A project report on comparative study on performance of differnet industreis on the basis of balance sheet
INDUSTRIES IN INDIAIn this section of Major Industries in India we will discuss about theleading market industries and industries products. We will discuss indetials about textiles industry, chemicals industry, food processingindustry, steel industry, cement industry, mining, petroleum andsoftware.According to some experts, it is said that the share of the US in theworld GDP is expected to fall, from 21% to 18%, and the share of Indiain the world GDP is going to rise from 6% to 11% by 2025. Hence,India is to emerge as a third pole, after the US and China, in the globaleconomy.The expectation is based upon the growth in all the sectors in India.One of them is the industry sector. It measured a growth rate of 6.2%in October 2003 with a sharp increase of nearly 4% in October 2004,marking 10.1%. Textile industry is the largest industry in terms ofemployment.The following discusses about the major industries in India and alsomajor export industry:LIST OF MAJOR INDUSTRIES IN INDIATextilesThe Indian textile industry covers a wide gamut of activities. Itsproduction ranges from raw materials such as cotton, jute, silk andwool to a high value-added products like fabrics and garments toconsumers. The industry make use of different varieties of fibres, be itnatural fibres, man made fibres or blends of such fibres.In Indian economy, the textile industry plays a significant role. Itprovides direct employment to approximately 35 million people andcontributes 4 per cent of GDP. It fetches 35 per cent of gross export
earnings and contributes 14 per cent of the value-addition in themanufacturing sector.ChemicalsThe chemical industry in India is one of the oldest domestic industriesand it currently produces nearly 70,000 commercial products, fromcosmetics and toiletries, to plastics and pesticides. The country is the13th largest exporter of pesticides and disinfectants globally. In termsof volume, it figures 12th largest producer of chemicals. Thepetrochemical, agrochemical, and pharmaceutical industries are someof the fastest growing sectors in the Indian economy.The estimated worth of chemical industry is $28 billion and it accountsfor 12.5 per cent of the total industrial production of India and 16.2 percent of the its total exports.Food ProcessingIndia is one of the major food producing country in the world butaccounts less than 1.5 per cent of international food trade. Hence,there is a vast scope for the expansion of this industry. The foodprocessing industry is estimated (2004) at Rs 3,150 bn (US$ 70 bn),including value added products of Rs 990 bn (US$ 22bn). Theestimated growth of this industry is 9-12% and on the basis ofestimated GDP, the growth rate is 6-8%, during the tenth plan period.The industry employs 1.6 mn workers and it is projected to grow to 37mn, direct and indirect, by 2025.SteelThe 4000 years Indian steel industry is on the upswing. During April-December 2004-05, the production of the finished steed recorded agrowth of 4 per cent and reached 28.3 million tonnes. In the worldscenario, Indian steel industry ranks 10th. It represents approximatelyRs. 9,000 crore of capital and provides direct employment to more than0.5 million people.
Major Players: Steel Authority of India (SAIL), Bbilai Steel Plant,Durgapur Steel Plant, Rourkela Steel Plant, Bokaro Steel Plant.CementCement industry in India comprises of 125 large cement plants andover 300 mini cement plants having total installed capacity of 148.28million tonnes and 11.10 million tonnes per annum respectively. Inaddition to this, there are 10 large cement plants owned by variousState Governments. So, the total installed capacity of the country as awhole stands at 159.38 million tonnes. The export of cement in 2003-04 was 6.92 million tonnes.Major Players: Ambuja cement, Aditya Cement, J K Cement and L & T Cement.MiningThe mining industries share in Indias GDP is from 2.2% to 2/5% onlybut it contributes to 10-11% in industrial sectors GDP. The organisedmining sector employs nearly 0.7 million people. Small scale miningapproximately contributes to 6% of the total value of mineralproduction.PetroleumThe petroleum industry in India is one of the oldest industry in theworld, with oil being struck as early as 1867 at Makum near Margheritain Assam, nine years after Col. Drakes discovery in Titusville. Sincethen the industry has come a long way. Today, after over fifty years ofindependence, the oil sector, has seen the growth of giant nationalcompanies, like ONGC. India represents one of the most exciting oilmarkets in the world today.Major Players in integrated refining and marketing are HPCL, BPCL and IOC.
SoftwareThe software industry in India symbolizes Indias strength in theknowledge based economy. It has witnessed a phenomenal growth inlast decade. The Compounded Annual Growth Rate (CAGR) is 42.3%.According to NASSCOMs projection, the software industriescontribution is expected to grow to 7% by 2008 which started with0.59% in 1994-95 and reached to 2.87% by 2001-02.INTRODUCTION OF COMPANIES IN DIFFERNETINDUSTREIS gghtop 10 cement companies in India: 1. ACC Limited 2. Ambuja Cements Limited 3. UltraTech Cement Limited 4. India Cement Limited 5. Shree Cement Limited 6. Rain Cement Limited 7. Prism Cement Limited 8. Madras Cement Limited 9. Birla Cement Limited 10. JK Cement Limited
Comparasion between ACC Ltd. and AmbujaCement Ltd. ACCLTD ACC is the oldest cement manufacturer in the country. ACCs total capacity for the year ended CY10 stood at 27 million tonnes per annum (MTPA) which is about 9% of total Indian capacity. ACC is the second largest player in the Indian cement industry after UltraTech Cement (49 MT). With 17 units and a 9,000 strong dealer network, ACC is one of the few cement companies to have a pan India presence. With commissioning of the expansion project at Wadi and Chanda during 2011, the total installed capacity would rise to ` 30 million tonnes per annum. AMBUJACEMENT Ambuja Cements Ltd (previously known as Gujarat Ambuja), with a cement capacity of 25 m tonnes per annum (MTPA), which is approximately 8% of total industry capacity. Ambuja is the third largest player in the Indian cement industry following UltraTech Cement and ACC. The company is particularly strong in the northern and western markets. It is one of the most cost effective producers of cement in the country and its products enjoy strong brand equity in a commodity business like cement.EQUITYSHARE DATA ACC LTD AMBUJA ACC LTD/ CEMENT 31/12/2011 31/12/2011 AMBUJA CEMENTHigh Rs 1,233 166 742.8%Low Rs 917 112 818.8%Sales per share Rs 533.3 55.6 959.1%
Earnings per share Rs 69.3 8.0 865.8%Cash flow per share Rs 96.4 10.9 884.0%Dividends per share Rs 28.00 3.20 875.0%Dividend yield (eoy) % 2.6 2.3 113.1%Book value per share Rs 371.7 52.6 707.2%Shares outstanding (eoy) m 187.75 1,534.37 12.2%Bonus/Rights/Conversions - ESOS -Price / Sales ratio x 2.0 2.5 80.6%Avg P/E ratio x 15.5 17.4 89.3%P/CF ratio (eoy) x 11.1 12.7 87.5%Price / Book Value ratio x 2.9 2.6 109.4%Dividend payout % 40.4 40.0 101.1% RsAvg Mkt Cap 201,831 213,277 94.6% mNo. of employees `000 9 0 - RsTotal wages/salary 5,656 4,359 129.8% m RsAvg. sales/employee 11,086.6 20.0 55,433.0% Th RsAvg. wages/employee 626.3 21.0 2,982.3% Th RsAvg. net profit/employee 1,440.4 22.0 6,547.1% ThINCOME DATANet Sales Rs m 100,123 85,312 117.4%Other income Rs m 4,161 3,187 130.6%Total revenues Rs m 104,284 88,499 117.8%Gross profit Rs m 17,071 19,061 89.6%Depreciation Rs m 5,100 4,462 114.3%Interest Rs m 969 531 182.5%Profit before tax Rs m 15,163 17,255 87.9%Minority Interest Rs m 0 3 0.0%Prior Period Items Rs m 0 673 0.0%Extraordinary Inc Rs m 0 -243 0.0%(Exp)Tax Rs m 2,155 5,410 39.8%Profit after tax Rs m 13,008 12,278 105.9%Gross profit margin % 17.1 22.3 76.3%Effective tax rate % 14.2 31.4 45.3%Net profit margin % 13.0 14.4 90.3%BALANCESHEET DATACurrent assets Rs m 36,761 38,389 95.8%
