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Sample Due diligence report

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  • 1. (Important Message to Any Person Not Authorized to Have Access to this Report) Any person who is not an addressee of this report or who has not requested Mangal Advisory Services for its use is not authorized to have access to this report. Should any unauthorized person obtain access to and read this report, by reading this report such person accepts and agrees to the following terms: 1. The reader of this report understands that the work performed by Mangal Advisory Services was performed in accordance with instructions provided by our addressee client and was performed exclusively for our addressee client's sole benefit and use. 2. The reader of this report acknowledges that this report was prepared at the direction of our addressee client and may not include all procedures deemed necessary for the purposes of the reader. 3. The reader agrees that Mangal Advisory Services, its partners, employees and agents neither owe nor accept any duty or responsibility to it, whether in contract or in tort (including without limitation, negligence and breach of statutory duty), and shall not be liable in respect of any loss, damage or expense of whatsoever nature which is caused by any use the reader may choose to make of this report, or which is otherwise consequent upon the gaining of access to the report by the reader. Further, the reader agrees that this report is not to be referred to or quoted, in whole or in part, in any prospectus, registration statement, offering circular, public filing, loan, other agreement or document and not to distribute the report without Mangal Advisory Service’s prior written consent.
  • 2. Delivering Excellence, Partnering Success XYZ Limited Due Diligence Report
  • 3. Table of Contents Scope and Process Summary 1 I. 3 Background II. Industry Overview 5 III. Financial Overview 11 IV. Key Issues / Observations 17 V. Other Matters 38 VI. Projected profitability 45 VII. Annexure
  • 4. Scope and Process Due Diligence Process This report is based on significant and material findings of the due diligence review performed on accounting, financial, and tax information of XYZ Limited, made available by the Management. Information relied on the Due diligence Process For the purpose of this report, we have placed reliance on: • Audited financial statements of XYZ Limited as at and for the year ended 31 Mar 11 and 31 Mar 12 (‘FY11’ and ‘FY12’) • Unaudited financial statements of XYZ Limited (without notes to the financial statements) as at and for the year ended 31 Mar 13 (‘FY13’) • Information made available for Q1FY14 • Agreements, select documents and details provided by the Management • Information and explanations provided by the Management. • Management information system (MIS) details provided by the Management Management Representations The Management representations stated in this report, have been orally confirmed by them. In addition, in respect of any factual information given to us by the management of XYZ Limited ,we require from them, written confirmation that such information was accurate and that no significant information, essential to the due diligence review, has been withheld from us. Till the date of this report, the Management has not provided us with written confirmation in this respect. Accordingly, our report is subject to this limitation. Significant scope matters Our period under review was FY11, FY12 and FY13 and Q1FY14. The following was the scope of work: • . Analyses of the financial statements including profit and loss account and balance sheets • Analyses of the MIS presented to us by the Management • Calculation of the future projections and assessment of viability of the project Report structure This is an exception based report and matters which have come to our knowledge through our interviews and analyses have been highlighted by us. We make no representation regarding the sufficiency of our work either for purposes for which this report has been requested or for any other purpose. . 1
  • 5. Scope and Process Limitations The following information was not available which could have a material bearing on our analyses • Area wise (Area 1, Area 2 and Area 3) revenue breakup in units • Area wise (Area 1, Area 2 and Area 3) breakup of variety of products sold • Details of the age and location of deep freezers • Costing of certain products were not made available • Further, our work did not constitute an audit conducted in accordance with generally accepted auditing standards, or an examination of internal controls or other attestation or review services in accordance with standards established by the Institute of Chartered Accountants of India (ICAI). Accordingly, this report should not be considered as an expression of opinion or any other form of assurance on the financial statements of the Company or on its financial or other information, or on the operating and internal controls of the Company. • It may be noted that in our work we have relied on the integrity of the information provided to us by the Management for the purpose, and, other than reviewing the consistency of such information, we have not sought to carry out an independent verification, thereof. 2
  • 6. Background 3
  • 7. Background  XYZ Pvt. Ltd. (‘XYZ’) was incorporated on 20th May 1998 and is engaged in the business of production and distribution of ‘Classified’ brand of Ice Creams. The Company was converted into a limited company and the name of the Company was changed to XYZ Limited on 5th Aug 2001. The Management represented that this was done to raise funds.  The manufacturing unit is located at ABC Industrial Estate, Plot X,– Area 1, and the registered office is located at PQR City – Area 4  XYZ has a large number of distributors and dealers for the sale of its product in Area 1 and the neighbouring states of Area 2 and Area 3. XYZ either provides its own deep freezers to such distributors / dealers for the exclusive sale of its ice cream or supplies its product to the distributor / dealer who have their own deep freezers.  The Classified range of ice creams has 25 different product categories with over 180 products on offer.  The current Directors of the company are Mr. A, Mr. B, Ms. C, Mrs. D and Mrs. I Shareholding Details Name Mr. A Mr. B Ms. C Mrs. D Mr. E Mrs. F Ms. G Mr. H No. of Shares % holding 80,000 8% 80,000 8% 200,000 20% 100,000 10% 60,000 6% 59,600 6% 82,000 8% 40,000 4% Mrs. I 298,400 30% Total 1,000,000 100% Equity Shares of Rs. 10 each Proposed Transaction  EFG Limited (‘EFG’) is evaluating a buy out of XYZ Limited. In this connection, EFG has appointed Mangal Advisory Services (‘MAS’) to carry out a due diligence review on XYZ. 4
  • 8. Industry Overview 5
  • 9. The industry is growing steadily with the western and northern regions accounting for the largest consumption Overview • • Size and Growth – Total Industry valued at over INR 5500 Crore. – Organised sector worth INR 2500 Cr. in 2012 (45%) – Growing over 15% p.a. in 2009-2012 – Forecast to grow at a CAGR of 12% p.a. upto 2016 Characteristics – Western and Northern regions together account for 65% of total market consumption – 60% of ice cream sales occur during the summer months of April-June – Vanilla is the highest selling flavour and together with strawberry and chocolate it accounts for 70% of the market Source: Euromonitor International, Ice cream in India (2012) Size and Growth Market Size (INR Crore.) 2500 2800 2012 2013 3136 2014 3512 2015 3934 2016 Geographic Distribution 30% North, 30% West, 35% 20% East, 15% South, 20% 6
  • 10. Market Players Market share • • • • • Fiercely competitive due to attractive economics. Organized sector comprises GCMMF’s Amul, HUL’s Kwality Walls, Mother Diary, Baskin Robbins and a number of regional brands Amul is the market leader and is at the forefront of targeting the rural market For most national players viz. GCMMF, HUL and Mother Diary, revenue from ice cream accounts for a small portion of their total revenues Premium segment: – Baskin Robbins is the single largest premium ice cream brand – New entrants include Amul, Movenpick, Haagen Dazs and Snowberry Unorganized 55% 45% Organized 37% Vadilal GCMMF Source: Economic Times Cold Wars (2011), FNB News The Ice cream industry (2012) 14% 13% 16% 15% Others Mother Diary 5% HUL Baskin Robbins 7
  • 11. Key Trends Growing per-capita consumption (from 250 ml in 2010 to 350 ml in 2012) Increasing manufacturing of “frozen Desserts” (using cheaper vegetable fats rather than Dairy Fats) Targeting specific niche segments (probiotics, Diet, etc.) Franchise model and strategic partnerships to enhance distribution 8
