreasingtrend.

5. Return on assets:

0

0.1

0.2

0.3

0.4

0.5

0.6

2003 2004 2005 2006 2007

total assets turnover

total assetsturnover


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year 2003 2004 2005 2006 2007

calculation 1.8% 2% 3.9% 6.1% 8.5%


Comments:

Thisratioindicates how much company is profitableinrelationtoitstotal assets. This

ratioisusually useful whencompany isgoingtostartanew projector lookingforinvestment &

company expecttoearnareturnonit. If ROA is above the rate that the company borrows then the

project should be accepted, if not then it is rejected. Theothernameofthisratiois RETURN ON

INVESTMENT. Thisratiotellsuswhatthecompany candowith whatit has.i.e. how many

rupeesofearningsthey getfrom each rupeeofassetsthey control. Itisauseful ratiofor

comparingcompetingcompaniesinthesameindustry. Returnonassetsgivesanindicationof

thecapital intensity ofthecompany,which will dependontheindustry.Companiesthatrequire largeinitial investmentswill generally have lowerreturnonassets. Thisratioalso

indicates how much thecompany is profitable beforegearing. The ROA figuregivesinvestors

anideaof howeffectively thecompany isconvertingthe money it hastoinvestintonetincome.

The higherthe ROA%,the bettertheearning becausecompany isearning more money on less

investment. Nowifwe lookatthetrendof TATA Group ofcompanies,thereisanincreasein

ROA from year03to07. Theincreasingtrendindicatesthatcompany is betteratconvertingits

0

1

2

3

4

56

7

8

9

2003 2004 2005 2006 2007

return on assets

returnonassets


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investmentsinto profits. Increasein ROA alsoindicatesthatcompanys managementisdoing

well. A ROA of8.5%indicatesthatcompany is pullingin85centsforeach rupeeofasset. The

increaseof ROA from year03to07of6.7%tellsusthatcompany is makingremarkable profitto

pay outall itsexpenses & theassetsofthe businessareworkingeffectively.

Indian Hotels

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