RIPHAH INTERNATIONAL

UNIVERSITY

Business Analysis and Restructuring

Project On:

SUBMITTED TO:-

Prof. Umer Farooq

1

2

In The Name of Allah the Most Gracious, the Most Beneficent

and the Most Merciful

Read (O Prophet,) in the name of yours Rub, Who created. Created man from a clot of congealed blood. Read; and your

Lord is Most Generous, Who taught knowledge by the pen; taught man what

he did not know.(Al-Alaq, Surah # 96, Ayats 1-4, Para # 30)

3

Acknowledgement: -

First foremost we would attribute the successful conduction of the surveys and the subsequently condition of the field survey report of Indus Motors and tenacity that almighty Allah Granted us without the help of which I would have never succeed in such an intricate task.

We record thank to Mr. Kamran Ali (Marketing Manager) for supplying the necessary information to us to complete our project.

We also greatly indebted to my group mates, whose cheerful company helped us, carry on the survey despite of innumerable difficulties and who also helped us during the compilation of this report by carefully reviving and correcting our calculations.

1. EXECUTIVE SUMMARY: Indus Motor Company is one of the Automobile Companies which formed with the help if house of Habib, Toyota Motor Corporation, Toyota Tsusho Corporation. It manufactures and Imports Cars and enjoys a healthy share in the market. It is competing with the Honda, Nissan, Suzuki and Mitsubishi. To sustain its lead IMC must maintain Strategic Competitive Advantage which is its Production Strength, Ability to produce Quality cars with respect to low cost and Research and Development in Hybrid and Bio Fuel Cars. But recently Company is in Stabilization mode trying to improve its functional area, consolidation of resources and maintaining SCA. In our Opinion its is the best move made by IMC to Survive the Financial Holocaust.

2. NAME OF COMPANY:

INDUS MOTOR COMPANY LIMITED

3. COMPANY PROFILE:

Name of the Company : Indus Motor Company Limited.

Industry Type : Automobile Industry(Cyclical)

Major Investors :

1. House of Habib. 2. Toyota Motor Corporation Japan (TMC). 3. Toyota Tsusho Corporation Japan.

Products :

Xli, GLi, Corolla Altis M/T, Corolla Altis A/T,2.0D,CX,CX CNG,4x2BS/Cab,2.0D Saloon, CX A/T ,HILUX,CUORE, ALTIS CRUSIETONIC.

Imported Vehicles :

Camry, Hilux, Land Cruiser, Prado, and Prado Rav4

Share Price :

93

Assets :

11,289,893,000. (Balance Sheet 2008)

4

Liability :

5,908,625,000. (Balance Sheet 2008)

Share Capital :

786,000,000. (Balance Sheet 2008)

Contact no :

Indus Motor Company LimitedPlot No. N.W.Z/1/P-1, Port Qasim Authority, Karachi, Pakistan.Phone: +92-21-4721100UAN: +92-111-86-96-82 (+92-111-TOYOTA)

4. VISION STATEMENT:

“To be the most respected and successful enterprise, delighting customers with a wide range of products and solutions in the automobile industry with the best people and the best technology”.

[Annual Repoert, 2007]5. MISSION STATEMENT:

“Mission of Toyota is to provide safe & sound journey. Toyota is developing various new technologies from the perspective of energy saving and diversifying energy sources. Environment has been first and most important issue in priorities of Toyota and working toward creating a prosperous society and clean world.”

[Annual Repoert, 2007]

6. VISION & MISSION STATEMENT ANALYSIS:

IMC’s vision & mission states that it wants to provide best technology, best products and till now it proved it self. Trough its products and skilled human resource it has done a pretty good job. Company is also changing according to customer need and also exploring new horizon in fuel efficiency.Company is also aware of Depletion of natural Resources and the extent of Damage it causes to the environment trough its corporate social responsibility. It is healing the environment and its countless awards are a testament to its self less efforts.

7. HISTORY

Indus Motor Company (IMC) is a joint venture between the House of Habib, Toyota Motor Corporation Japan (TMC) and Toyota Tsusho Corporation Japan (TTC) for assembling, progressive manufacturing and marketing of Toyota vehicles in Pakistan since July 01, 1990. IMC is engaged in sole distributorship of Toyota and Daihatsu Motor Company Ltd. Vehicles in Pakistan through its dealership network.

The company was incorporated in Pakistan as a public limited company in December 1989 and started commercial production in May 1993. The shares of company are quoted on the stock exchanges of Pakistan.