  • 12. Enhancing network through franchises and strategic partnerships Company Projects Kiosks - Swirls GCMMF Increase Amul Parlours from 1,800 to 3,000 in 2008 and 10,000 by 2009, Cyber stores in 100 cities, Cyber clubs in 125 cities Hatsun Agro Premium ice cream outlet – Arun Ice Cream Unlimited Milkway Express 1000 outlets in southern and central India by 2009, counters at corporate campuses Baskin Robbins Franchising HUL Outlets in malls and multiplexes Company Purpose Indian Oil Corporation (IOC) Retail stores at petrol stations Oxicash Marketing via scratch and win contests GCMMF Bharat Petroleum Corporation Ltd (BPCL) Mobile kiosks at petrol stations Baskin Robbins Lifestyle, Coca-Cola, ICICI credit cards and Cox & Kings Exclusive retailing Milkway Express Spencer Retail Ltd and Foodworld Targeting the southern market Rhapsody Foods & Beverages Re-launch brand in Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai HUL Partnerships Affiliation Movenpick Source: FnBnews “Coops, the mainstay of India's dairy model”, October 2008; Business Standard “Ice-cream makers add healthy flavours”, April 2008; FoodIndustryIndia “Gelato ice creams is a hit at AAHAR”, March 2008 9
  • 13. Product diversification to target specific segments • Producers have launched more “Indianised” flavours such as Kulfi, Shahi Tukda • Naturally flavoured ice cream i.e. without any artificial or synthetic flavour has been introduced for the premium segment • Players are capitalizing on the market which has become extremely health conscious Company Product Health Benefits Hindustan Unilever (HUL) Moo High calcium content, low calorie and fat GCMMF Mother Dairy Probiotic range – Amul Prolife Diet Increases immunity, help in digestion, prevents diarrhoea and growth of colon cancer Low sugar and fat content Source: Financial Express “Ice cream war begins as HUL, Amul oil plans”, February 2008 10
  • 14. Financial Overview 11
  • 15. Overview of Profit & Loss Accounts Profit & Loss Account of XYZ INR Revenue Sales Other Income Difference in WIP and FG Closing Stock Total Income Expenses Raw Material Consumed Packaging Material Consumed Direct Expenses Employee Benefit Expense Administrative Overheads Sales/Distribution Overheads Total Expenses EBITDA Depreciation EBIT Interest EBT % variance % variance % to total % to total % to total FY13 over FY12 over FY13 FY12 FY11 FY12 FY11 FY13 FY12 FY11 57,999,179 48,534 63,902,156 29,029 61,411,260 67,006 -9% 67% 4% -57% 101% 0% 102% 0% 98% 0% -535,755 -982,288 1,221,269 -45% -180% -1% -2% 2% 57,511,958 62,948,898 62,699,535 -9% 0% 100% 100% 100% 16,899,036 8,961,886 5,277,346 14,261,028 3,149,865 8,045,023 56,594,183 917,775 4,671,875 -3,754,101 1,261,906 -5,016,006 17,006,415 10,115,923 6,347,909 12,880,628 3,966,525 9,263,617 59,581,017 3,367,881 4,779,593 -1,411,712 1,568,946 -2,980,658 16,182,289 10,067,964 6,112,275 11,335,060 3,970,806 9,018,900 56,687,294 6,012,240 4,695,271 1,316,970 1,489,357 -172,388 -1% -11% -17% 11% -21% -13% -5% -73% -2% 166% -20% 68% 5% 0% 4% 14% 0% 3% 5% -44% 2% -207% 5% 1629% 29% 16% 9% 25% 5% 14% 98% 2% 8% -7% 2% -9% 27% 16% 10% 20% 6% 15% 95% 5% 8% -2% 2% -5% 26% 16% 10% 18% 6% 14% 90% 10% 7% 2% 2% 0% Source: Audited / Unaudited Financial Statements 12
  • 16. Overview of Profit & Loss Accounts (1/2)  Revenue from sales includes income from sale of Ice creams. Net sales have reduced by 9% in FY13 over FY12. Net sales in FY12 however increased by 4% in FY12 over FY11. The Management represented that the decline is on account of shortage of funds to deploy additional deep freezers in the market and for various sales promotion schemes.  Revenue from Other Income includes Credit Balances written off, Interest on Bank deposits and dividend on Money Bank shares.  Raw Materials consumption includes expenses for the flavors, milk and other ingredients required for production of Ice Creams. In FY13, raw material consumption has dropped marginally by 1%, in comparison to a 9% drop in sales.  Packing Materials includes a variety of lids, boxes and spoons used for the packaging of the Ice Cream produced. Costs associated with it have declined by 11% in FY13, in line with the drop in sales.  Direct Expenses primarily includes costs incurred for the production process like electricity INR 26.7 lakhs, repairs and maintenance of plant and machinery and deep freezers INR 9 lakhs and generator diesel INR 6 lakhs. In FY13, Direct Expenses have gone down by 17% primarily on account of reduction in repairs and maintenance cost of Plant and Machinery and Deep freezers. Refer Annexure II for details.  Employee benefit expense comprising of salaries, wages and bonus of INR 1.2 cr along with other staff costs. These costs has shown a steady increase over the years, forming 25% of total Income in FY13, which is on the higher side. Refer Annexure II for details.  Administrative overheads primarily comprise of conveyance INR 7.8 lakhs, security charges of INR 5 lakhs and other expenses required for daily administration. These expenses have declined by 21% in FY13. This is primarily due to no bonus being declared in FY13 while in FY12 bonus of INR 3.8 lakhs was declared and reduction in rent of Area 6 Depot, which has been discontinued in FY13. Refer Annexure II for details. 13
  • 17. Overview of Profit & Loss Accounts (2/2)  Sales/Distribution overheads includes cost incurred in the distribution of Ice creams from the factory to the distributors/retailers. It primarily comprises of advertising of INR 2.8 lakhs, excise duty of INR 11. 4 lakhs, vehicle maintenance costs INR 30.4 lakhs, repairs and maintenance of vehicles INR 9.3 lakhs. Sales/Distribution Overheads have declined on account of reduction in Advertisement costs in FY13. The Management represented that this was on account of fund constraints. Refer Annexure II for details.  Interest costs primarily comprise interest on term loans, cash credit balance and hire purchase accounts on vehicles. The interest costs have reduced primarily on account of reduction in term loans and lesser utilisation of cash credit. The Management represented that over last 6 months the cash credit has been freezed by the Bank due to non deposit of any cash flows.  The Company has incurred a loss after depreciation of Rs. 50.16 lakhs in FY13, in comparison to a loss of Rs. 29.8 lakhs in the previous year, primarily on account of drop in sales. 14
  • 18. Overview of Balance Sheets (1/2) Balance Sheets of XYZ INR  I. Equity and Liabilities Shareholders Funds Share Capital Reserves & Surplus Less: Accumulated losses Net worth Non Current Liabilities Secured Loans Unsecured Loans Current Liabilities Sundry Creditors Advance form Customers Outstanding Expenses Total 10,000,000 2,500,000 21,328,934 (8,828,934) 10,000,000 2,500,000 16,312,927 (3,812,927) 7,635,188 14,378,328 8,627,688 16,648,340 9,321,169 10,852,403 4,624,686 37,982,840  Secured Loans primarily comprise of Term loans availed from Money Bank of Rs. 14.97 lakhs, cash credit limit with Money Bank of Rs. 47.14 lakhs, Fund financiers of Rs. 4.4 lakhs, Cash Bank of Rs. 2.58 lakhs and Business Finance of Rs. 7.23 lakhs.  Unsecured Loans primarily comprise loans given by Mr. A of Rs. 18.05 lakhs, Mr. B of Rs. 11.2 lakhs and Finance Services Pvt Ltd of Rs. 105 lakhs.  As at 31 March 2013, Sundry Creditors includes payments outstanding with the suppliers of raw materials and packing materials. A large amount of the same was found to be overdue. Advance from customers comprises of the security deposits taken against the deep freezers provided to the distributors. The Management represented that for every deep freezer provided to the distributors, the Management collects security deposit ranging from Rs. 10,000-17,000. This is primarily to secure against any damages to deep freezers or non payment of dues. The deposit is equally apportioned over 5 years.  Outstanding expenses mainly consists of employees and other statutory payable. A large portion of such amounts was found to be overdue. 9,905,765 9,199,674 3,311,424 43,879,965 II. Assets Non Current Assets Fixed Assets (Net) Investments Current Assets Cash and Bank Balances Sundry Debtors Closing Stock Advances recievable in cash/kind for value to be recieved Deposits and Other advances Total Share capital as at 31 March 2013 comprises of 10,00,000 equity shares, of Rs. 10 each, fully paid .  As at 31 March 2013 As at 31 March 2012 26,316,675 100,000 30,221,263 100,000 87,065 1,954,093 8,219,813 319,019 2,597,708 9,389,156 640,994 531,954 664,200 37,982,840 720,865 43,879,964 Source: Audited / Unaudited Financial Statements 15