Current liabilities Rs m 38,006 27,100 140.2%Net working cap to % -1.2 13.2 -9.4%salesCurrent ratio x 1.0 1.4 68.3%Inventory Turnover Days 41 40 102.2%Debtors Turnover Days 12 11 116.6%Net fixed assets Rs m 68,472 68,453 100.0%Share capital Rs m 1,880 3,069 61.3%"Free" reserves Rs m 66,906 75,884 88.2%Net worth Rs m 69,787 80,644 86.5%Long term debt Rs m 5,107 567 900.7%Total assets Rs m 118,164 114,902 102.8%Interest coverage x 16.6 33.5 49.7%Debt to equity ratio x 0.1 0.0 1,040.8%Sales to assets ratio x 0.8 0.7 114.1%Return on assets % 11.8 11.1 106.1%Return on equity % 18.6 15.2 122.4%Return on capital % 21.5 22.4 96.0%Exports to sales % 0.0 0.9 0.0%Imports to sales % 4.0 7.5 53.3%Net fx Rs m -4,329 -7,718 56.1%
ACC LTD Financial Summary No. of 12 12 12 Months 31/12/2009 31/12/2010 31/12/2011 Year EndingNet Sales Rs m 84,796 82,606 100,123Sales Growth % - -2.6 21.2Gross profit margin % 29.1 18.7 17.1PAT Rs m 15,639 10,775 13,008PAT Growth % - -31.1 20.7Dividend per share Rs 23.00 30.50 28.00Dividend payout % 27.6 53.1 40.4RoCE % 36.6 21.7 21.5RoNW % 26.7 17.2 18.7Debt to equity ratio x 0.1 0.1 0.1Mkt Cap Rs m 131,136 172,073 201,831Mkt Cap / Sales x 1.4 1.9 1.8PERFORMANCE OF ACC AND AMBUJACEMENTCement: Cautious optimismIf the mood in the stock marketis any indication, cement stocks seem to be back on the average investors radar.And why not! Cement is one industry that has grown consistently at around 8% in thepast decade and still shows no signs of slowing down. In fact, if one were to considerthe low per capita consumption of cement in the country, there is still a lot of potentialfor the industry to capitalise on. In this article, we try to compare some keyparameters of four major cement companies in the country and also try and throwsome light on their current valuations.
ACC Gujarat Ambuja Price 220 238 OPM 10.2% 27.5% NPM 3.6% 12.8% EPS* 9.0 18.0 P/E(x)* 24 13 *FY04 ProjectionsACCAlthough ACCs performance was far from impressive in FY03, where bottomlinedropped 30%, one cannot afford to ignore a company that has a pan India presenceand boasts of the largest distribution network in the country. Moreover, in the last sixyears, ACC has modernized to world standards, almost 50% of its capacity and hasalso raised capacity from 7 to 16 m tonnes. This will definitely help the company inimproving its operating efficiencies and as a result any improvement in the prices willdirectly benefit earnings. Therefore, going forward, we expect the companysbottomline to improve substantially on the back of improved efficiencies as well assales realisations. The stock is currently trading at Rs 220, a P/E of 24x its projectedFY04 earnings. Although we expect the company to grow, the growth is not expectedto be high enough to justify such high valuations.Gujarat AmbujaIn the year, when all other cement majors reported a drop in their earnings onaccount of poor sales realisations, Gujarat Ambuja managed to improve itsbottomline by almost 20%. This, more than anything else, underlines the resilience ofthe company and the capabilities of its management. As seen in the table above,Gujarat Ambuja operates at margins that are much higher than its competitors, andas a result, is in a better position to absorb fall in prices. Gujarat Ambuja, due tobetter brand recognition and awareness, also enjoys higher realisations for itscement, despite cement being a commodity. This also to a large extent helped thecompany weather the fall in realisation in the last two years. Moreover, its locationaladvantages enable it to export the surplus production making sure that its capacitiesare effectively utilised and hence give it the benefits of economies of scale.
As far as the future performance is concerned, we expect Gujarat Ambujas operatingmargins to decrease marginally, due to lower projected volume growth. The companymight also face increased competition in its major market, i.e. the western region,particularly from Grasim who, after the acquisition of L&Ts cement division, hasgained an entry in the lucrative western market. Notwithstanding these minorglitches, Gujarat Ambujas fundamentals still look strong and the company is wellplaced to benefit from the growth in the industry. The stock is currently trading at Rs238 a P/E of 13x its projected FY04 earnings. Gujarat Ambuja is the most costefficient player in the industry and therefore should command a superior valuationthan most of its competitors in the industryAUTOMOBILE INDUSTRIESTop Automobile Companies in IndiaStarting from the era when there was too slim of a variety of cars available inIndian market, Indian automobile industry has come up a long way to have adiverse array of cars these days. There are a number of top automobilecompanies running their operations in India, which again have a range ofmodels in different segments of cars. However, while looking for top 10automobile companies in India, one name that would always lead the list isMaruti Suzuki India. Maruti Suzuki has consistently been the dominant leaderin the Indian automobile industry. However, there are also other big nameslike Tata Motors, Mahindra and Mahindra, Hyundai Motors, HindustanMotors etc.
During its early days, the most of the Indian car auto manufacturers bankedupon foreign technologies. But the scenario has changed over the years andcurrently, the Indian auto manufacturers are using their own technology. Dueto the growing pace of Indian automobile market, a number of carmanufacturers including the global leaders have locked their horns in theIndian auto market.After the recent setback due to the global recession, the Indian automobilemarket has again started to grow up. Though the auto sales except commercialvehicles started creeping up since the beginning of this financial year, its onlythe month of September 2009 when the market saw buoyant sales. It fuelledoptimism in the industry. The retail trade also started soaring up. The autosales saw a 9.6% rise in the month of September with a sale of 1,092,262units. The passenger vehicle sales also grew by 20.32%. The two wheelermarket was also augmented by 7.67% during the same period with a total saleof 838,150 units. The same trade is applicable for the three-wheeler market,which saw a growth of 13.51% (with sale of 41,137 units) during the sameperiod.List of Top Automobile Companies in India, 2011(Figures in ` Crores)2011 ET 500 MCRP Company Turnover PAT AssetsRank CR7 Tata Motors Ltd. 123222.91 9273.62 56499.77 52209.48 Mahindra &21 37026.37 3079.73 49945.17 36926.19 Mahindra Ltd. Maruti Suzuki19 38140.69 2382.37 31475.63 14762.9 India Ltd. Hero MotoCorp41 19669.29 1927.9 40398.63 4447.22 Ltd.46 Bajaj Auto Ltd. 17008.05 3454.89 46885.69 5154.96 Ashok Leyland67 11133.04 631.3 6653.15 6621.16 Ltd. Sundaram Clayton101 7419.41 64.63 529.23 2428.87 Ltd. TVS Motor110 6569.99 127.94 2985 1745.06 Company Ltd.