5

Toyota Motor Corporation and Toyota Tsusho Corporation have 25 % stake in the company equity. The majority shareholder is the House of Habib.

IMC's production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres.

Indus Motor Company’s plant is the only manufacturing site in the world where both Toyota and Daihatsu brands are being manufactured.

Heavy investment was made to build its production facilities based on state of art technologies. To ensure highest level of productivity world-renowned Toyota Production Systems are implemented.

IMC's Product line includes 6 variants of the newly introduced Toyota Corolla, Toyota Hilux Single Cabin 4x2 and 4 versions of Daihatsu Cuore. We also have a wide range of imported vehicles.

8. ECONOMIC INDICATORS:

S.No. DESCRIPTION FIGUERS1. GDP 5.80%2. Inflation 10.33. Stock Exchange Index  12,289.034. Exchange Rate(Rs./ US$) 715. Imports(Billion$) 39.966. Exports (Billion $)  19.227. Trade Balance(Billion $) (8.67) (Jul-Nov 08)8. Forex Reserves(Billion $) 6.74 (22 Dec)

[www.PakBOI.com]

9. SWOT ANALYSIS:

9.1 STRENGTHS:-

9.1. (A) PRODUCTION STRENGTH:-

Indus Motor Company production facilities are located at Port Bin Qasim Industrial Zone near Karachi in an area measuring over 105 acres. It started of the with a Distributor business but after acquiring the expertise and technical skill to convert into manufacturing and achieved one of the biggest car manufacturing facilities in Pakistan. Production facility has state of the art manufacturing equipment Such Car Frame Assembler, Rust Protection Paint Vicinity, Engine Assembly and Installation, Interior Manufacturing Facility, Interior Installation. Because of State of the art Facility of the company has established “Born to Last” attitude.

6

9.1.(b) MARKETING STRENGTH:

Toyota marketing strength is there market share and customer loyalty but Toyota is also awarded The marketing award 2006 (Annual Report, 2007) for the customer attraction advertisements.

7

9.1.(C) MARKET SHARE:

Toyota enjoys 44% market share in 2006-2007 and 45% share 2007-2008 (Annual Report, 2008) Toyota enjoys the luxury of being the market leader. Toyota durability and after sale service ensures customer loyalty but to survive in current situation it must set new standard to keep up with competition.

9.1.(D) INCREASE IN PRODUCTLINE

IMC increased its Product line by introducing new models such as Xli, GLi, Corolla Altis M/T,Corolla Altis A/T,2.0D,CX,CX CNG,4x2BS/Cab,2.0D Saloon, CX A/T ,HILUX,CUORE, ALTIS CRUSIETONIC . Which has caught customer’s eye? IMC also imports Cars on the request of the customer.

8

PRODUCTS & PRICES:

S.No.

MODEL PRICE

1. 1.8L ALTIS MT 1,719,0002. 2.0D 1,419,0003. 2.0D SALOON 1,719,0004. 2.0D SALOON SR 1,809,0005. 1.3L GLi 1,389,0006. 1.8L ALTIS MT SR 1,809,0007. 1.8L ALTIS CRUISETRONIC 1,809,0008. 1.8L ALTIS CRUISETRONIC SR 1,899,000

9

IMPORTED VEHICLES: IMC is also import cars such as Camry, Hilux, Land Cruiser, Prado, and Prado Rav4. Fresh and inspiring, the Camry shapes a new global quality standard for mid-size sedans. Its dynamic physical presence and exhilarating performance stimulate your desire to drive. Hilux and Prado give a pleasure to those who enjoys off-Road experience.

10

9.1.(E) HUMAN RESOURCE: IMC is one of the best employers in country from management to manufacturing team, every employee is satisfied & Motivated with Salary and Benefit Packages and try to deliver there optimum performance. Consistent with its philosophy of The Toyota Way of Human Resource Management and to remain current and aligned to the best in the industry, The Company continues to fine tune its HR policies and procedures to best serve the organization's present needs and growth initiatives. Employee’s tenure in company is very pleasant and they call this Experience “the Indus Experience”. IMC is Awarded best employer in 2005 there Slogan is Action, commitment, Teamwork. Such beliefs made IMC a Titan in Automobile Industry.

Safety Training:

For Physical wellbeing and Health of the employees Safety Training is Essential “Safety first” Attitude ensures the health of the Employees.