  • 19. Overview of Balance Sheets (2/2) Balance Sheets of XYZ INR As at 31 March 2013 As at 31 March 2012  I. Equity and Liabilities Shareholders Funds Share Capital Reserves & Surplus Less: Accumulated losses Net worth Non Current Liabilities Secured Loans Unsecured Loans Current Liabilities Sundry Creditors Advance form Customers Outstanding Expenses Total 10,000,000 2,500,000 21,328,934 (8,828,934) 10,000,000  2,500,000 16,312,927 (3,812,927)  7,635,188 14,378,328 8,627,688 16,648,340 9,321,169 10,852,403 4,624,686 37,982,840 9,905,765 9,199,674 3,311,424 43,879,965  26,316,675 100,000 30,221,263 100,000  87,065 1,954,093 8,219,813 319,019 2,597,708 9,389,156   II. Assets Non Current Assets Fixed Assets (Net) Investments Current Assets Cash and Bank Balances Sundry Debtors Closing Stock Advances recievable in cash/kind for value to be recieved Deposits and Other advances Total 640,994 531,954 664,200 37,982,840 Fixed assets as at 31 Mar 13 primarily comprise deep freezers INR 82.8 lakhs, plant and machinery INR 59 lakhs, factory building INR 31.8 lakhs. Investments include 4000 shares of Money Bank of Rs. 25 each. As at 31 March 2013, of the total debtors, 10% is overdue for more than 6 months. Refer Annexure VI for details. Closing stock primarily comprise raw material of INR 8 lakhs and packing material of INR 68.2 lakhs in stock as at 31 Mar 13. Advances recoverable primarily includes advance to creditors INR 2.6 lakhs and prepaid expenses INR 2.9 lakhs. Deposits and other advances primarily includes income tax for FY09 INR 1.4 lakhs and input credit on VAT INR 1.5 lakhs. Refer Annexure I for break-up of Fixed Assets, Advances Receivable and Deposits. 720,865 43,879,964 Source: Audited / Unaudited Financial Statements 16
  • 20. Key Issues / Observations 17
  • 21. Sales from September 2012 have shown a declining trend resulting in an overall drop of 10% in sales value in FY13 over FY12 Monthly Sales Comparison FY13 FY12 FY11 % Variance FY13 over FY12 % Variance FY12 over FY11 Apr 1,43,58,261 1,28,80,636 1,35,32,388 11% May 1,40,30,496 1,44,07,863 1,40,57,690 -3% Jun 57,80,062 39,18,714 52,99,546 47% Jul 32,19,998 27,07,042 20,27,525 19% Aug 32,73,379 30,64,871 23,50,320 7% Sep 31,74,293 36,51,149 35,57,117 -13% Oct 53,91,986 66,76,237 52,33,259 -19% Nov 54,76,046 66,67,120 57,44,543 -18% Dec 49,11,613 57,94,921 50,18,965 -15% Jan 43,69,728 51,60,872 43,33,775 -15% Feb 44,80,951 75,80,055 65,50,994 -41% Mar 67,38,930 1,12,72,238 1,03,47,812 -40% Total 7,52,05,743 8,37,81,718 7,80,53,934 -10% The sales figures above are gross sales including excise Source: Sales data are as per the Management Information System and are significantly higher than the sales reported in the financial statements -5% 2% -26% 34% 30% 3% 28% 16% 15% 19% 16% 9% 7% o Overall Sales have dropped by 10% in FY13, in comparison with FY12. Consistent drop in sales is observed from Sep 12 till Mar 13. Feb 13 and Mar 13 sales have dropped by over 40% in FY13 over FY12. o The Management represented that the drop in sales have been primarily due to: o lack of funds to buy new deep freezers to increase market reach through new distributors/retailers o increased competitors providing lucrative incentives to XYZ’s distributors also impacted sales. XYZ on account of fund shortage had to cut down its sales spending. o Mining ban in Area 2 and Area 1 further had its impact on sales 18
  • 22. Q1 FY14 sales have dropped by 46% as compared to Q1 FY13. Monthly Sales Comparison 2013 Apr May Jun Total 2012 8,454,973 8,560,090 1,604,839 18,619,902 14,358,261 14,030,496 5,780,062 34,168,819 2011 12,880,636 14,407,863 3,918,714 31,207,213 2010 13,532,388 14,057,690 5,299,546 32,889,624 % Variance 2013 % Variance 2012 % Variance 2011 over 12 over 11 over 10 -41% 11% -5% -39% -3% 2% -72% 47% -26% -46% 9% -5% o The Management represented that the sharp drop in sales in the last 3 months has been primarily due to the news spread in the market about the possible sale of the company, which has been used by the competitors to their advantage. As a result many of the distributors/retailers, especially the ones using their own deep freezers have switched to other brands. The Management further represented that the ban on mining in Area 1 has also had an impact on the sales in Q1FY14. o The Management however expressed confidence that fund infusion primarily targeted towards a sales and incentive strategy could turn around this situation. Using June month as a base the off season sales in 2013 (June – Sep) may drop by 70% Seasonal Comparison 2012-13 Peak Season Sales* Off Season Sales** Total 48,384,317 4,585,254 52,969,571 2011-12 71,540,200 15,447,732 86,987,932 2010-11 64,517,847 13,341,776 77,859,623 % Variance 2013 over 12 -32% -70% -39% *from Oct to May **from June to Sept Off Season Sales for 2013 have been extrapolated based on the June Sales to rest of the off season sales ratios for the previous years. % Variance 2012 over 11 11% 16% 12% 19
  • 23. 88% of the revenue is attributed to just 56 out of 179 products Number of Products Unit Sales Fast Moving Normal Moving Slow Moving 17 39 123 4,68,186 2,31,444 74,897 Revenue 3,71,24,389 2,04,32,810 79,15,879 % % Unit Revenue Sales Sales 60% 30% 10% 57% 31% 12% The sales figure from our analysis does not reconcile with total sales figures in the MIS. The unit price provided to us was the net price obtained from Area 2 which would differ from the net sales obtained from Area 1 and Area 3 due to the difference in VAT rates  17 out of 179 products currently offered to customers constitute 60% of unit-wise sales and 57% of net sales in FY13.  39 out of 179 products in the Normal moving category constitute to 31% of net sales in FY13.  The remaining 123 products in the Slow moving category constitute to the remaining 12% of sales.  The Management represented that the non moving products were produced on a ‘made-to-order’ basis as and when there was a request. Furthermore, the minimum order quantity for such products had to be 10 units.  It would be more prudent to focus and increase the market for the fast moving variety rather than waste production space and time for the non moving items. 20
  • 24. Sales from all three states have dropped in FY13 over FY12. Area-wise Sales FY13 Area 1 Area 2 Area 3 Total 22,123,838 18,713,955 34,367,950 75,205,743 FY12 24,743,479 19,683,174 39,355,065 83,781,718 FY11 24,278,616 15,956,648 37,818,670 78,053,934 % Variance % Variance % to Total FY13 over 12 FY12 over 11 Sales FY13 -11% -5% -13% -10% 2% 23% 4% 7% % to Total Sales FY12 29% 25% 46% 100% 30% 23% 47% 100%  XYZ has a distribution network in Area 1, Area 3 and Area 2. The Management represented that at one time Area 1 and Area 3 were contributing equally to the total sales. However, Area 1 sales have declined over the period to the current status.  Sales from Area 1, Area 2 and Area 3 contributed 29%, 25% and 46% to the total sales, respectively.  Sales in Area 3 declined the most at 13% followed by Area 1 11% and Area 2 5%.  Sales in all three Areas had increased in FY12 over FY11. However, the main increase was in Area 2 of 23%. The Management represented that this was on account of opening of new markets in Area 2.  Sales in all three states are primarily categorised as:    Sales through Company deep freezers which exclusively houses Classified brand Sales through deep freezers belonging to distributors, wherein he could store other brands as well. The Management however could not provide us the exact break up between own deep freezer and distributor owned deep freezer sales. We were informed that Area 1 has a large number of distributor owned deep freezer sales. 21
  • 25. Area 1 – Sales from 10 out of 13 locations have declined in sales in FY13, in comparison to FY12 in Area 1 (1/2)  Sales in Area 1 contributed 29% of the total sales in FY13. Sales in Area 1 have declined by 11% in FY13 over FY12 while remaining steady in FY12 over FY11.  Except for Market 1, Market 3 and Market 6, sales from the remaining 10 markets have declined in FY13 in comparison with FY12.  Sales from Market 4, Market 7, Market 10, Market 12, Market 13 and other sales (party orders, exhibition and staff sales) have been falling year on year since 2011.  Only Market 1 has shown steady growth over the period.  Largest drop in sales of 31%, amounting to approx. 7 lakhs is seen from Market 13 distributor in FY13. Area 1 Distributor Market 1 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 Market 10 Market 11 Market 12 Market 13 Other Sales Differences in sales Total Total sales FY13 FY12 FY11 1,964,805 2,540,828 2,634,143 1,703,184 636,065 132,327 2,070,060 2,644,612 818,916 936,155 833,135 1,285,630 1,493,676 1,997,506 1,852,917 2,905,521 2,621,135 2,058,504 784,990 126,795 2,200,978 2,752,985 842,747 1,086,862 1,105,043 1,408,697 2,175,546 2,374,717 1,783,890 2,796,050 2,359,127 2,250,900 648,581 173,609 2,255,509 2,420,792 693,123 1,104,183 1,061,214 1,422,340 2,278,264 2,887,255 432,796 446,042 143,779 22,123,838 75,205,743 24,743,479 83,781,718 24,278,616 % Variance % Variance % tot total in % tot total in FY13 over 12 FY12 over 11 FY13 FY12 6% -13% 0% -17% -19% 4% -6% -4% -3% -14% -25% -9% -31% -16% 4% 4% 11% -9% 21% -27% -2% 14% 22% -2% 4% -1% -5% -18% 3% 3% 4% 2% 1% 0% 3% 4% 1% 1% 1% 2% 2% 3% 2% 3% 3% 2% 1% 0% 3% 3% 1% 1% 1% 2% 3% 3% -11% 2% 29% 30% Source: Management information and MAS analyses 22