148 Eicher Motors Ltd. 5138.64 243.12 4448.27 474.14396 Force Motors Ltd. 1574.05 58.62 730.05 583.79Tata MotorsTata Motors is the largest automobile company of Asia headquartered inMumbai, India. Annual Projected revenue for 2010-11 is US$ 27.629 billion.It also occupies the number one position in commercial car segment. TataMotors enjoys 31.2% of market share in the multi-utility vehicles, which inluxury car segment, it has 6.4% market share. Most of the Tata Motorsvehicles are sold predominantly in India and over 4 million vehicles have beenproduced domestically within India.Tata sold 52,531 units of vehicles during September 2009, comparing to49,647 units during September 2008 (a growth of 6%). In domestic market,Tata Motors sold 49,650 units during the same period, comparing to 45,234units in September 2008.Mahindra & Mahindra Limited (M&M)Mahindra &Mahindra Limited is another auto-giant in India. A part of theMahindra Group, M&M is the largest SUV maker in the country. InSeptember 2009, M&M registered a domestic sale of record 26,921 units,comparing to 22,729 units in September 2008 (with an increase of 18.4%). Onthe other hand, it sold 15,296 units of UV in the same period comparing to10,641 units in September 2008 (with a whooping growth of 43.7%).
COMPARATIVE STUDY OF TATA MOTORS AND MAHINDRAAND MAHINDRATATA MOTORSTata Motors is Indias largest CV manufacturer, with anoverall domestic market share of 61.8% in FY11 andthe second largest producer of passenger vehicles(13% in FY11). In 2008, the company acquired twoiconic brands, Jaguar and Land Rover from Ford fora total consideration of US$ 2.3 bn and this is likely totransform it into a global player in the passengervehicles space. It is also credited with the launching ofNano, the worlds cheapest car till date. Tata Motors isalso the first company in the Indian automobile sectorto be listed on the New York Stock Exchange.M&MMahindra & Mahindra (M&M) is engaged in themanufacture of UVs, tractors, light commercial vehicles(LCVs) and three-wheelers. While automotive divisioncomprising UVs, LCVs and three-wheelers contributedto 60% of FY11 revenues, farm equipment divisionaccounted for 31% of revenues. Through investment inits subsidiaries, M&M has interests in sectors likesoftware, hotels, real estate and financial services.While the company had a 61% market share in the UVsegment in FY11, it had a 42% share in the tractormarket.
EQUITY SHAREDATA TATA M&M TATA MOTORS MOTORS/ 31/3/2012 31/3/2012 M&MHigh Rs 289 875 33.0%Low Rs 140 617 22.7%Sales per share Rs 522.0 1,008.7 51.7%Earnings per share Rs 42.6 53.1 80.2%Cash flow per share Rs 60.3 83.7 72.1%Dividends per share Rs 4.00 12.50 32.0%Dividend yield (eoy) % 1.9 1.7 111.3%Book value per share Rs 104.5 284.7 36.7%Shares outstanding (eoy) m 3,173.54 589.03 538.8%Bonus/Rights/Conversions FV2,BC ESOP -Price / Sales ratio x 0.4 0.7 55.6%Avg P/E ratio x 5.0 14.1 35.8%P/CF ratio (eoy) x 3.6 8.9 39.9%Price / Book Value ratio x 2.1 2.6 78.4%Dividend payout % 9.4 23.5 39.9% RsAvg Mkt Cap 680,724 439,416 154.9% mNo. of employees `000 29 18 163.7% RsTotal wages/salary 122,985 65,909 186.6% m RsAvg. sales/employee 56,698.0 33,292.8 170.3% Th RsAvg. wages/employee 4,209.4 3,693.0 114.0% Th RsAvg. net profit/employee 4,626.2 1,751.9 264.1% ThINCOME DATA RsNet Sales 1,656,545 594,176 278.8% mOther income Rs 6,618 3,130 211.4%
m RsTotal revenues 1,663,163 597,306 278.4% m RsGross profit 217,586 76,088 286.0% m RsDepreciation 56,254 18,017 312.2% m RsInterest 24,047 17,499 137.4% m RsProfit before tax 143,903 43,702 329.3% m RsMinority Interest -823 667 -123.4% mPrior Period Rs 0 0 -Items mExtraordinary Rs -8,315 973 -854.6%Inc (Exp) m RsTax -400 14,076 -2.8% m RsProfit after tax 135,165 31,266 432.3% mGross profit % 13.1 12.8 102.6%marginEffective tax % -0.3 32.2 -0.9%rateNet profit % 8.2 5.3 155.1%marginBALANCESHEET DATACurrent assets Rs m 644,615 290,106 222.2%Current liabilities Rs m 732,681 219,087 334.4%Net working cap % -5.3 12.0 -44.5%to sales
Current ratio x 0.9 1.3 66.4%Inventory Days 40 44 91.3%TurnoverDebtors Turnover Days 18 33 55.3%Net fixed assets Rs m 562,125 186,924 300.7%Share capital Rs m 6,348 2,945 215.6%"Free" reserves Rs m 303,380 139,693 217.2%Net worth Rs m 331,499 167,702 197.7%Long term debt Rs m 279,625 160,399 174.3%Total assets Rs m 1,403,919 635,310 221.0%Interest coverage x 7.0 3.5 199.7%Debt to equity x 0.8 1.0 88.2%ratioSales to assets x 1.2 0.9 126.2%ratioReturn on assets % 11.3 7.7 147.7%Return on equity % 40.8 18.6 218.7%Return on capital % 26.0 19.2 135.7%Exports to sales % 2.2 3.0 73.0%Imports to sales % 1.4 1.5 96.8%Net fx Rs m -324 6,840 -4.7%
TATA MOTORS Financial Summary No. of Months 12 12 12 Year 31/03/2010 31/03/2011 31/03/2012 EndingNet Sales Rs m 918,934 1,221,279 1,656,545Sales Growth % - 32.9 35.6Gross profit margin % 7.9 13.7 13.1PAT Rs m 25,710 92,736 135,165PAT Growth % - 260.7 45.8Dividend per share Rs 15.00 20.00 4.00Dividend payout % 33.3 13.7 9.4RoCE % 16.1 41.0 26.0RoNW % 31.6 48.5 40.8Debt to equity ratio x 3.3 0.6 0.8Mkt Cap Rs m 287,277 650,793 680,724Mkt Cap / Sales x 0.3 0.5 0.4 MAHINDRA FINANCE Financial Summary No. of Months 12 12 12 Year 31/03/2009 31/03/2010 31/03/2011 EndingInterest Income Rs m 13,817 15,612 20,435Interest Income Growth % - 13.0 30.9Net Interest Income Rs m 8,815 10,684 13,890Net Interest Margin % 12.7 11.7 10.4Gross profit margin % 43.9 47.2 43.6
PAT Rs m 2,196 3,558 4,927PAT Growth % - 62.0 38.5Dividend per share Rs 5.50 7.50 10.00Dividend payout % 24.3 20.4 21.1RoA % 3.0 3.8 3.9RoNW % 15.2 20.6 19.6TAXTILE INDUSTREIS IN INDIA 1. Arvind Mills 2. Raymonds 3. Reliance Textiles 4. Bombay Dyeing Ltd 5. Grasim IndustrieArvind Mills: AreviewArvind Mills is the flagship company of the Lalbhai Group. It is world‟s third largestand India‟s largest denim producer and commands 70% domestic market share with120 m meters of denim rolling out every year. The company is also into knitting andshirting. Apart from textiles, Arvind Mills has presence in ready-to-wear, agrochemicaland telecom industry through its subsidiaries.