Apprentice Training programs (ATP):

Apprenticeship Training Program which was started in November 1992 is now well institutionalized and continues to benefit both the individual and the organization, in terms of development of quality and well trained resources. A total number of 362,320 training man-hours have been imparted under this scheme since its inception.

[www. Toyota-Indus .com]

11

9.1.(E) CUSTOMER SATISFACTION & TRUST:

One of the Strengths of IMC is its Customer Satisfaction & trust. The slogan “born to last” is not just another catch phrase instead they deliver Born to last quality; this ensures Customer Satisfaction & trust. IMC makes sure that its Dealers provide the same Customer Care IMC conducts workshops and seminar for Dealer Staff so that the interaction with the customers shall be a pleasant one. This Customer care leads to Customer Loyalty that’s why Toyota sales were through the roof in 2007. (18.2% to 42,406 units) [www.IMC.com]

12

9.1.(F)CONCERN BEYOND CARS:

CBR is a Corporate Social Responsibility Program by IMC. CBR is also a Reason of attraction of new Customer Because IMC Efforts for the Benefit of Society. IMC received many rewards for its contribution for social well being of people such as:

Asian CSR Award Forbes Asia 20 Ranking Employer’s Federation of Pakistan Award 2007 Best Corporate Report Awards 2006 - Engineering Category Environment Excellence Awards, 2004, 2005, 2006, 2007 National Consumers Choice Awards, 2005, 2006 1st CSR Award 2006 (Helpline Trust) Pakistan Institute of Philanthropy, 3rd highest philanthropic contribution out of over 500 PLCs. Toyota Marketing Award-Overall 2006 Customer Service Prize for Achievement 2006 Toyota Marketing Award for Excellence-Vehicles 2006 Vehicle Sales Record Award 2006 from Toyota Tsusho Corporation (TTC), Japan Management Association of Pakistan, Corporate Excellence Certificates, 2005, 2006 Recognition by Chairman TMC WWF – In recognition of the support rendered. International Trade & Industry Fair (ITIF) Asia – Pakistan the Asian Tiger, March 26-28, 2005. Directorate of Manpower & Training – In appreciation of Services rendered for the promotion of

Apprenticeship Training Scheme, Feb 2002. Overseas Parts Division, TMC – Dec 14, 1994. Daihatsu Motor Co. Ltd – Sales of Cuore A/T, April 10, 2004. 4th, 5th Annual Toyota International Advertising Award (TIAA) - Award of Merit, Dec 14, 1993 and

Dec 22, 1994. Pakistan 2010 Excellence Award – Investment, 1998. Certificate of Excellence – TTC, July 1, 1998. 1st Consumer Choice Award - Category 1600cc, by Consumer Association of Pakistan, 2004. TTC – Highest Sales 1998 - 1999

13

Award of Excellence – 10th, 13th, and 15th Toyota Overseas Kaizen Circle Convention, Oct 29, 1996, Dec 2, 1999 and Nov 14, 2002.

2006 TSM, Kaizen Marathon & MIM Conference, Toyota Motor Thailand Co. Ltd. Toyota Marketing Effort Award (Vehicle) – TMC, 1998. Toyota Prize Overseas – Kaizen Circle Convention, Nov 7, 1995.

[www.businessrecorder .com]

[www.businessrecorder .com]

9.2 WEAKNESS:

Competition is on the rise Honda arch rival of Toyota is coming up with new models with sleek shape, better mileage and high performance. Other competitor Like Chevrolet & Jaguar also decided to enter Pakistani market but IMC is still producing new Models with old shape. If IMC wants to remain Market leader it must come up with new Shape for cars which look more desirable to Customer. Protectionism will no longer provide safety with up coming Ruthless competitors. If IMC didn’t prepare it self for this competition this weakness could prove to be Fatal.

9.3 OPPRTUNTIES:

Although Global Economy is hit by recession (www.PakBOI.com) but fortunately Pakistan’s Economy is not that much affected because of this pandemic. IMC market share can increase if it works on Cars which provide more mileage on less costly Fuel. Toyota is already working on efficient fuel cars and if this technology enters in Pakistani market then Toyota can go beyond its market share.

9.4 THREATS:

14

Financial Crisis and recent refusal of 14 Billion$ Bailout plan severely effected Auto manufacturing industry Toyota is one of that company which is hit by this crisis and Car buyers have taken a Saving Stance instead of Consumption so sales are down the only reason they increase sales by introducing Fuel efficient cars.