  • 26. Area 1 – Sales from 10 out of 13 locations have declined in sales in FY13, in comparison to FY12 in Area 1 (2/2) Area 1 Distributor Market 1 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 Market 10 Market 11 Market 12 Market 13 Other Sales Differences in sales Total Total sales FY13 FY12 FY11 1,964,805 2,540,828 2,634,143 1,703,184 636,065 132,327 2,070,060 2,644,612 818,916 936,155 833,135 1,285,630 1,493,676 1,997,506 1,852,917 2,905,521 2,621,135 2,058,504 784,990 126,795 2,200,978 2,752,985 842,747 1,086,862 1,105,043 1,408,697 2,175,546 2,374,717 1,783,890 2,796,050 2,359,127 2,250,900 648,581 173,609 2,255,509 2,420,792 693,123 1,104,183 1,061,214 1,422,340 2,278,264 2,887,255 432,796 446,042 143,779 22,123,838 75,205,743 24,743,479 83,781,718 24,278,616 % Variance % Variance % tot total in % tot total in FY13 over 12 FY12 over 11 FY13 FY12 6% -13% 0% -17% -19% 4% -6% -4% -3% -14% -25% -9% -31% -16% 4% 4% 11% -9% 21% -27% -2% 14% 22% -2% 4% -1% -5% -18% 3% 3% 4% 2% 1% 0% 3% 4% 1% 1% 1% 2% 2% 3% 2% 3% 3% 2% 1% 0% 3% 3% 1% 1% 1% 2% 3% 3% -11% 2% 29% 30%  The Management represented that the strategy in Area 1 has been primarily to target the low income groups and no brand awareness especially in major cities has ever been created about the product. Further, on account of working capital constraints, institutional sales have not been targeted due to the requirement of offering a credit period.  The Management represented that decline in sales in Area 1 is due to:  Increased competition from several brands in Area 1 providing various sales incentives to distributors have reduced market size especially among distributor owned freezer sales  Ban on mining Source: Management information and MAS analyses 23
  • 27. Q1 FY14 Sales have fallen by 34% in comparison with Q1 FY13 in Area 1. Area 1 FY14 FY13 FY12 Quarter 1 Quarter 1 Quarter 1 Market 1 521,185 788,499 594,612 Market 2 703,394 1,043,174 867,135 Market 3 723,923 1,022,116 695,182 Market 4 327,345 722,188 631,559 Market 5 181,226 249,628 215,786 Market 6 31,939 49,735 33,200 Market 7 510,076 701,099 697,659 Market 8 645,123 1,029,147 761,420 Market 9 158,339 268,576 252,118 Market 10 245,906 331,007 337,702 Market 11 169,262 376,856 346,622 Market 12 261,386 484,508 454,888 Market 13 482,189 730,378 770,030 Other Sales 734,193 891,541 952,542 Total 5,695,486 8,688,452 7,610,455 Source: Management information and MAS analyses % Variance % Variance 2013 over 12 2012 over 11 -34% 33% -33% 20% -29% 47% -55% 14% -27% 16% -36% 50% -27% 0.5% -37% 35% -41% 7% -26% -2% -55% 9% -46% 7% -34% -5% -18% -6% -34% 14%  Sales from all the areas have fallen in Q1 FY14 as compared to the previous period.  The Management represented that the main reason was ban on mining and the markets news that XYZ was to be sold. This caused several distributors to stop ordering Classified products and switch to competitors.  The Management further represented that Area 1 dealers get more lucrative offers (in terms of no or very less deposit for deep freezers and other variable incentives) from other competitor brands , while XYZ has been unable to do the same due to shortage of funds.  Further, competitor entry providing low priced products like Hangyo has also eaten into Classified’s market. 24
  • 28. Area 3 sales in FY13 have dropped by 13% over FY12 sales  Sales in Area 3 contributed 46% of the total sales in FY13. Sales in Area 3 have declined by 13% in FY13 over FY12, contrary to growing by 4% in FY12 over FY11.  The major reason for this decline has been discontinuance of Area 6 Depot, which was contributing 16% of the total sales in FY12. The Area 6 depot which was managed by XYZ was discontinued in mid FY13.The Management represented that apart from day to management issues, the cost of running the depot including rent, salaries of staff, pilferages etc were found to be very high and hence unprofitable. Thus, the Management decided to appoint individual distributors in Area 6. However, it was found that the distributors have not performed at par with the Depot in FY13 resulting in an overall drop in sales from Area 6 of 16%.  Market 7 and Market 8, contributing 11% and 7% of total revenue, dropped in sales by 16% and 19% respectively in FY13. The Management represented that lack of marketing efforts in FY13 (holding promotional events and distributing marketing material / incentives) and increased competition (distributors stocking low price products of competitors) led to a decrease in sales from these regions.  Except for Market 23, all old distributors (in operation before 2009) have lagged behind in sales in FY13. Further, 28% of sales were generated from new distributors.  The Management represented that it was a regular practice to discontinue with underperforming distributors, who do not meet the sales target as laid out in the agreement, and shift to other new distributors to achieve higher sales. Area 3 Distributor FY13 FY12 Market 1 6,872,970 13,110,152 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 Market 10 2,367,012 1,293,567 427,207 8,449,802 5,609,829 749,743 1,470,260 1,009,078 394,748 10,046,681 6,954,320 2,240,942 2,178,067 1,127,710 % Variance % Variance FY13 over 12 FY12 over 11 11,993,206 -48% 9% FY11 % total in % total in FY13 FY12 9% 16% 9,198,648 6,200,641 2,384,008 2,246,008 1,429,750 -16% -19% -67% -54% -65% 9% 12% -6% -3% -21% 3% 2% 1% 11% 7% 1% 2% 1% 1% 0% 0% 0% 12% 8% 3% 0% 3% 1% Market 11 1,474,343 Market 12 802,421 1,327,421 Market 13 91,974 14,951 Market 14 429,178 1,028,927 982,976 Market 15 491,562 Market 16 792,633 1,057,842 980,643 Market 17 595,772 Market 18 460,643 300,674 381,629 Market 19 83,017 Market 20 415,355 Market 21 77,949 Market 22 1,434,108 Market 23 563,318 Total 34,367,950 39,355,065 37,818,670 Total sales 75,205,743 83,781,718 Source: Management information and MAS analyses -100% -100% -58% -25% 53% -100% -13% -40% 515% 5% 8% -100% -21% -100% 2% 0% 0% 1% 1% 1% 0% 1% 0% 0% 0% 2% 1% 46% 0% 1% 0% 1% 0% 1% 0% 0% 0% 0% 0% 0% 0% 47% 4% 25
  • 29. Q1 FY14 sales have gone down by 55% in comparison with Q1 FY13 sales in Area 3. Area 3 Distributor FY14 Quarter1 FY13 FY12 Quarter 1 6,459,868 Market 1 Market 2 965,773 Market 3 580,666 Market 4 Market 5 2,877,258 4,240,655 Market 6 1,040,332 3,090,514 Market 7 706,477 Market 8 432,887 Market 9 577,277 Market 10 419,247 Market 11 461,428 Market 12 Market 13 Market 14 429,178 Market 15 419,286 Market 16 144,168 499,537 Market 17 Market 18 112,665 213,778 Market 19 Market 20 Market 21 Market 22 223,053 Market 23 558,195 Total 7,592,658 16,859,584 Source: Management information and MAS analyses  Quarter 1 5,435,611 - 4,620,523 2,842,456 1,024,943 - 1,037,120 438,584 - 583,108 451,802 - 443,053 - 176,321 - - 17,053,521 Sales from all the distributors have dropped in Quarter 1 of FY14, in comparison with Quarter 1 of FY13.  The distributors in Area 6 have achieved sales of approx. Rs. 15.4 lakhs, whereas the Depot had generated sales of Rs. 64.9 lakhs in the same duration in the previous year.  Sales from major markets like Market 5 and Market 6 have dropped by 32% and 66% respectively in Q1 FY14 in comparison with the previous year.  Similarly no sales was seen from promising markets like Market 23, Market 11 etc.  The Management represented that this decline is largely due a lack of focus on marketing due to lack of funds and believe that an inflow of funds is immediately required to launch an aggressive marketing strategy and reposition the brand. % Variance % Variance 2013 over 12 2012 over 11 -100% -32% -66% -100% -100% -100% -100% -71% -47% -100% -55% 19% -8% 9% -31% -44% -4% 0% -100% -5% 13% 21% -1% 26
