Optimal Capital Structure for Indonesian Automotive Listed Companies from 2015 to 2019

Abstract

Automotive industry plays a big role in Indonesia's economy. It is also an industry that has multi business chain such as components manufacturing, vehicles manufacturing, distribution channel, services, spare part sales, and after-market service. The business issue from this research is the profitability of listed automotive companies in IDX tend to stagnant especially from 2017 to 2019. Based on the last 10 years report, the net profit margin of the industry reached highest in 2011 as much as 11.76%. After 2011, the net profit margin decreased and stagnant since 2017 to 2019. However, this industry has many growth opportunities ahead. Therefore, determination of optimal capital structure is critical. This research aims to determine the optimal debt ratio for the companies from period 2015 to 2019.

This research employs ten listed automotive companies in IDX, that are PT Astra International Tbk (ASII), PT Gajah Tunggal Tbk (GJTL), PT Astra Otoparts Tbk (AUTO), PT Indo Kordsa Tbk (BRAM), PT Selamat Sempurna Tbk (SMSM), PT Multistrada Arah Sarana Tbk (MASA), PT Goodyear Indonesia Tbk (GDYR), PT Indospring Tbk (INDS), PT Garuda Metalindo Tbk (BOLT), and PT Prima Alloy Steel Universal Tbk (PRAS). Debt ratio level from 0% to 90% was used to obtain optimal capital structure. The optimal capital structure for the company is determined by debt ratio that has lowest weighted average cost of capital.

The optimal debt ratio for automotive companies listed in IDX varies between each company. The average optimal debt ratio for ASII, GJTL, AUTO, BRAM, SMSM, MASA, GDYR, INDS, BOLT, and PRAS are 40%, 60%, 10%, 20%, 20%, 10%, 20%, 20%, 10% and 20% respectively. ASII, AUTO, BRAM, SMSM, GDYR, INDS, and BOLT are under levered, while GJTL, PRAS, and MASA are over levered. In order to move to the optimal capital structure, those companies can do recapitalization, divest asset, financing its project disproportionately, or buy back stock.