10. ORGANIZATION STRUCTURE

BOARD OF DIRECTORS Mr. Ali S. Habib Chairman Mr. Yutaka Arae Vice Chairman Mr. Parvez Ghias Chief Executive Officer Mr. Farhad Zulficar Director Mr. Ilyas Suri Director Mr. A. Okabe Director Mr. K. Furubayashi Director Mr. Mohammedali R. Habib Director CHIEF FINANCIAL OFFICER Mr. Shahid Mahmood Khan COMPANY SECRETARY Mr. Rayomand Ghadiali

Auditors:

M/s A. F. Ferguson & Co. Chartered Accountants, State Life Building 1-C, I. I. Chundrigar Road, Karachi. Registrar:

Noble Computer services (Private) Limited 2nd Floor, Sohni Center, BS 5 & 6, Main Karimabad Block- 4, Federal B. Area, Karachi – 75950, Pakistan.

Audit Committee Members:Mohamed ali R. HabibFarhad ZulficarK. Furubayashi

15

Legal advisors:

M/s A. K. Brohi & Co. M/s Mansoor Ahmed Khan & Co. M/s Mahmud & Co. M/s Sayeed & Sayeed Co.

[www.businessrecorder .com]

11. OPERATIONS:

“In view of the tremendous demand for our cars, we are continuously enhancing our production. In June 2006, our production capacity rose to 200 cars/day, equivalent to 50,000 cars/yr. As in previous years, this year too we took several steps to enhance capacity. A major initiative was the installation of a new paint booth for bumpers. We were honored when Mr. Fujio Cho, Chairman Toyota Motor Corporation, visited us to do the inauguration. He also inspected our plant and met the Indus Team.

In order to increase Coure production, we introduced an exclusive production line for Coure and added 14 stations. We expanded our CNG filling station. A new brake bleeding system was installed. Our AC gas filling and coolant filling facilities were upgraded. Additional engine test benches and welding jigs were installed to cater to the higher production volumes. These steps have further balanced our production line and reduced our Takt Time, the time taken to roll out one car from our production line. Toyota has more than doubled our production in the last three years.”

[www.IMC.com]

16

“IMC continue to work closely with our vendors. Last year, we arranged Technical Assistance Agreements (TAA) for our vendors. This year, these TAAs have borne fruit and with the transfer of technology, our vendors are now also manufacturing locally, lamps, steering wheels, mirrors, locks and hinges, and parking brake levers. In order to give even greater focus on Quality and Safety, our Quality Assurance Department and SHE is reporting directly to the CEO. QA has taken several initiatives. These include: Audits of vendors' manufacturing processes and joint measures for continuous improvement

evaluation and approval of local parts under development assisting Product Development Department in SPTT (Supplier Parts Tracking Team) SQA or Shipping Quality Audit, where finished vehicles are subjected to detailed re-inspection before

Delivery to dealerships; and implementation of Toyota EDER (Early Detection and Early Resolution System) for promoting quick resolutions of market complaints. Our Annual Vendor Convention was held on December 3, 2007. Mr. Abdullah Yusuf, Chairman CBR, was the Chief Guest. He noted that Indus has contributed Rs 12.2 billion to the exchequer and has made local purchases worth Rs. 8.5 billion. The theme of the convention was "Quality - not a slogan. It's a Way of Life". Presentations focused on the current and future role of vendors, global quality requirements and the new challenges of the automobile industry. Awards were given to vendors in the areas of suppliability, quality and overall performance. While Indus Motor Company's mother plant is the Motamachi plant in Japan, which provides us technical advice and assistance, Thailand has become the regional hub for training with the setting up of Toyota's Asia Pacific Global Production Center in Bangkok. We were honored by the visit of Mr. Ryoichi Sasaki, President, Toyota Motor Thailand who had come to inaugurate the Door Hemming Facility at Indus”.