  • 30. FY13 sales have dropped by 5% in comparison to a 23% increase in FY12 over FY11 in Area 2 (1/2) Area 2  Distributor FY13 FY12 FY11 Market 1 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 Market 10 Market 11 Market 12 Total Total sales 7,348,459 3,226,326 3,124,188 850,879 1,998,333 293,077 1,347,044 525,649 18,713,955 75,205,743 6,986,310 3,846,841 3,064,337 1,104,271 1,582,871 1,148,735 124,906 20,695 1,453,823 336,489 13,896 19,683,174 83,781,718 4,715,634 4,028,715 3,525,753 2,337,270 1,349,276 15,956,648 % Variance % Variance % total % total in FY13 over 12 FY12 over 11 in FY13 FY12 5% 48% 10% 8% -100% 0% 0% -16% 4% 5% 2% -13% 4% 4% -100% -53% 0% 1% -46% 17% 1% 2% 74% 3% 1%  135% 0% 0% -100% 0% 0% -7% 2% 2% 56% 1% 0% -100% 0% 0%  -5% 23% 25% 23% Source: Management information and MAS analyses  Sales in Area 2 contributed 25% of the total sales in FY13. Sales in Area 2 have declined by 5% in FY13 over FY12, contrary to growing by 23% in FY12 over FY11. Area 2 region has had the lowest drop in revenue, while it had the highest increase in revenue in FY12. Market 1 is an important territory contributing 10% of the overall sales and has been able to generate a 5% higher sales in FY13. Market 2, one of the major contributors to sales in FY11 discontinued operations with XYZ since FY12. The new distributor in Market 2, has not generated par sales. The Management represented that the new distributor has a wider network and believes he will generate more sales in the immediate future. Several distributors outperformed their FY12 sales levels including Market 4, Market 7, Market 8, and Market 11. 27
  • 31. FY13 sales have dropped by 5% in comparison to a 23% increase in FY12 over 11 in Area 2 (2/2) Area 2 Distributor FY13 FY12 FY11 Market 1 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 Market 10 Market 11 Market 12 Total Total sales 7,348,459 3,226,326 3,124,188 850,879 1,998,333 293,077 1,347,044 525,649 18,713,955 75,205,743 6,986,310 3,846,841 3,064,337 1,104,271 1,582,871 1,148,735 124,906 20,695 1,453,823 336,489 13,896 19,683,174 83,781,718 4,715,634 4,028,715 3,525,753 2,337,270 1,349,276 15,956,648  % Variance % Variance % total % total in FY13 over 12 FY12 over 11 in FY13 FY12 5% 48% 10% 8% -100% 0% 0% -16% 4% 5% 2% -13% 4% 4% -100% -53% 0% 1% -46% 17% 1% 2% 74% 3% 1% 135% 0% 0% -100% 0% 0% -7% 2% 2%  56% 1% 0% -100% 0% 0% -5% 23% 25% 23% Source: Management information and MAS analyses  Amongst the old distributors (in operation before 2008), Market 8 dropped by 46%. The Management represented that though the Market 8 distributor had performed well there were long outstanding dues from him amounting to Rs. 2 lakhs. Hence, the Management decided to discontinue supplies to him till he paid off the old outstanding. It was observed that the significant increase in sales in FY12 over FY11 was due to new distributors appointed in FY12. In FY12, 35% of total sales came from new distributors. It was also observed that all these new distributors had better sales in FY13 over FY12. It was observed that no additions to distributors was done in FY13. The Management represented that on account of lack of funds to buy deep freezers they could not venture into new markets. 28
  • 32. Q1 FY14 sales have dropped by 38% in comparison with Q1 FY13 sales in Area 2. Area 2  FY14 FY13 FY12 Quarter 1 Quarter 1 Quarter 1 Market 1 Market 2 Market 3 Market 4 Market 5 Market 6 Market 7 Market 8 Market 9 2,180,629 1,144,009 632,833 351,718 609,802 270,634 2,838,469 1,530,780 1,595,037 579,153 871,218 293,077 679,997 2,204,477 1,552,909 1,009,946 1,017,937 757,968 - -23% -25% -60% -39% -30% -100% -60% Market 10 142,133 233,052 - -39% Total 5,331,758 8,620,783 6,543,237 Source: Management information and MAS analyses -38% % Variance % Variance 2013 over 12 2012 over 11 29%  -1% 58% -100%  -24%  32%  Sales from Area 2 had gone up 32% in Q1 FY13 over FY12, but dropped by 38% in Q1 FY14 over FY13. Sales from all the distributors have dropped in Q1FY14 over Q1FY13. The distributors who had outperformed in FY13 had a drastic decline in sales primarily Market 4 by 60%, Market 8 by 100%, Market 11 by 39% and Market 7 by 30%. The Management represented that they have stopped offering incentive schemes for distributors/dealers and organizing events for publicity due to unavailability of funds. This has made it easy for low price competitors like Hangyo and Adityaa Ice Creams to take over XYZ market share. Further, market 2 is currently experiencing strong competition from brands like Creambell and Vadilal. 29
  • 33. Raw Material and Packing Materials costs constitute of 51% on Net sales in FY13. o Raw Material/Packing Material Net Sales % to Net Sales 37,429,421 73,454,086 51% Raw Material and Packing Material form 51% of total sales in FY13. o The cost sheets maintained by the management indicated that these items would constitute 45% of the total sales, however upon verification of prices of raw materials and packing materials against purchase bills, it was found that most of the costs taken were understated by 10-15%. o The Management represented that there was an error in the rates taken in their costing and agreed that the input costs were high. o The management further represented that they would be able to achieve a lower cost by bulk purchases during non-peak season thereby reducing the cost levels to about 42 % of sales. For this however, they would require some additional working capital infusion. o The claims made by the Management would need to be verified by holding dialogues with some critical suppliers regarding the extent in drop in prices if bulk purchases are made. 30
  • 34. 42 products with gross margins below 20% Product Product 1 Product 2 Product 3 Product 4 Product 5 Product 6 Product 7 Product 8 Product 9 Product 10 Product 11 Product 12 Product 13 Product 14 Product 15 Product 16 Product 17 Product 18 Product 19 Product 20 Product 21 Product 22 Product 23 Product 24 Product 25 Product 26 Product 27 Product 28 Product 29 Product 30 Product 31 Product 32 Product 33 Product 34 Product 35 Product 36 Product 37 Product 38 Product 39 Product 40 Product 41 Product 42 Unit Sales 73 360 2527 800 30 8 17 7150 1746 3 4 16587 1 2904 62116 30303 61 573 186 100 217 2671 2093 5479 629 345 446 992 126 9 6 8395 4768 2677 1397 849 1012 2212 5067 2871 315 1083 Gross Margins Gross Profit 20% 4478 20% 22085 20% 92018 20% 28388 19% 1752 19% 117 19% 993 19% 96147 19% 21478 19% 37 19% 49 19% 204042 19% 12 19% 89110 18% 759387 18% 363705 17% 2825 17% 13939 17% 4525 17% 608 17% 5279 17% 63973 17% 50130 16% 87911 15% 13350 15% 7322 11% 8697 11% 19343 11% 2457 10% 60 10% 40 10% 55593 8% 25970 8% 29008 6% 5197 5% 3615 5% 4309 -5% -8308 -10% -32063 -12% -26327 -22% -10074 -45% -40262  These 42 products account for 22% of total unit sales in FY13.  5 of the products have negative margins and have accounted for gross loss of INR 1,17,034  Management has represented that they did not possess the financial expertise to conduct such an analysis before and hence these margins had never come to light.  Management has further represented that they would take immediate steps to discontinue products with low/ negative gross margins 31
  • 35. 60% of the contribution is achieved by 17 products in FY13. Product FY13 Product 76 Product 77 Product 78 Product 79 Product 80 Product 81 Product 82 Product 83 Product 84 Product 85 Product 86 Product 87 Product 88 Product 89 Product 90 Product 91 Product 92 46869 22177 63911 23711 25644 62116 20863 8237 27734 11794 30294 8537 19957 17813 7867 13447 4402  Variable Contribution Cumulative Contribution Cost Margin % % 65 45% 2,497,811 11% 68 48% 1,404,323 17% 48 29% 1,266,122 23% 59 43% 1,035,961 27% 46 44% 923,078 32% 56 18% 759,387 35% 49 40% 688,631 38% 120 39% 629,398 41% 60 27% 605,733 43% 31 61% 573,166 46% 50 27% 551,996 48% 74 44% 489,522 51% 58 29% 475,182 53% 56 32% 464,429 55% 74 44% 451,104 57% 49 39% 419,619 59% 78 52% 378,692 60%   Product 76 is the highest contributor to net margin in FY13, amounting to approx. Rs. 25 lacs with 46,869 units sold at 45% contribution margin . In spite of low unit sales, the following items have contributed significantly to profits, due to higher contribution margins and moderate to high demand.  Product 83  Product 85  Product 90  Product 92 Even with a large number of units sold, the following products have not significantly contributed to profits due to low contribution margins:  Product 91  Product 88  Product 84   Value after Excise 118 131 68 103 82 68 82 197 82 80 68 131 82 82 131 80 164 Product 81 It is important to note that most of the products with the highest contribution margins do not feature in the top 60% of the gross profit contributors. The Management has to have a relook at the sales strategy. 33
