Impact of Equity Restructuring on Profit Rate Performance: The Case of “Hero Honda Motors Ltd. Is Now Hero MotoCorp Ltd.”

Abstract

Profitability is the primary measure of overall success and at the same time a necessary condition for the survival and growth of an enterprise. Thus, it indicates financial stability and helps to increase the profit earning capacity of an enterprise. Hero Honda was a joint venture between Hero Group of India and Honda of Japan. In 2010-11, when Honda decided to move out of the joint venture, Hero Group bought out the 26% stake of the Honda in joint venture Hero Honda Ltd. In this backdrop, the present study empirically examines the impact of equity change on profit rate performance due to the new corporate identity of the Hero Group for a span of 16 years i.e., from the financial year 2002-03 to the financial year 2017- 18. Two popular profitability ratios namely Return on Average Capital Employed (ROACE) and Return on Average Equity (ROAE) are employed in the study and to statistically test the validity of the results, paired t test has been applied in the study. In relation to the main objective of the study, it may be concluded that Hero MotoCorp Ltd. has experienced negative impact of equity restructuring on its profit rate performance during the study period. This is further strengthened by the results of paired t test as applied in the study.