[www.businessrecorder .com]

“While appreciating our performance, he promised to continue the close collaboration between the two companies. In Asia, after Thailand, Pakistan is the biggest producer of Corolla. Mr. Shinichi Yasui, Toyota Motor Corporation's Chief Engineer for Corolla visited Pakistan this year. He visited our vendors and dealers and traveled to different parts of the country to get direct market feedback, driving our Corolla himself in bothUrban and rural areas.We were delighted to receive Mr Shoji Kondo President, Hino Motor Company in January. Hino is a Toyota company producing high quality trucks and buses in Pakistan. It is also one of our vendors. Every year, Indus holds a Kaizen Conference in which Kaizen presentations are made by the Indus Family, including teams from our plant, our vendors and dealerships. Kaizen is Japanese word meaning ‘Continuous Improvement’. The Kaizen teams, in a full day convention, present details of their kaizen activities highlighting the improvements made in their areas that have led to improvements in productivity and cost savings. This year the first prize was won by the “Wind Control Process in Assembly Shop” team from IMC, and the “Corolla Condenser” Team from Thal Engineering, in the Vendor category. Mr Mian Mohammad Mansha, Chairman, MCB Bank was the Chief Guest at our Kaizen Conference. Mr Mansha mentioned that Indus is an excellent example of how Pakistani companies can implement Kaizen practically to enhance their efficiency, teamwork and employee morale”.

[Annual Report,2007]

“IMC Marketing department also held a separate Kaizen Marathon in which the Parts and Service departments of our dealerships presented their Kaizen projects and displayed their results. This was a very successful learning event as the Dealerships and Indus shared successful Kaizen activities of the dealerships”.

[www.toyota-Indus .com]12. CHAIRMAN STATEMENTS AND REVIEW

“By the Grace of Allah, yet another successful year has passed. It is with great pleasure that I welcome you all to the 17th Annual General Meeting of your company and I am delighted to present before you the company's performance for the year ended June 30, 2007”.

17

[Annual Report,2007]

12.1 AUTOMOBILE INDUSTRY:

“Our economy continued to expand despite the impact of the October 8, 2005 earthquake and rising energy and fuel prices. GDP grew at 6.6 % during the year ending June2007 compared to 8.4% the previous year due to under performance of the agriculture sector and a slight slow down in manufacturing. The passenger car and light commercial vehicle market had another good year of robust growth as nationwide sales increased by 23% to an all time high of 187,000 units compared to 152,000 units sold in 2006-07.”

[Annual Report,2006]Continued strong domestic demand due to rising incomes and easy availability of auto finance, stemming from the stable economic and political environment contributed to the strong performance of the automobile sector.

[www.Toyota-indus.com]The entire auto industry comprising of both the OEMs and the part suppliers responded effectively to the growing demand by continuous expansion of their production facilities through major investment programs. This has enabled domestic production of passenger cars and light commercial vehicles (LCV) to increased four-fold, from 49,000 units in 2001-02 to 187,000 units in 2005-06, which augers well for development of the engineering industry and increased job employment opportunities.

The past 18 months has seen a dramatic rise in imports of used cars of various categories and makes, some of which are incompatible with Pakistan's market requirements. This large influx of used cars has created volatility in the domestic market in terms of significant accumulation of unsold inventories at year end and with their volume reaching 25% of the domestic passenger car and LCV production.

“The exodus of used cars in the market is an outcome of reduction in import duties over last few years, coupled with increase in depreciation rate to 2% per month for 24 month old small cars and general liberalization of personal baggage rules. A new domestically produced model after two years, current lye joys a tax depreciation benefit of36% versus 48% for the used imported cars. All these factors have caused the locally assembled new cars to become under valued and uncompetitive. Though nearly 60% of the imported used cars are Toyota brand, which is helping IMC increase spare parts, service business and in developing future customers. This liberalized import of used cars and frequent changes in policy are a matter of concern for the whole of domestic auto industry.

18

02-03 03-04 04-05 05-06 06-07

These changes create uncertainties and in absence of clear long term policy, erode auto sector confidence. However, your company is focused at meeting the needs of its customers through local manufacturing and continuing to plan for future capacity expansion”.

[Annual Report, 2007]

12.2 OPERATIONAL ANALYSIS:

Sales of LCV had grown over the last five years. But to survive in the current situation company has to come up with new models in low cost and less fuel consumption. Pakistan is an underdeveloped country and Suzuki’s Mehran & Aulto are the preferred Cars in LCV’s. To penetrate this market Indus motor must come up with better looking less fuel consuming cars Dahitsu’s Coure R&D team must go beyond the call of duty to beet Suzuki.

12.3 FINANCIAL REVIEW

“By the Grace of Allah, since inception, we have demonstrated the strength of our business by creating value for our shareholders. Our financial results reflect the value of past investments, well managed operations, good products, and our strategy of carefully managed, consistent, irreversible growth. Sales & Profit Your company’s sales for the year ended June 30, 2006, were a record 42,406 units compared to 35,874 units Achieved last year.