  • 36. High Margin items account for 7% of total unit sales Product Product 43 Product 44 Product 45 Product 46 Product 47 Product 48 Product 49 Product 50 Product 51 Product 52 Product 53 Product 54 Product 55 Product 56 Product 57 Product 58 Product 59 Product 60 Product 61 Product 62 Product 63 Product 64 Product 65 Product 66 Product 67 Product 68 Product 69 Product 70 Product 71 Product 72 Product 73 Product 74 Product 75 Unit Sales Gross Margins Gross Profit 1214 73% 116794 3180 62% 180818 1729 61% 124751 11794 61% 573166 243 59% 28356 1144 57% 46190 6 57% 485 336 55% 36638 240 55% 26057 1055 55% 114542 419 55% 37475 271 53% 28406 4402 52% 378692 22 52% 1360 2043 52% 126315 15 52% 927 6749 52% 346665 148 51% 8961 2748 51% 166379 312 51% 51586 113 51% 18683 21 51% 3472 5 51% 827 201 51% 33233 62 51% 10251 6 51% 992 29 51% 4795 349 51% 8267 2732 51% 64718 2980 51% 70593 3354 51% 79453 2013 50% 119934 6234 50% 368663  Although these are high margin items, many of them do not contribute significantly to overall gross profit.  The gross margins do not show any corelation to the pack size, nor to the flavour.  This indicates that pricing methodology has to be revised.  Products in Category X and Category Y were the highest to be sold, but the same could not be benefited from due to low contribution margins from them. 32
  • 37. Insufficient Control Over Assets with Third Parties Controls over deep freezers •A large portion of the value of fixed assets in the form of deep freezers is with the distributors/ dealers. While the Management maintained that they are aware of the location of each deep freezers, including the switching between distributors, we were not provided sufficient data to verify this claim. As at 31 Mar 13 INR 82.8 lakhs of deep freezers, comprises 31.5% of total assets are lying with such third parties. Appropriate controls and checks and balances need to be put in place to ensure complete controls on such assets. Agreements pertaining to deep freezers •Agreements are entered into with distributors at the time of allotting the deep freezers. A deposit is collected from the distributor against such deep freezers. The agreement states that each year 20% of such deposit would be adjusted. At the end of the 5th year the asset belongs to the distributor. In other words he is permitted to keep the products of XYZ’s competitors in the freezer. While on account of no records maintained we were unable to verify such instances, it may result in the loss of business to XYZ as beyond the 5th year the sales generation may significantly diminish. The Management however represented that the life of the freezers is on an average 3-5 years and the cost of repairs / maintenance goes up after such period. •The agreement also states that if the cumulative sales till 4 th year does not match the targets set, XYZ has the right to take back such freezers. Considering that the life of the freezer is 3-5 years, it is more prudent to have sales targets set for 1-2 years to take such decisions. Though the Management represented that there have been instances wherein a distributor has been discontinued due to non performance within a year, no data was provided for our review. Liability pertaining to deposits collected from distributors not properly accounted for •The accounts team correctly accounts for the deposit received from distributors as a liability. However, as per the agreement each year 20% of the deposit becomes non – refundable. Hence, it amounts to an income to XYZ and ceases to be a liability, However, we did not come any income accounted for in the period under review. It was also observed that the amount of liability was increasing year on year. A verification of distributor wise deposit status revealed that such adjustments of deposits were not carried out. A reconciliation activity would be required to be conducted to estimate the actual amount of liability, while the balance would need to be accounted for as income. The tax impact on the same would need to be examined in detail. 34
  • 38. Revenue per Deep freezer is showing a declining trend since FY11. Income per Deep Freezer Total Sales FY13 75,205,743 FY12 83,781,718 FY11 78,053,934   Sales from Company Owned Deep freezers* No. of company owned Deep freezers Average Income per Deep Freezer 56,404,307 62,836,289 58,540,451 829 745 619 68,039 84,344 94,573  *Sa l es from compa ny owned deep freezers i s taken a s 75% of total s a l es . a s i nformed by the ma na gement.   The average income per deep freezer has dropped by Rs.16,000 on an average in FY13 over 12. The Management represented that the agreement with the distributors with regards the deep freezers has a clause for re-possession of the deep freezer by XYZ if a sales target of INR 300 per day is not met. However we did not come across any sales target in the agreement. As per the targets, the sales per deep freezer should have been INR 1,09,400 against the three year high of 94,573. In spite of targets not being achieved, there was no evidence of any freezers being re-possessed. The Management represents that lack of marketing efforts was one of the main reasons for this drop as earlier they used to provide advertising material worth Rs. 5,000-6,000 ( for P.O.P displays, Glow signs etc.) on an average to newly acquired distributors, which they have now discontinued, along with the withdrawal of attractive dealer schemes (variable incentives). 35
  • 39. Over due payments requiring immediate clearance Over due payments as at 30 June 2013 Balance sheet items Statutory Liabilities Consultation Charges Employees Labour Welfare Fund Employer's Labour Welfare Fund ESI - Employees Contribution Payable ESI - Employers Contribution Payable Group Gratuity Premium with LIC LIC in lieu of EDLI PF - Employers PF Payable PF - Employees PF Payable PF Admn. Charges Area 1 VAT for the month of April 13 Area 1 VAT for the month of May 13 Area 1 VAT for the month of June 14 Area 1 Vat for the year 2012-13 Area 2 Vat for the month of May 13 Area 2 Vat for the month of June 13 Area 3 Vat For the month May 13 Area 3 Vat For the month June 13 Electricity Bill for the month of June 2013 Mediclaim of Employee LIC Group Grauity 2011-12 LIC Group Grauity 2012-13 LIC Group Grauity Previous Years Bank Guarantee ( Electricity Department ) Statutory dues total Other Loans Mr. Y Classified Agencies, Area 3 Other loans total Money Bank Term Loan Up to June 2013 Money Bank ( O/D Account ) CC Up to June13 Total loans Bonus (2011-12) Overdue Sundry Creditors Balance sheet payments Off Balance sheet payments Other Loans X Cold Drinks, Area 1 Classified Agencies, Area 3 Cash Bank Other advances (Oct 12 to June 2013) Secret Enterprises, Area 3  30-Jun-13 11,000 2,205 6,615 63,314 171,265 505,992 77,602 747,741 164,940 53,625 62,000 66,000 15,000 80,000 218,182 37,630 268,906 45,984 150,000 115,000 242,285 240,000 1,343,109 600,000 5,288,395 The Management represented that the following payments were over-due and needed to be cleared off immediately.  However, there could be interest and penalty on certain statutory liabilities which need to be examined and quantified.  Further, it would be advised that dialogue be held with the creditors to be repaid to understand their present and future commitment with the Company as several of them are critical suppliers of raw materials. 500,000 100,000 600,000 1,712,968 4,733,830 6,446,798 948,034 5,837,338 19,120,565 34,006 275,000 65,000 722,000 200,000 36
  • 40. Adjustments to Current Assets and Liabilities Particulars Current Assets Sundry debtors Inventory Loans and advances Deposits Total Current liabilities Sundry creditors Advances from customers Outstanding expenses Net current assets As per balance sheet Adjustments as at 31 Mar 13 11,479,100 1,954,093 8,219,813 640,994 664,200 -6,207,154 -101,015 -6,015,061 -86,423 -4,656 24,798,258 9,321,169 10,852,403 4,624,686 734,448 2,637,501 -2,566,762 663,709 Note Revised numbers 1 2 3 4  5,271,946 1,853,078  2,204,752 554,572 659,544  5 6 7 25,532,705 11,958,669 8,285,641 5,288,395 -20,260,759 Source: MAS analyses Note 1: The Management represented that certain debtors are irrecoverable and would need to be written off. Note 2: The amount of inventory is revalued to the cost price / NRV as at 31 Mar 13, whichever is lower. Note 3: Certain loans and advances were found to be irrecoverable and need to be written off. The Management represented that an amount excess paid for construction in 2011 would be repaid. However, considering the period lapsed we have assumed the amount to be irrecoverable.  Note 4: Comprises FBT payment made which is irrecoverable.  Note 5: Certain sundry creditors and loans off the balance sheet have been added to the amount of sundry creditors.  Note 6: We have assumed the amount of liability to be equal to the WDV of deep freezers, hence excess liability is written off. For details refer slide on insufficient control over deep freezers.  Note 7: The Management represented a higher outstanding liability including some off balance sheet items. Further, there could arise some amount of interest and penalty on the delayed payments of statutory liabilities. However, it would not be possible to quantify the same. 37