Denim segment remains the lead performer for Arvind Mils (63% of FY03 revenues).The domestic denim business is expected to grow at a faster rate of around 6% ascompared to 4% in the global market. Internationally, this segment faces competitionfrom China, Indonesia and Hong Kong. In India, Arvind rules the market as smalldenim manufacturers suffer from financial and capacity limitations.Shirting contributed to around 22% to FY03 revenues. Domestically, the divisionfaces competition from the lower end of the market. The company expects shirtingbusiness volumes to increase, as the global shirting business is growing at around6% whereas domestically, this segment is growing at around 25%. Arvind Mills isfocusing on HVCS (High Value Cotton Shirting) because it commands premium inboth domestic and international markets. The major consumers of HVCS arecountries like Europe, Japan and US. But due to quota restrictions applied byEuropean and US markets, the company is not able to cash the opportunity.However, prospects for this segment looks better post 2005. Arvind Mills is alsotargeting key brands that are expected to improve its orderbook position andmargins.The company has presence in the garments segment through its subsidiary. Garmentis a growth area and has low capital requirement but high value addition. Theindustry is labour intensive, so the company has the opportunity to take advantage asit has access to cheap labour.Knitting is another key growth area for the company, as demand in the domestic andinternational markets are expected to grow by 15% and 5% respectively in mediumterm. The company is already supplying to domestic majors Wills and MaduraGarments. Domestically, this segment faces competition largely from unorganisedand regional players.Raw material cost as percentage of net sales is expected to go down from the currentlevel of 25% because of good cotton crop this year. Debt restructuring is expected toimprove net profit margin (8.7% in FY03). To put things in perspective, interest costwas lower by 22% YoY, in 1QFY04. However, rupee appreciation as against USdollar can affect the margins, because company earns more than 50% revenues fromexports. Out of the total export earnings, around 70% is US dollars denominated.
At the current price level of Rs 52, the stock trades at P/E multiple of 7.1x FY03earnings. The phasing out of the MFA (multi fiber arrangement) in 2005 wouldprovide Indian majors like Arvind Mills an opportunity to improve access to majortextile-consuming markets based in the Europe and US. However, concernsregarding the sustainability of strength in denim prices and the past track recordremain intactComparisonResult ARVIND LTD Arvind Mills is Indias largest denim manufacturer and exporter, with a total capacity of 120 mm. The company also ranks among the top three denim producers worldwide. It manufactures and sells textiles (34 mm capacity) and ready to wear garments. The company has also aggressively entered the garmenting and knits businesses. Through a GDR issue, the company has acquired ICICI Ventures stake in Arvind Brands. Poor performance of the denim division and forex losses has eroded the companys bottomline over the past couple of quarters. RAYMOND Raymond is Indias largest and worlds third largest integrated manufacturer of wool and wool blended fabrics. Its fabric capacity stood at around 33 m meters (mm) at the end of FY10. It is also the domestic market leader in files and tools with around 80% market share. It has a widespread distribution network across the country, which it can leverage to sell some of its well-recognised brands.
EQUITYSHARE DATA ARVIND RAYMOND ARVIND LTD LTD/ 31/3/2011 31/3/2012 RAYMONDHigh Rs 75 430 17.4%Low Rs 30 300 10.0%Sales per share Rs 158.1 588.6 26.9%Earnings per share Rs 6.5 25.4 25.5%Cash flow per share Rs 13.3 52.4 25.3%Dividends per share Rs 0.00 2.50 0.0%Dividend yield (eoy) % 0.0 0.7 0.0%Book value per share Rs 66.6 221.9 30.0%Shares outstanding (eoy) m 254.40 61.38 414.5%Bonus/Rights/Conversions ESOS - -Price / Sales ratio x 0.3 0.6 53.6%Avg P/E ratio x 8.1 14.4 56.3%P/CF ratio (eoy) x 4.0 7.0 56.8%Price / Book Value ratio x 0.8 1.6 47.9%Dividend payout % 0.0 9.9 0.0% RsAvg Mkt Cap 13,356 22,404 59.6% mNo. of employees `000 0 0 - RsTotal wages/salary 3,948 4,754 83.0% m RsAvg. sales/employee 20.0 20.0 100.0% Th RsAvg. wages/employee 21.0 21.0 100.0% Th RsAvg. net profit/employee 22.0 22.0 100.0% ThINCOME DATANet Sales Rs m 40,212 36,129 111.3%Other income Rs m 247 1,002 24.7%Total revenues Rs m 40,459 37,131 109.0%
Gross profit Rs m 5,077 4,135 122.8%Depreciation Rs m 1,725 1,658 104.0%Interest Rs m 2,142 1,405 152.5%Profit before tax Rs m 1,457 2,074 70.3%Minority Interest Rs m -5 -12 41.7%Prior Period Items Rs m 0 -1 0.0%Extraordinary Inc Rs m 301 109 276.1%(Exp)Tax Rs m 105 613 17.1%Profit after tax Rs m 1,648 1,557 105.8%Gross profit margin % 12.6 11.4 110.3%Effective tax rate % 7.2 29.6 24.4%Net profit margin % 4.1 4.3 95.1%BALANCESHEET DATACurrent assets Rs m 22,791 21,699 105.0%Current liabilities Rs m 10,639 16,241 65.5%Net working cap to % 30.2 15.1 200.0%salesCurrent ratio x 2.1 1.3 160.3%Inventory Turnover Days 112 93 121.3%Debtors Turnover Days 45 64 70.7%Net fixed assets Rs m 26,850 14,742 182.1%Share capital Rs m 2,544 614 414.3%"Free" reserves Rs m 10,409 15,442 67.4%Net worth Rs m 16,941 13,623 124.4%Long term debt Rs m 11,905 8,843 134.6%Total assets Rs m 50,081 39,849 125.7%Interest coverage x 1.7 2.5 67.9%Debt to equity ratio x 0.7 0.6 108.3%Sales to assets ratio x 0.8 0.9 88.6%Return on assets % 7.6 7.4 101.8%Return on equity % 9.7 11.4 85.1%Return on capital % 13.5 15.9 84.9%Exports to sales % 28.3 3.9 726.9%Imports to sales % 4.2 7.5 56.3%Net fx Rs m 9,065 -1,606 -564.4%
INDIAN TELECOM INDUSTRYAt 861.48 million connections in April 2011 Indian TelecomIndustry is the third largest and fastest growing in the world.According to Cellular Operators Association of India (COAI), theGSM cellular subscriber base has reached to 590.19 million in May2011 from 580.66 million at the end of April 2011. There were826.93 million total wireless subscribers (including GSM and CDMA)in the country at the end of April 2011. As per projections, wirelesstelephony will continue to fuel growth in the Indian telecomindustry with mobile subscribers base in India is expected to reach1.159 billion by 2013.The wireless technologies currently in use in Indian TelecomIndustry are Global System for Mobile Communications (GSM) andCode Division Multiple Access (CDMA). There are primarily 11 GSMand 5 CDMA operators providing mobile services in 22telecommunication circles, covering more than 2000 towns andcities across the country. Among leading mobile operators in Indiainclude Bharti Telecom with 19.88% market share, followed byReliance with 16.80%, Vodafone with 16.59%, Idea Cellular with11.16%, state owned BSNL with 11.05%, TATA with 10.8%, Aircelwith 6.79%, and all others accounting for just about 6.93% ofmarket share.
Over thelast 5years, nineout ofevery tennewtelephoneconnections havebeenwireless.Consequently, wireless now accounts over 95% of the totaltelephone subscriber base, as compared to only 40% in 2003. Andthe numbers are still growing for Indian Telecom Industry . Telecom Industry in India is regulated by Telecom RegulatoryAuthority of India (TRAI). It has earned good reputation fortransparency and competence. Three types of players exists in Telecom Industry in India community -State owned companies like - BSNL and MTNL.Private Indian owned companies like - Reliance Infocomm and TataTeleservices.Foreign invested companies like - Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communicationsetc.The Indian Telecom Industry services is not confined to basictelephone but it also extends to internet, broadband (both wirelessand fixed), cable TV, SMS, IPTV, soft switches etc. The bottlenecks for Indian Telecom Industry are:Slow reform process.Low penetration. Service providers bears huge initial cost to makeinroads and achieving break-even is difficult.