[www.Toyota-indus.com]During the year, Indus discontinued production of its Hilux vehicle following the model run-out. Preparations are underway to launch an upgraded replacement vehicle.Overall, our sales revenue for the year 2005-06 increased by 28% to record Rs 35.2 billion compared to Rs 27.6 billion achieved last year. Increased sales volume and effective cost control measures enabled your Company to post Profit Before Tax of Rs. 4.1 billion, up 77% over Rs 2.3 billion achieved last year. This year too, the economy witnessed an increasing inflationary trend led by significant increases in fuel prices and general price levels. In order to protect customers from these price increases and to provide maximum value to them, your company absorbed most of these burdensome cost increases.”

[Annual Report, 2007]

12.4 Dividend

“The Company’s Return on Equity for the year was 42% (2004-05 of 33%), while the Earnings per Share rose 78% to Rs 33.70 and Shareholders Equity was up 40% to Rs 6.26 billion. A final payment of Rs 7 per share has been proposed to shareholders, making a total payment for the year of Rs 12 per share, a 20% increase compared to the dividend payment in 2005. An amount of Rs 1,705.3 million is recommended for appropriation

19

to the General Reserves that will be utilized for our continuing growth and capacity expansion. During last year, our total assets have risen by 21% to Rs 16 billion.”

[Annual Report, 2007]

13.COMPANY PERFORMANCE WITH RESPECT TO POTERS 5 POINTS

13.1 RIVALRY AMONG EXISTING FIRM

Rivalry among Existing firms is not fierce, each company has health market share and rivals don’t try to snatch the share of other competitor instead work on retaining there market share.

Industry Growth:

Automobile industry was experiencing massive growth during the musharaf’s Regime because in his regime banks were performing better along with corporate lending Banks were improving there Commercial lending which leads to leasing of cars. Car leasing on easy terms leads to increase in car sales Toyota is one of the trusted brands that’s why from 2000 to 2007 was the golden era in Automobile industry. But During 2008 USA was hit by Financial Crisis and there is a famous Saying about it “when America sneezes the whole world gets the flue”. Pakistan is not immune to this Financial Crisis and this down turn leads to low turnover of sales. This Recession in economy Change the Consumption attitude into saving Attitude.

Concentration and Balance of Competitors:

Pakistan is one of the countries where Protectionism plays a key role Government implements Heavy Duties and Taxation to protect the industry. This leads to a Situation where Competitors Such has Honda, Toyota, Chevrolet, Suzuki, Daihatsu have decided the rules of engagement and try to avoid fierce Competition.

Degree of Differentiation and Switching Cost:

Although the Toyota Addresses the Same utility that every other competition does but there differentiation depends on the bases of Shape, Price, Re-sale Value, Cheap Availability of Spare Parts etc. People who care Re-sale Value, Cheap Availability of Spare Parts, and Durability go for Toyota and Customers who want sleek shape and driving experience usually go for Honda. Switching Cost is not that much different either.

Excess Capacity and Exit Barriers:

New Entrants & Exit is very difficult because new entrants are restrained by protectionism and exiting cost is very high.

13.2 THREAT OF NEW ENTRANT:

20

Although Pakistani Market is dominated by protectionism but because of financial crisis a lot of Automobile companies have there eyes on South –East Asia as a dumping site Indus motor company must gear up for fierce competition. These new Entrants have sufficient capital and guts to start a price war among the local industry. Economies of scale:

Economies of scale no doubt reduces the cost of manufacturing but now days Customers are Saving Oriented Rather Consumption Oriented low price in this period of recession will not attract customer the best way is to go for fuel efficient cars.

First Mover Advantage:

IMC have the First Mover advantage in case of Fuel efficient Cars. Toyota R&D Department already achieved so much in this field depleting oil sources is a major problem for every country now Toyota is looking for different options such as: Bio Fuels, Hydro Electric power Cars, Electric powered cars & Cow Dung.

Access to Channel of Distribution and Relationships:

IMC has the advantage of customer satisfaction and distribution channels. IMC conducts workshops and seminar for Dealer Staff so that the interaction with the customers shall be a pleasant one. This Customer care leads to Customer Loyalty that’s why Toyota sales were through the roof in 2007.

13.3 THREAT OF SUBSITUTE PRODUCTS

America is the biggest victim of economic Rescission and the biggest car consumption country is America. American People has taken a Saving Stance now the American car manufactures have there eyes on India, China, and Pakistan as a dumping sites so some time in up coming years IMC can face fierce Competition and have to step up for the competition because Pakistani people have a lot of options.