  • 41. Other Matters 38
  • 42. Status of Statutory Dues Income Tax  The assessment for FY08 and FY09 has been completed. A refund of Rs. 30,184 is due to be received for FY08. No assessment notice has been received from FY10 onwards, as represented by the Management. In the absence of such assessment orders we cannot comment on any probable liability. Sales Tax Assessment  Area 3 – no assessment notice received till date as represented by Management.  Area 2 – Assessments till FY09 is completed. No assessment orders received from FY 10 onwards as represented by Management.  Area 1 – Assessment completed till FY10. Liability of Rs. 35,634 payable as on date. No assessment orders received from FY11 onwards as represented by Management. Excise duty  The Management represented that excise duty became applicable for the Company from March 2011 as per Amendment to Notification No. 1/2011-C.E.  There was a minor delay in payment of excise duty for the month of December 2012. Interest amounting to approximately Rs. 71 was found to be payable. Service Tax  The Management represented that service tax is payable by the Company when their logistics supplier does not charge service tax in his bill.  There was a minor delay in payment of service tax in FY11. Interest amounting to approximately Rs. 22 was found to be payable, in case a query is raised by the Department. 39
  • 43. Status of Statutory Dues Area 1 VAT  Delays were observed in the payment of whole amount of VAT month on month from FY11. However, it was also observed that the Management was paying such amounts every quarter together with interest on such delayed payments. In certain cases however the interest paid was calculated to be less than the amount found payable. In the absence of the details of month-wise delay in payment of VAT we cannot calculate such liability.  Further, in FY13 there were delays in payment of VAT on which no interest was paid. The amount approximately works out to be Rs. 1,020. Area 3 VAT  In FY11 there were delays observed in payment of VAT. The interest liability could work to approx. Rs, 1,042.  In FY13 there were major delays observed in payment of VAT. There were also some payments made towards interest on such delayed payments. However the total interest liability net of such payments could work out to approx. Rs. 76,270. Area 2 VAT  In FY13 there were significant delays observed in payment of VAT. There were also some payments made towards interest on such delayed payments. However the total interest liability net of such payments could work out to appox. Rs. 14,895. 40
  • 44. Status of Statutory Dues Provident Fund  Delays were observed in the payment of Provident Fund (PF) (employer’s and employees contribution) for the FY11 and FY12 and for employee’s contribution till June 2012. Further, the employer’s contribution was not paid from July 2012 till June 2013 and employees contribution from April – June 13 together amounting to Rs.9,66,306. However, interest on all such delayed payments as mentioned above and admin charges from April – June 2013 have not been considered.  The Management represented that the total amount payable on account of PF was Rs. 9,98,193. ESIC  There were significant delays observed in payment of ESIC in FY11 and FY12. From Jan 13 to June 13 the Company has not paid ESIC amounting to Rs. 2,34,579. Further, interest on all such delayed payments as mentioned above have not been considered.  The Management represented that the total amount payable on account of ESIC was Rs. 2,53,066. 41
  • 45. Other Observations Fixed Assets Register  The fixed assets register was not found to be in the preferred format. Details pertaining to the date of additions to assets, name of supplier, date of purchase, units of purchase, identification codes etc., were not maintained. Considering a large value of the assets of XYZ are with third parties it is important to have a proper documentation of such assets. Physical verification of assets  While we were informed that physical verification of assets was conducted, we were not provided any records. A large value of assets in the form of deep freezers lie with third parties. A physical verification is a requisite at least once a year to check if the value of any deep freezer has diminished. Appropriate action against the distributor could be immediately taken in such cases rather than waiting for the contract period to end. Physical verification of inventories  We were informed that physical verification of inventories was conducted and a segregation between fast moving items and slow moving items was done. However, we were not provided any documents to support this claim. Our checks however did not reveal any significant mismatches. However, going forward, we suggest a thorough process of physical verification and segregation of the stock into fast and slow moving. As 15 on gratuity and leave encashment not complied with  Accounting Standard 15 of the Institute of Chartered Accountants of India (‘ICAI’) requires the Company to make a provision in its books for gratuity and leave encashment payable from the 1st day of the employee joining the organisation. However, in case of XYZ such provisions were done only at times of payment. Considering the high cost of employees and a large number of employees having served a long time in the organisation, the liability payable towards gratuity and leave encashment would need to be calculated and a provision would need to be made into the books. 42
  • 46. Other Observations No agreements for unsecured loans  The shareholders of XYZ have provided unsecured loans to the Company to the tune of INR 1.44 cr. However, there are no agreements in place which define the terms and conditions of such loans. In the absence of such agreements we suggest the Management of EFG to obtain a written statement from XYZ that such loans do not bear any interest or any other form of returns. Finance team requirement  It was observed that while XYZ had a good production and marketing team, it was lacking in the finance department. This was reflective in the way critical records which could help take important decisions were maintained. The Management expressed that no support in terms of financial analyses was ever made available to it. Going forward, we suggest a finance team to be appointed to instill financial discipline in the company. HR review  We suggest the Management of EFG to do an HR review to decide the requirement of the staff going forward. Our analyses shows that the number of staff maintained for administrative / support functions may be in excess of the requirements. IDC lease agreement  The IDC agreement was entered into on 29th April 1999 for a lease period of 30 years. The total plot area was 4,836 sq mts with a permission to built up to 50% of the plot area.  Licence for Foods Safety and Standard Act 2006 has expired on 31 Dec 12 and has been applied for renewal  The annual returns under Payment of Bonus Act Standard of Weight and Measurement Act have not been filed. 43
  • 47. Maximum Production (Variable) Cost per day  Maximum Production Costs per day (Peak Season) Production Process Manpower required Manpower cost Day Shift   Manpower will be working for 8 hours at regular wages and 8 hours at OT wages (double)  All machinery has been assumed to be used. Raw material and Packing Material cost has been taken as the cost of the most produced ice cream  Manpower cost has been arrived at assuming that the most labour intensive ice-cream is being produced.  The output per day (FG ) is assumed as 3,000 units as represented by Management.  The Intermediate mix output per day has been assumed at maximum possible in the 16 hours i.e. 2,000 Litres. Electricity cost Overtime 3.5 8 5 1,157 2,314 3,120 8 Filling & Storage 16 hour workday has been assumed  No. of Hours per batch Preparation of Ageing Mix Ageing 8 1,851 3,703 9,026 2,975 6,096 Total Production Cost per Day Cost of Raw material Cost per batch Raw Material Based on Management representation, following are the assumptions made to arrive at the cost. 13,613 Maximum No. Raw Material of Batches Cost 4 54,451 Cost of Packing Material Packing Material Maximum Cost per day Cost of Packing Material per 30 Maximum No. Packing of Units Material Cost produced 3,000 89,903 159,475 44