Huge initial investments.Limited spectrum availability and interconnection charges betweenthe private and state operators.The Government Broadband Policy 2004, had a target to create 9million broadband connections and 18 million internet connectionsin 2007. Broadband subscription reached 12.01 million in April2011. Indian Telecom Industry is currently expected to contributenearly 1% to Indias GDP which is heartening and estimated to growfurther and brighten the Scenario of Indian Telecom Industry .The Communication Industry in India is one of the fastestdeveloping sectors in the country and is estimated to become thesecond biggest international telecom market in the next few years.As per the report published by the Telecom Regulatory Authority ofIndia (TRAI), the total number of telephone users in India crossed806.13 million in January 2011 as compared to 787.28 million in theprevious year during the same period. The Indian communicationindustry has thereby registered a growth of 2.39 %. The wirelesstelephone subscribers touched 771.18 million in January 2011 asagainst 752.19 million during the same period in 2010.The growth in communication industry was triggered by an increasein the revenues generated from both landline and mobile facilities.As per the Business Monitor International report, the nation is all setto include 8 to 10 million cellular phone subscribers on monthlybasis. At this pace the communication industry is expected toencompass more than half of Indias population i.e. 612 millioncellular phone subscribers by mid 2012.In addition, as per a research carried out by Nokia, thecommunications sector is estimated to surface as the biggest drivingcomponent in Indias GDP with a contribution of about 15.4% by theFY2014.
Key Players in Indian Communication IndustryWith the coming in of several new players the level of competitionhas increased, tremendously in the telecom industry in India.Currently the industry is witnessing as many as 15 players.According to the latest data by Telecom Regulatory Authority ofIndia of September 30, 2010, it is Bharti Airtel that is leading thecommunication sector in India with 20.8 per cent market share,followed by Reliance Communication which holds 17.1 per centmarket share, Vodafone with 16.8 per cent market share, BSNL with11.4 per cent market share, Tata with11.5 per cent, Idea with 10.8per cent and Aircel holding 6.8 per cent. The remaining marketshare is held by the other small players that are relatively new in theindustry.Revenue and Profit of Top Company for year 2010Company Revenue ProfitBharti Airtel $9.290 billion $2.079 billionReliance $ 45.25 billion $ 99 millionBSNL 32,045 crore 78.06 croresTata Communications 11,025.56 crore 538.80 croreIndia as an emerging Value-Added Services MarketAs per a research conducted by KPMG, the Indian mobile value-added services (MVAS) reached US$ 2.45 billion in FY December2010. Value-Added Services account for almost 10 percent of thetotal revenues earned by the wireless industry. Furthermore therevenues earned by VAS are going to increase by almost 12-13 percent by the end of 2011. To benefit from the emerging MVASmarket in India, Reliance Communications and Bharti Airtel Limitedare all set to introduce online cellular phone applications in Indianretail stores.
India as an emerging telecom equipment manufacturing MarketThe manufacturing of Cellular phone in India is predicted to expandat an annual rate of 28.3% till the FY 2011. The production wouldautomatically generate profits and is predicted to increase at anannual rate of 26.6% till 2011, reaching the target of USD13.7billion.Chief Investments in the Communication Industry in IndiaOver the past one decade, the flourishing Indian Communicationindustry has been successful in drawing the attention ofconglomerates that have invested and are willing to invest more inthe sector. With the influx of new telecom giants in Indian market,the investments are likely to gain immense momentum: As per data published by the Department of Industrial Policy and Promotion (DIPP), the communications industry in India received foreign direct investment (FDI) of about US$ 1.33 billion in January 2011. The total foreign direct investment received by the sector from April 2010 to January 2011 is around US$ 10.26 billion. Investment of USD 6 bn by Vodafone Essar for the next 3 fiscal years in order to expand its list of cellular phone subscribers to 100 million against the existing 40 million. Telenor, Norway based telecom giant has purchased 7% of shares in Unitech Wireless and now possesses 67.25% by bringing in an investment of USD 431.70 million. Indian government owned telecom player, BSNL will invest USD1.17 billion in its WiMax scheme. A proposal of foreign direct investment worth USD 660.1 million by Federal Agency for State Property Management of the Russian Federation has been recently approved by the Indian government. The Agency would be acquiring 20% stake in Sistema-Shyam after bringing in the investment.
A USD 1 billion investment will be brought in by Tata Teleservices in its newly introduced GSM facility Tata DoCoMo.Comparison ResultBHARTI AIRTELBharti Airtel is the largest mobile telephony operator in the GSMspace with 22% share of the Indian wireless market (as at the endof June 2010). The company, apart from being the largest player inthe mobile segment with subscribers in all the 22- telecom circlesof the country, also provides varied services like fixed line,broadband and retail internet access. Bhartis network spans over440,023 non-census towns and villages in India. During the periodFY05 to FY10, the company grew its sales and profits atcompounded annual rates of 39% and 50% respectively.RELIANCE COMMUNICATIONSReliance Communication Ltd. (RCL) is the second largest privatesector mobile telephone operator in India with a wireless (CDMAand GSM) subscriber base of nearly 50 m. The business of thecompany is spread across three segments - Global, Enterprise andPersonal. The Global business caters to voice and data market. Inthe voice market, RCL is the carrier of national and internationalvoice traffic for telecom operators, telecom service providers andits internal customers. The data business owns the largest privatesubmarine cable system in the world, which carries data across sixcontinents. The Enterprise segment serves 750 of the top 1,000enterprises in India, by offering a wide array of products thatcomprise of voice, data, Internet, and IT infrastructure managementservices. The Personal segment offers voice, data and valueadded services for the individual consumers and enterprises, via itsCDMA and GSM-based mobile and fixed wireless services.EQUITY SHAREDATA BHARTI RELIANCE BHARTI AIRTEL/ AIRTEL COMMUNICATIONS 31/3/2011 31/3/2011 RELIANCE COMMUNICATIONSHigh Rs 373 205 182.0%Low Rs 257 75 342.7%Sales per share Rs 156.6 108.7 144.1%Earnings per share Rs 18.9 6.5 289.5%Cash flow per share Rs 45.8 38.0 120.3%Dividends per share Rs 1.00 0.50 200.0%
Dividend yield (eoy) % 0.3 0.4 88.9%Book value per share Rs 128.4 196.2 65.4%Shares outstanding (eoy) m 3,797.53 2,064.03 184.0%Bonus/Rights/Conversions - - -Price / Sales ratio x 2.0 1.3 156.1%Avg P/E ratio x 16.7 21.5 77.7%P/CF ratio (eoy) x 6.9 3.7 187.0%Price / Book Value ratio x 2.5 0.7 343.8%Dividend payout % 5.3 7.7 69.1% RsAvg Mkt Cap 1,196,222 288,964 414.0% mNo. of employees `000 23 28 83.3% RsTotal wages/salary 32,784 14,757 222.2% m RsAvg. sales/employee 25,444.9 7,992.3 318.4% Th RsAvg. wages/employee 1,402.8 525.8 266.8% Th RsAvg. net profit/employee 3,066.7 479.5 639.6% ThINCOME DATANet Sales Rs m 594,672 224,304 265.1%Other income Rs m 4,882 6,214 78.6%Total revenues Rs m 599,554 230,518 260.1%Gross profit Rs m 199,315 83,943 237.4%Depreciation Rs m 102,066 65,038 156.9%Interest Rs m 25,349 10,163 249.4%Profit before tax Rs m 76,782 14,956 513.4%Minority Interest Rs m 0 -1,503 0.0%Prior Period Items Rs m 0 0 -Extraordinary Inc Rs m 12,681 121 10,480.2%(Exp)Tax Rs m 17,790 118 15,076.3%Profit after tax Rs m 71,673 13,456 532.6%Gross profit margin % 33.5 37.4 89.6%Effective tax rate % 23.2 0.8 2,936.6%Net profit margin % 12.1 6.0 200.9%BALANCESHEET DATACurrent assets Rs m 112,077 164,648 68.1%Current liabilities Rs m 369,845 139,608 264.9%Net working cap to % -43.3 11.2 -388.3%sales
