Apollo Tires: Investment Decision Dilemma Case Study Solution
As Santana, what is your assessment of the investment target?
As Santana, it can be assessed that the investment target in “Apollo Tires”, was self-sufficient in the market in which, Apollo and a hand full of other competitors namely, Blair, Eat, J tires & MFR accounted for 70% of the total revenues generated in the Indian tire industry. Furthermore, it was assessed that foreign tire companies such as, Bridges tone and Goodyear intervention was minimal, as they operated in the market but on a much smaller scale and manufactured limited product categories. Moreover, other foreign companies such as Michelin, Han kook & Yokohama operated in the replacement market but on a limited extent. Therefore, it can be determined that, these foreign competitors were not a big threat to Apollo’s growth and share in the market. However, it could become a threat for Apollo, if these multinational companies decided to expand in the Indian tire manufacturing market and diversify their product portfolio. However, judging by the barrier to entry imposed by the government of India on these foreign companies, it was highly unlikely that these companies would consider investing more capital in the Indian market and become exposed to higher tax rates and government stipulation. Additionally, inspecting the historic growth of the company in the market, which would help to evaluate its future prospect of growth. The company had experienced significant growth through the formulation and implementation of effective strategic planning, in which the company made substantial organic investments and acquisitions to expand its business and gain a competitive edge over its competitors. This enabled Apollo to ensure its survival in the highly diverse and competitive Indian market. Therefore, it can be evaluated that, the potential investment in Apollo stock looks promising and could account towards increasing the equity portfolio of Santana.
Assess the Financial Health of Apollo using Financial Statement Analysis?
From Exhibit 1 & 2 below, the financial health of Apollo can be evaluated, in which, it can be assessed that the company had increased its annual sales turnover generated from its sales in the market from the years 2007 to 2012. Its sales had increased in 2008 by 10 % from its prior year and had shown another increase in the subsequent year by 4%. Similarly, it had a increase in its sales percentage in the coming subsequent years till 2012. Which could be attributed to its increased number of units sold in the market. Furthermore, the excise duty imposed on its sales had increased from 490 in 2007 to 549 in 2008, showing a 12% increase and it had decreased by 13% and 19% in the subsequent two years. However, its excise duty had increased in 2011 by 31% and in 2012 by 47%, which had attributed towards decreasing its net sales in those years. The raw material cost of the company increased from 2007 to 2008 by 4%and it had maintained this increasing trend till the year 2012, inflating its raw material cost from 2,882 in 2007 to 8,293 in 2012. This can be attributed to the increased number of units produced to meet the increasing demand. Similar trend had been seen after evaluating the Exhibit-2, where some expenses had shown some variations. Moreover, it can be assessed that, the net profit margins of the company for the year 2008 amounts to 5%, which had been reduced to 3% in the subsequent year. However, its net profits margin had increased to 8% in 2010 and again reduced to 5% and 3% in the subsequent two years. Additionally, a similar trend can be assessed in the gross profit margins of the company. Therefore, it can be assessed that, Apollo had shown significant growth in sales but its profit margins had shown variation, which could be attributed to the rising raw material costs or employee salaries. Other than that, the financial health of the company is appropriate to continue with the investment option…………….
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