13.4 BARGANINIG POWER OF BUYERS:

Buyers are price sensitive because products are little differentiated and switching cost is lower.

13.5 BARGAINIG POWER OF SUPPLIERS:

IMC almost produces 98% of car in Pakistan but Most of the Raw material is imported through Toyota Japan so Suppliers is the parent company that is why importing material is not a big issue for IMC.

21

14. AUDITORS’ REPORT ON CORPORATE GOVERNANCE

22

[www.Toyota-indus.com]

14.1 COMMENTS ON AUDITORS REPORT:

Auditors do not find any discrepancy in the Indus motors financial records. Procedures are followed according to GAAP & IFRS according to us the financial statements are true and fair there is no errors, omissions or fraud

23

in the financial statements Company ensures Satisfactory Risk management, Control, Governance. So they declare the unqualified report.

15. FINANCIAL ANALYSIS:

Current Ratio = Current Assets = 1.58 Current Liabilities

EXPLANATION:

IMC has comfortable current ratio, thanks to its large cash balance. Company is in position to meet its current obligations.

Quick Ratio = Current Assets – Inventories = 1 Current Liabilities

EXPLANATION:

IMC acid test ratio showed that its has sufficient liquid asset to meet is current obligations.

Average Collection Period = Accounts Receivable =5 Annual Credit Sales / 365

EXPLANATION:

Average collection period is satisfactory; it recovers its receivables in 5 Days

Assets Turnover Ratio = Sales = 2.81 Average Total Assets

EXPLANATION:

Asset turnover ratio shows the level of sales generated with respect to productive capacity. The level and trend of sales is growing with respect to its investment in assets

Debt Ratio = Total Debt =49.28Total Assets

EXPLANATION:

24

IMC has sufficient assets to cover its debts. Debt-to-Equity Ratio = Total Debt = 0.97

Total Equity

EXPLANATION:

IMC is highly leverage compare to other companies to finance there assets. The risk born by IMC is higher as compared to other companies Gross Profit Ratio = Sales – Gross profit = 6.83 SalesEXPLANATION:

Gross profit ratio of IMC shows that the firm’s production and procurement efficiency is better than the industry Competitors.

Net Profit Margin = Net Income =2.25 SalesEXPLANATION:

The Profit Margin Ratio is used as a Measure of Profitability. Ratio shows that company earned 2.25 % on its sales.

Return on Assets (ROA) = Net Income =6.30 Average Total Assets

EXPLANATION:

IMC ROA ratio shows that it generates 6.30% on its investment in assets.

Return on Equity (ROE) = Net Income = 12.43 Average Stockholders' Equity

EXPLANATION:

The Return On Equity measures the profits after taxes, IMC ROE ratio shows that it has sufficient assets relative to shareholders investment.

16. CROSS SECTIONAL ANALYSIS:

RATIOS TOYOTA HONDA MITSUBISHICurrent Ratio 1.58 1.21 0.95

25

Quick Ratio 1 0.93 0.63Average Collection Period

5 8 9

Assets Turnover Ratio 2.81 0.81 1.23Debt Ratio 49.28 55.0 44.0Debt-to-Equity Ratio 0.97 0.80 0.75Gross Profit Ratio 6.83 5.21 4.24Net Profit Margin 2.25 2.21 2.22Return on Assets (ROA) 6.30 5.2 2.3Return on Equity (ROE) 12.43 26.0 28.2

IMC ratio shows that it has more returns on equity as compared to Toyota and also very closes to Mitsubishi. means it has sufficient assets relative to shareholders investment

Cross sectional analysis of ROA shows that toyota generates 6.30% on its investment in assets as compared to competitors

26

This analysis shows that company earned 2.25 % on its sales. Honda and Mitsubishi’s earnings are also very close to each other.

Firm’s production and procurement efficiency is better than the industry Competitors.

Toyota is highly leverage and risk born by the company is higher as compared to other companies.

27

Company can easily cover its debts as compared to its competitors.

Asset turnover ratio shows the level of sales generated with respect to productive capacity. The level and trend of sales is growing with respect to its investment in assets

Quick ratio analysis shows that its has sufficient liquid asset to meet is current obligations.

28

Average collection period is satisfactory; it recovers its receivables in 5 Days

Company is in position to meet its current obligations as compared to its competitors.