Current ratio x 0.3 1.2 25.7%Inventory Turnover Days 1 8 15.6%Debtors Turnover Days 34 65 52.0%Net fixed assets Rs m 651,426 729,409 89.3%Share capital Rs m 18,988 10,320 184.0%"Free" reserves Rs m 413,945 380,980 108.7%Net worth Rs m 487,668 404,992 120.4%Long term debt Rs m 532,338 216,928 245.4%Total assets Rs m 1,420,003 947,227 149.9%Interest coverage x 4.0 2.5 163.0%Debt to equity ratio x 1.1 0.5 203.8%Sales to assets ratio x 0.4 0.2 176.9%Return on assets % 6.8 2.5 274.0%Return on equity % 14.7 3.3 442.3%Return on capital % 11.3 3.8 294.9%Exports to sales % 0.0 0.0 -Imports to sales % 3.2 5.1 62.6%Net fx Rs m -20,574 -13,397 153.6%
BANKING INDUSTRY IN INDIAThe growth in the Indian Banking Industry has been more qualitative thanquantitative and it is expected to remain the same in the coming years. Based onthe projections made in the "India Vision 2020" prepared by the PlanningCommission and the Draft 10th Plan, the report forecasts that the pace of expansionin the balance-sheets of banks is likely to decelerate.The total assets of all scheduled commercial banks by end-March 2010 is estimatedat ` 40,90,000 crores. That will comprise about 65 per cent of GDP at current marketprices as compared to 67 per cent in 2002-03. Bank assets are expected to grow atan annual composite rate of 13.4 per cent during the rest of the decade as againstthe growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It isexpected that there will be large additions to the capital base and reserves on theliability side.The Indian Banking Industry can be categorized into non-scheduled banks andscheduled banks. Scheduled banks constitute of commercial banks and co-operativebanks. There are about 67,000 branches of Scheduled banks spread across India. Asfar as the present scenario is concerned the Banking Industry in India is goingthrough a transitional phase.The Public Sector Banks(PSBs), which are the base of the Banking sector in Indiaaccount for more than 78 per cent of the total banking industry assets.Unfortunately they are burdened with excessive Non Performing assets (NPAs),massive manpower and lack of modern technology. On the other hand the PrivateSector Banks are making tremendous progress. They are leaders in Internet banking,mobile banking, phone banking, ATMs. As far as foreign banks are concerned theyare likely to succeed in the Indian Banking Industry.In the Indian Banking Industry some of the Private Sector Banks operating are IDBIBank,ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of RajasthanLtd. and banks from the Public Sector include Punjab National bank, Vijaya Bank,UCO Bank, Oriental Bank, Allahabad Bank among others. ANZ Grindlays Bank, ABN-AMRO Bank, American Express Bank Ltd, Citibank are some of the foreign banksoperating in the Indian Banking Industry
TOP BANKS IN INDIA 1. SBI 2. HDFC 3. AXIS 4. BANK OF INDIA 5. PNB 6. BANK OF BARODA 7. ICICI BANK 8. UNION BANK OF INDIA 9. CITY BANK 10. CANARA BANK ICICI BANKICICI Bank is the largest private sector bank in India in terms of marketcapitalization. It is also the second largest bank in India in terms of assets with atotal asset of ` 3,674.19 billion (US$ 77 billion) as on June 30, 2009. For thequarter ended on June 30, 2009, the total profit after tax has been ` 8.78 billion.Formerly known as Industrial Credit and Investment Corporation of India, ICICIBank has an extensive network of 1,544 branches with about 4,816 ATMSlocated across India and in 18 other countries. ICICI Bank serves over 24 Millioncustomers throughout the world. It is considered as one of the „Big Four Banks‟ inIndia along with State Bank of India, HDFC Bank and Axis Bank.ICICI Bank provides a wide array of banking products and financial services to itsretail and corporate customers. It has a wide variety of delivery channels andspecialized affiliates and subsidiaries that ensure the flow of its offerings in theareas like investment banking, venture capital, life and non-life insurance andasset management. This bank is also Indias largest credit card issuer. Theequity share of ICICI Bank is listed on various stock exchanges like NSE, BSE,Kolkata Stock Exchange and Vadodara Stock Exchange etc. Its AD ` are alsolisted on the New York Stock Exchange.
HDFC BANKThe Housing Development Finance Corporation Limited, popularly called HDFCBank, was set up in India in the month of August in the year 1994 with the name“HDFC Bank Limited”. This was the 1st organization to be approved by R. B. I.(Reserve Bank of India) to establish a private sector bank. This happened as apart of the liberalization of the banking industry in the country by R. B. I. in thesame yearHowever, this scheduled business bank started its operations mainly fromJanuary, 1995. Headquartered in the city of Mumbai, this is one of the maincompanies involved in housing finance. With an aim to be a world class bank,this bank in India holds a good track record of performance in both national aswell as global markets. Post completion of the last quarter on 30th September,2011, the total income of the bank increased by 37.4 % as compared to thissame quarter of 2010Balance Sheet of ICICI Bank ------------------- in Rs. Cr. -------------- Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mthsCapital and Liabilities:Total Share Capital 1,152.77 1,151.82 1,114.89Equity Share Capital 1,152.77 1,151.82 1,114.89Share Application Money 2.39 0.29 0.00Preference Share Capital 0.00 0.00 0.00Reserves 59,250.09 53,938.82 50,503.48Revaluation Reserves 0.00 0.00 0.00Net Worth 60,405.25 55,090.93 51,618.37Deposits 255,499.96 225,602.11 202,016.60Borrowings 140,164.91 109,554.28 94,263.57Total Debt 395,664.87 335,156.39 296,280.17Other Liabilities & Provisions 17,576.98 15,986.35 15,501.18Total Liabilities 473,647.10 406,233.67 363,399.72 Mar 12 Mar 11 Mar 10 12 mths 12 mths 12 mthsAssetsCash & Balances with RBI 20,461.29 20,906.97 27,514.29Balance with Banks, Money at Call 15,768.02 13,183.11 11,359.40Advances 253,727.66 216,365.90 181,205.60
PERFORMANCE OF ICICIBANK AND HDFC BANKICICI, HDFC banks battle for mkt shareThe stage is set for the countrys top two private banks to test theirskills in pursuit of market share. After consolidating its balance sheetfor 18 months, ICICI Bank now plans to be more aggressive, whileHDFC Bank is in no mood to allow its bigger rival regain lost marketshare.The current macro-economic situation is similar to the economic crisisof 2008. If it was the collapse of US fourth-largest investment bank,Lehman Brothers, which triggered the biggest financial crisis of thedecade three years back, Standard & Poors decision to downgradeUS sovereign rating by a notch last week has intensified fears ofanother economic storm now.Unlike the last time, the countrys largest private lender, ICICI Bank, isnow firm on growing its deposits and advances. While most Indianbanks say their loan books narrowed sequentially for the quarterended June 30, ICICI was one of the few lenders that reported growthin advances."We will continue to improve the quality of our earnings and balancesheet. While the industry is expected to face headwinds on margins,we expect to maintain our net interest margin at the current 2.6 percent this year," Managing Director and Chief Executive Officer ChandaKochhar said, while announcing the banks earnings last month. For2011-12, the bank has set a target of 18-20 per cent credit growth.HDFC Bank, the second-largest private lender in the country, also hasno plan to take its step off the gas in expanding its business. Thebank, known for its consistent earnings performance, aims to grow itsbalance sheet at a higher rate than the industry."Fortunately, the bank is in a situation in which demand exceeds
supply. If GDP (gross domestic product) grows at eight per cent andthe credit multiplier is two and half times the GDP, credit growth for thesystem would be 19-20 per cent. We will gain a couple of hundredpercentage points more than the system. We have been gainingmarket share continuously," Aditya Puri, managing director of HDFCBank, told Business Standard in an interview in May.There is, however, dissimilarity in the growth ambitions of the twobanking giants. For ICICI Bank, balance sheet expansion wouldprimarily be on the corporate segment, as the bank is still selective inoffering unsecured loans to its retail clients. HDFC Bank, on the otherhand, has chalked out its growth targets mostly around its retailcustomer base. The lender has been disbursing Rs 5,000 crore ofretail loans every month in the April-June period, which it claims is thehighest in the industry.The bank has also moved away from its traditional practice of offeringcredit cards to its existing clients. Currently, HDFC Banks first-timeclients who have been offered credit cards, account for 25 per cent ofthe card base, compared with 10 per cent a year ago. The lender alsoaims to compete with American Express Card and has launched theInfinia credit card for the ultra rich high networth community in India.Despite their divergent focus, both banks are not willing to give eachother space in other businesses. Kochhar, in a recent newspaperinterview, had said ICICI Bank was not ceding its leadership position inretail. HDFC Bank, on its part, has strengthened its investmentbanking business and managed its first ever equity issuance as the co-book running lead manager for Muthoot Finances Rs 900-crore initialpublic offer.In the mobilisation of deposits, the duo has decided to bank on asimilar strategy of opening more branches to increase the share oflow-cost current account and savings account deposits. While none ofthe banks were willing to comment on the rivals business plan, bothfelt the market was big enough for both the banks to grow theirbusinesses. "I wish ICICI Bank well, but they dont really affect ourgrowth rate. There is enough business for everybody," Puri said in aninterview with Business Standard
FINDINGS OF HDFC AND ICICI Return and risk in non-convertible debentures Sbi, icici bank raise base rates by 50 bps to 10% Markets end lower, icici bak slips 2%] 5 stocks investros can bet on Debt-laden companies push indian banks to limits Time for strategic investors to get back to the streetFINDINGS IN INDUSRTRY RESEARCH (a) In cement industries The Indian cement industry is the 2nd largest market after China. It had a total capacity of about 300 m tonnes (MT) as of financial year ended 2010-11. Consolidation has taken place with the top three players alone controlling almost 35% of the capacity. However, the balance capacity still remains quite fragmented. Despite the fact that the Indian cement industry has grown at a commendable rate in the last decade, registering a growth of nearly 9% to 10%, the per capita consumption still remains substantially poor when compared with the world average. While China registered the highest per capita cement consumption in 2010 of about 1,380 kg, India stood much lower at 230 kg. This underlines the tremendous scope for growth in the Indian cement industry in the long term. Cement, being a bulk commodity, is a freight intensive industry and transporting it over long distances can prove to be uneconomical. This has resulted in cement being largely a regional play with the industry divided into five main regions viz. north, south, west, east and the central region. With capacity addition taking place at a faster rate as compared to demand, prices have remained southbound, especially in the last one year. Nevertheless, considering the government‟s thrust on infrastructure, long term demand remains intact.
Given the high potential for growth, quite a few foreign transnational companies have displayed their interest in the Indian markets. Already, while companies like Lafarge, Heidelberg and Italicementi have made a couple of acquisitions, Holcim has increased its stake in domestic companies Ambuja Cements and ACC to gain full control. Considering the long term growth story, fair valuations, fragmented structure of the industry and low gearing, another wave of consolidation would not come as a surprise.Key pointers to balance sheet andprofit and loss statements: A profit and loss account represents the summary of financial transactions during a particular period and depicts the profit or loss for the period along with income tax paid on the profit and how the profit has been allocated (appropriated).Usually, debentures, bonds and loans for fixed assets are securedby fixed assets, while loans from banks for working capital, i.e.,current assets are secured by current assets. These loans enjoypriority over unsecured loans for settlement of claims against thecompany.Such unsecured loans rank second and subsequent to securedloans for settlement of claims against the company. There areother unsecured creditors also, forming part of current liabilities,like, creditors for purchase of materials, provisions etc.
Let us see some of the important types of ratios and their significance:¨ Liquidity ratios;¨ Turnover ratios;¨ Profitability ratios;¨ Investment on capital/return ratios;¨ Leverage ratios and¨ Coverage ratios.Liquidity ratios: Current ratio: Formula =Min. Expected even for a new unit in India = 1.33:1.Significance = Net working capital should always be positive. In short,the higher the net working capital, the greater is the degree of overallshort-term liquidity. Means current ratio does indicate liquidity of theenterprise.Too much liquidity is also not good, as opportunity cost is very high ofholding such liquidity. This means that we are carrying either cash inlarge quantities or inventory in large quantities or receivables are gettingdelayed. All these indicate higher costs. Hence, if you are too liquid, youcompromise with profits and if your liquidity is very thin, you run the riskof inadequacy of working capital.Range – No fixed range is possible. Unless the activity is very profitableand there are no immediate means of reinvesting the excess profits infixed assets, any current ratio above 2.5:1 calls for an examination of theprofitability of the operations and the need for high level of currentassets. Reason = net working capital could mean that external borrowingis involved in this and hence cost goes up in maintaining the net workingcapital. It is only a broad indication of the liquidity of the company, as allassets cannot be exchanged for cash easily and hence for a more accuratemeasure of liquidity, we see “quick asset ratio” or “acid test ratio”.
Acid test ratio or quick asset ratio:Quick assets = Current assets (-) Inventories which cannot be easilyconverted into cash. This assumes that all other current assets likereceivables can be converted into cash easily. This ratio examineswhether the quick assets are sufficient to cover all the current liabilities.Some of the authors indicate that the entire current liabilities should notbe considered for this purpose and only quick liabilities should beconsidered by deducting from the current liabilities the short-term bankborrowing, as usually for an on going company, there is no need to payback this amount, unlike the other current liabilities.Significance = coverage of current liabilities by quick assets. As quickassets are a part of current assets, this ratio would obviously be less thancurrent ratio. This directly indicates the degree of excess liquidity orabsence of liquidity in the system and hence for proper measure ofliquidity, this ratio is preferred. The minimum should be 1:1. This shouldnot be too high as the opportunity cost associated with high level ofliquidity could also be high.What is working capital gap? The difference between all the currentassets known as “Gross working capital” and all the current liabilities otherthan “bank borrowing”. This gap is met from one of the two sources,namely, net working capital and bank borrowing. Net working capital ishence defined as medium and long-term funds invested in current assets.Turn over ratios:Generally, turn over ratios indicate the operating efficiency. The higherthe ratio, the higher the degree of efficiency and hence these assumesignificance. Further, depending upon the type of turn over ratio,indication would either be about liquidity or profitability also. Forexample, inventory or stocks turn over would give us a measure of theprofitability of the operations, while receivables turn over ratio wouldindicate the liquidity in the system.