16.1 EXPLAINATION:

IMC financial analysis reflects that sufficient financial resources to meet its obligations. The financial managersof the company are doing a prudent and efficient job. The Asset management activities, investing activities, Financing activities and cash flows are well managed. Despite electricity shortage and liquidity crunch are on the reasons which affects the industry of Pakistan but IMC has managed this problem with surprising efficiency.

29

17. TIME SERIES ANALYSIS:

Ratios 2005 2006 2007 2008Current Ratio 1.49 1.41 1.83 2.04Quick Ratio 1.43 1.44 1.44 1.68Gross Margin 9.80 11.77 11.4 11.9 Profit Margin 6.8 6.1 7.0 6.6ROE 33.08 42.30 34.1 27.6ROA 16.9 17.1 17.5 15.2Earning Per Share 33.70 33.70 34.93 36.28Asset Turn over Ratio 2.01 2.01 2.02 2.28Debt Ratio 49.65 49.21 49.79 49.28Average collection Period 8 11 6 5

30

31

17.1 EXPLAINATION:

These are tools for analyzing and interpreting the financial soundness of a company by calculating percentages and ratios and comparing percentages and ratios to determine the meaning and significance of the analysis.

18. PRESPECTIVE ANALYSIS & IMPROVEMENT PLAN:

Indus Motor Company is a joint venture of the House of Habib, Toyota Motor Corporation and Toyota Tsusho Corporation. It manufactures and markets Toyota and Daihatsu vehicles in Pakistan. The Company’s modern production facilities are located at Port Bin Qasim Industrial Zone near Karachi, with the modern, state-of-the-art plant that started production in February 1993, set up with an initial investment of Rs 1.2 billion. The company is ISO-14001 certified, with the total investment of the project now exceeding Rs 3.7 billion and employing over 1,800 people. This is one of the few Toyota manufacturing sites in the world that manufactures both Toyota and Daihatsu vehicles on the same production line. The company’s investment experience in Pakistan has been positive with expansion in recent years due to economic growth, demand for cars and light commercial vehicles and availability of auto financing. Indus Motor Company, with support from Toyota Motor Corporation has worked closely with its 62 local vendors for increased localization and technology transfer. The company has expanded its dealership network across Pakistan to 29 dealerships and this will increase further in the coming years. IMC produced 48,193 units in the Fiscal Year 2007-8, with sales of over 50,000 units. Indus Motor alone contributed Rs 13.7 billion or about 30% of the total collection from the Auto sector in 2006-07 to the national exchequer. The company’s products, renowned for their quality, durability, safety, fuel economy and resale value, are appreciated by customers in Pakistan. There has been high demand for the Corolla which is the market leader in this segment. Pakistan is the highest producer of Corolla in Asia. At the time of the Corolla launch in March 2002, the company was producing 57 vehicles per day. Today, it produces 200 vehicles per day. Indus Motor has undertaken a number of expansion projects which include an in-house press plant for making car body parts, a cogeneration power plant to optimize energy consumption, an elaborate training center, etc, which is part of a long term technology transfer strategy that Indus has embarked on to enhance in-house manufacturing, increased localization, cost reduction and production efficiency. The company continues to increase its production and employment to meet the high demand for its vehicles. There are plans for a second plant in the future. IMC must try for the localization and make fuel efficient Cars to deal with the depletion of natural resources.

32

19. ACRONYMS

IMC = Indus Motor Company.ATP = Apprentice Training Programs.HOH = House of Habib.TMC = Toyota Motor Corporation.DMC = Daihatsu Motor Company.CBR = Concern Beyond Cars.TAA = Technical Assistance Agreements. EDER = Early Detection and Early Resolution System.SQA = Shipping Quality Audit.SPTT = Supplier Parts Tracking Team.LCV = Light commercial vehicle.MCV = Medium Commercial Vehicle.HCV = Heavy Commercial Vehicle.CBU = Complete Build Units.SKK = Semi Knockdown Kits.

33

20. BIBLOGRAPHY:

1. http:// www.PakBOI.com

2. http:// www.multilinetrade.com

3. http:// www.fast.analysis.tool.com

4. http:// www.jacksworkd.com

5. http:// www.toyot-indus.com/annualreport06.htm

6. http:// www.toyot-indus.com/concern.htm

7. http:// www. businessrecorder.com

8. http:// www. corporateinformation.com/Sample Leverage Analysis Report.html

9. http:// www.wikipedia.com

10. http:// www.toyota-indus.com/concern/concern.html

11. http:// www.toyot-indus.com/annualreport07.htm

34