Debtors turn over ratioConditions of the market – monopolistic or competitive – monopolistic,this would be higher and competitive it would be less as you are forced togive credit;Whether new enterprise or established – new enterprise would be requiredto give higher credit in the initial stages while an existing business wouldhave a more fixed credit policy evolved over the years of business;Hence any deterioration over a period of time assumes significance for anexisting business – this indicates change in the market conditions to thebusiness and this could happen due to general recession in the economyor the industry specifically due to very high capacity or could be this unitemploys outmoded technology, which is forcing them to dump stocks onits distributors and hence realisation is coming in late etc. Average collection period Inventory turn over ratio Current assets turn over ratio Fixed assets turn over ratioNot much of significance as fixed assets cannot contribute directly eitherto liquidity or profitability. This is used as a very broad parameter tocompare two units in the same industry and especially when the scales ofoperations are quite significant. Formula = Cost of goods sold/Averagevalue of fixed assets in the period (book value).
Investment on capital ratios/Earnings ratios: Return on net worthProfit After Tax (PAT) / Net worth. This is the return on the shareholders’funds including Preference Share capital. Hence Preference Share capitalis not deducted. There is no standard range for this ratio. If it reduces itindicates less return on the net worth. Return on equityProfit After Tax (PAT) – Dividend on Preference Share Capital / Net worth– Preference share capital. Although reference is equity here, all equityshareholders’ funds are taken in the denominator. Hence Preferencedividend and Preference share capital are excluded. There is no standardrange for this ratio. If it comes down over a period it means that theprofitability of the organisation is suffering a setback. Return on capital employed (pre-tax)Earnings Before Interest and Tax (EBIT) / Net worth + Medium and long-term liabilities. This gives return on long-term funds employed in businessin pre-tax terms. Again there is no standard range for this ratio. If itreduces, it is a cause for concern. Earning per share (EPS)Dividend per share (DPS) + Retained earnings per share (REPS). Here theshare refers to equity share and not preference share. The formula is =Profit after tax (-) Preference dividend (-) Dividend tax both on preferenceand equity dividend / number of equity shares. This is an importantindicator about the return to equity shareholder. In fact P/E ratio is relatedto this, as P/E ratio is the relationship between “Market value” of theshare and the EPS. The higher the PE the stronger is the recommendationto sell the share and the lower the PE, the stronger is the recommendationto buy the share.
This is only indicative and by and large followed. There is somethingknown as industry average EPS. If the P/E ratio of the unit whose shareswe contemplate to purchase is less than industry average and growthprospects are quite good, it is the time for buying the shares, unless weknow for certain that the price is going to come down further. If on theother hand, the P/E ratio of the unit is more than industry average P/E, itis time for us to sell unless we expect further increase in the near future.Leverage ratiosLeverages are of two kinds, operating leverage and financial leverage.However, we are concerned more with financial leverage. Financialleverage is the advantage of debt over equity in a capital structure.Capital structure indicates the relationship between medium and long-term debt on the one hand and equity on the other hand. Equity in thebeginning is the equity share capital. Over a period of time it is net worth(-) redeemable preference share capital.It is well known that EPS increases with increased dose of debt capitalwithin the same capital structure. Given the advantage of debt also, aseven risk of default, i.e., non-payment of interest and non-repayment ofprincipal amount increases with increase in debt capital component, themarket accepts a maximum of 2:1 at present. It can be less. Formula fordebt/equity ratio = Medium and long-term loans + redeemable preferenceshare capital / Net worth (-) Redeemable preference share capital.From the working capital lending banks’ point of view, all liabilities are tobe included in debt. Hence all external liabilities including current liabilitiesare taken into account for this ratio. We have to add redeemablepreference share capital and reduce from the net worth the same as in theprevious formula.
Coverage ratios Interest coverage ratioThis indicates the number of times interest is covered by EBIT. Formula =EBIT / Interest payment on all loans including short-term liabilities.Minimum acceptable is 2 to 2.5:1. Less than that is not desirable, as afterpaying interest, tax has to be paid and afterwards dividend and dividendtax. Asset coverage ratioThis indicates the number of times the medium and long-term liabilitiesare covered by the book value of fixed assets.Formula = Book value of Fixed assets / Outstanding medium and long-term liabilities. Accepted ratio is minimum 1.5:1. Less than that indicatesinadequate coverage of the liabilities. Debt Service coverage ratioThis indicates the ability of the business enterprise to service itsborrowing, especially medium and long-term. Servicing consists of twoaspects namely, payment of interest and repayment of principal amount.As interest is paid out of income and booked as an expense, in theformula it gets added back to profit after tax. The assumption here is thatdividend is ignored. In case dividend is paid out, the formula getsamended to deduct from PAT dividend paid and dividend tax.Formula is:(Numerator) Profit After Tax (+) Depreciation (+) DeferredRevenue Expenditure written off (+) Interest on medium and long-termborrowing(Denominator) Interest on medium and long-term borrowing (+)Installment on medium and long-term borrowing.
This is assuming that dividend is not paid. In the case of an existingcompany dividend will have to be paid and hence in the numerator,instead of PAT, retained earnings would appear. The above ratio iscalculated for the entire period of the loan with the bank/financialinstitution. The minimum acceptable average for the entire period is1.75:1. This means that in one year this could be less but it has to bemade up in the other years to get an average of 1.75:1.OBJECTIVES OF THE STUDY 1. To know the financial position of the company Net worth share capital, reserve and unallocated surplus in balancesheet carried down from profit and loss appropriation account. For a healty company, its is necessary that a there is a balance struck betyween divident paid and profit retainied in business so mucj the net worth keeps on increasing. 2. Has the company defaulted in providing for bonous liability, P.F liability, E.S.I liability, gratuity liability etc? 3. Whether the company is holding very huge cash, as it is not desirable and increases the opportunity cost? 4. How much earning has our share made? (EPS) Profit after tax divident on preference share capital/number of equity share. In terms of percentage anything less than
40 to 50% of the face value of the share would not go well whth the market sentiments.5. Wheather the redues its divident payout in camparison with last year or other compaititors. Relationship between amount of divdnent payoutn and proefit after lasty year and this year. Is there any reason for this like liquity crunch that the company is experiencing or the need for conserving cash for buriness activity, like purchase of the fixed assets in the immediate future?6. To Know that what is the proportion of marketable investment to total investment and wheather this has decvreased in comparision with the other compititors?7. Relationship between the net worht of the company and its external liabilities (both short-term and long-term) what about only medium and long-term debts?8. To know about the current ratio of the companies and liquidity position of the companies.9. To find out the debt equity ratio of the major companies and analysis the finacial position the companies. And find out which company better.
The principal tools of analysis are:¨ Ratio analysis – i.e. to determine the relationship between any set oftwo parameters and compare it with the past trend. In the statements ofaccounts, there are several such pairs of parameters and hence ratioanalysis assumes great significance. The most important thing toremember in the case of ratio analysis is that you can compare two unitsin the same industry only and other factors like the relative ages of theunits, the scales of operation etc. come into play.¨ Comparison with past trend within the same company is one type ofanalysis and comparison with the industrial average is another analysisWhile one can derive a lot of useful information from analysis of thefinancial statements, we have to keep in mind some of the limitations ofthe financial statements. Analysis of financial statements does indicate adefinite trend, though not accurately, due to the intrinsic nature of thedata itself.Some of the limitations of the study Analysis and understanding of financial statements is only one of the tools in understanding of the company The annual statements do have great limitations in their value, as they do not speak about the following-Notwithstanding all the above, continuous study of financial statementsrelating to an industry can provide the reader and analyst with an in-depth knowledge of the industry and the trend over a period of time. Thismay prove invaluable as a tool in investment decision or sale decision ofshares/debentures/fixed deposits etc.