  • 48. Projected Profitability Statement 45
  • 49. Projected Profitability Statement Projected Profitability of XYZ Ltd. INR Revenue from operations Total income April-Dec Jan - Mar FY14 FY15 FY16 FY17 FY18 33,249,825.0 20,222,814.9 33,249,825.0 20,222,814.9 53,472,639.9 53,472,639.9 107,520,000.0 107,520,000.0 119,340,000.0 119,340,000.0 133,660,800.0 133,660,800.0 149,700,096.0 149,700,096.0 16,624,912.5 10,111,407.5 26,736,320.0 52,416,000.0 56,723,793.8 61,942,382.8 67,641,082.0 2,992,484.3 1,820,053.3 12,300,136.7 4,510,050.1 2,676,657.5 1,159,666.6 4,453,013.3 1,931,074.5 39,047,204.1 19,532,252.0 -5,797,379.1 690,562.9 -17% 3% 3,503,906.3 1,355,468.8 -9,301,285.4 -664,905.9 983,005.33 566,238.82 -10,284,290.7 -1,231,144.7 -10,284,290.7 -1,231,144.7 -31% -6% 4,812,537.6 16,810,186.8 3,836,324.0 6,384,087.8 58,579,456.1 -5,106,816.2 -10% 4,859,375.1 -9,966,191.2 1,549,244.15 -11,515,435.4 -11,515,435.4 -22% 9,676,800.0 19,331,714.8 4,603,588.8 8,853,581.5 94,881,685.1 12,638,314.9 12% 5,255,468.8 7,382,846.1 2,253,896.96 5,128,949.2 5,128,949.2 5% 10,740,600.0 22,231,472.0 4,833,768.3 9,982,864.8 104,512,498.8 14,827,501.2 12% 4,729,921.9 10,097,579.2 3,176,040.00 6,921,539.2 6,921,539.2 6% 12,029,472.0 25,566,192.8 5,075,456.7 10,482,008.1 115,095,512.3 18,565,287.7 14% 4,256,929.7 14,308,358.0 3,542,011.20 10,766,346.8 10,766,346.8 8% 13,473,008.6 29,401,121.7 5,329,229.5 11,006,108.5 126,850,550.3 22,849,545.7 15% 3,831,236.7 19,018,308.9 3,967,052.54 15,051,256.4 15,051,256.4 10% Expenditure Raw Material and packing material consumed Direct Expenses Employee Benefit Expense Administrative Overheads Sales/Distribution Overheads EBITDA EBITDA % to sales Depreciation EBIT Interest cost PBT Tax PAT 46
  • 50. Inference • Based on our analysis there would entail a significant amount of initial investment to turn around XYZ. Considering that the sales in Q1FY14 have dropped drastically due to negative sentiments in the market, it could well be a challenge to revive the distribution network which is critical to XYZ. • The IRR in the first 5 years would be negative and EFG can expect a payback period of not less than 7-8 years. • The net asset value as on date is very low which does not give much security to EFG in case the expected turn around does not happen. • In addition EFG would also need to pay off past accumulated liabilities and bear losses in the first year together with repayment of unsecured loan to the existing shareholders. • Considering the above the following could be the investment envisaged to be done by EFG: Investment envisaged by EFG INR Investment into the company Investment to clear old dues Investment to clear unsecured loan of shareholders Losses incurred in FY14 Investment to replace old shareholders Total investment FY14 5,000,000 15,311,268 14,378,328 6,656,060 5,061,666 46,407,322 FY15 7,500,000 7,500,000 FY16 FY17 - 1,250,000 1,250,000 FY18 - 47
  • 51. Assumptions for Profitability projections P&L Head Assumption Management Representation MAS Take Sales for FY 14 (April – Dec) Sales for FY 14 have been extrapolated based on the sales achieved upto June and the average percentage these sales have formed in the past years of the total sales. The Management feels that the sales can be improved with the infusion of funds to purchase deep freezers and invest into marketing MAS has considered that it would take at least six months for all takeover formalities to be completed prior to fresh investment into deep freezers/ marketing. Sales for FY 14 (Jan – Mar) Sales for the period have been considered based on the average sale per deep freezer achieved in FY 13. A fresh investment into 200 deep freezers has been considered for this period. - do - MAS has considered that investment into deep freezers would happen in a phased manner of 200 in the last quarter of FY 14, 200 in the first quarter of FY15 and 100 in the Second quarter of FY 15. Sales FY15 Sales for the period have been calculated assuming that each freezer invested into (including old freezers) will generate sales of approximately INR 18K in Q1, 20K in Q2, 22K in Q3 and 22.5K in Q4 Management represented that they generally consider a target of INR 300 per day per deep freezer. The target is a bit aggressive considering the past three years’ data, hence the same has been discounted by INR 14,000 to INR 90,000 which will be achieved gradually by Q4 48
  • 52. Assumptions for Profitability projections P&L Head Assumption Management Representation MAS Take Sales FY16 onwards Sales for FY16 have been assumed to meet the target of INR 90,000 per deep freezer p.a., thereafter increasing at 12% p.a. Management was not able to provide any data on growth rate As per research, the ice cream industry has been growing @ 15% per annum for the last 3 years, additionally, Experts estimate a growth rate of 12% p.a. for the next 5 years. Raw Material Cost For the FY 14, this cost has been assumed to be 50% of the sales. Subsequently a 1-2% drop in costs has been assumed every year. Management represented the cost to be pegged at 45% of sales, Management further represented that through bulk purchase and by introducing “frozen Desserts” the raw material cost could be further reduced to about 40% of sales. Upon analysis and verification through bills, the actual cost was found to be 50% of sales. A drop in prices due to bulk purchases is possible, however the extent could not be verified. MAS has assumed that the cost could be reduced from the present level of 50% to about 45%. Direct Expenses This has been assumed to remain constant at 9% of sales. Management represents that through the introduction of newer machinery, efficiency would increase and hence costs would go down. Since there was no substantial evidence provided to the extent of reduction of costs, the direct costs have been assumed as stable. 49
  • 53. Assumptions for Profitability projections P&L Head Assumption Management Representation MAS Take Employee Benefits Employee Benefits for FY 14 have been considered the same as FY 13 levels. There after an increase of 15% p.a. has been assumed considering the expansion of distribution network Management represented that employee cost would be reduced by at least 20% due to better machinery being introduced. The reduction in employee cost would be offset by the expansion of the distribution network. Considering the number of additions of deep freezers, the strength of the marketing/ distribution team would need to increase. Administrative Expenses These expenses have been considered to remain constant in FY14 and a 15% increase has been considered thereafter N/a N/a Sales and Distribution Expenses This has been assumed to be directly proportional to the number of deep freezers. The numbers have been taken based on historical average. N/a N/a 50
  • 54. Appendix I – Balance Sheet Break-up 51
  • 55. Fixed Assets GROSS BLOCK ASSETS RATE OF OPENING ADDI- DELE- DEPR BALANCE TIONS TIONS DEPRECIATION AS ON 31.03.2013 DEPRECIATION TOTAL TILL DATE NET BLOCK AS ON AS ON 31.03.2013 31.3.2012 TANGABLE ASSETS Lease hold Land 0.00 Air Confitioner 13.91 Factory Building 10.00% Deep Freezers 13.91% Effluent Treatment 13.91% Electrical Installation 13.91% Furniture & Fixture 18.10% Generators 13.91% Handling Equipments 13.91% Laboratory Equipments 13.91% Office Equipments 13.91% Vehicles 30.00% Plant & Machinery 13.91% Computers 40.00% TOTAL 19,99,010 1,10,200 91,63,784 2,18,99,243 14,72,348 57,120 13,81,313 17,35,226 7,56,593 18,36,624 47,26,807 43,996 20,584 4,87,240 1,44,97,451 3,14,142 2,05,91,569 29,307 9,48,229 7,87,336 1,03,810 7,99,92,981 16,49,461 13,19,491 19,99,010 1,10,200 91,63,784 2,33,14,471 13,81,313 17,35,226 7,56,593 18,36,624 47,70,803 20,584 4,87,240 1,41,83,309 1,96,72,647 8,91,146 8,03,22,951 57,885 59,78,202 1,50,28,830 11,05,137 11,56,950 6,25,357 5,81,186 32,80,873 15,271 3,71,407 1,13,69,624 1,37,50,010 7,13,590 5,40,34,322 1,29,845 1,01,799 19,99,010 19,99,010 52,315 60,768 31,85,582 35,39,535 82,85,641 80,93,788 2,76,176 3,20,799 5,78,276 6,71,711 1,31,236 1,60,240 12,55,438 14,58,286 14,89,930 16,85,602 5,313 6,172 1,15,833 1,34,549 28,13,685 41,50,760 59,22,637 77,28,299 1,77,556 1,65,002 2,62,88,629 3,01,74,519 INTANGABLE ASSETS Microsoft Software TOTAL PREVIOUS YEAR 40.00% 1,29,845 8,01,22,826 16,49,461 13,19,491 7,51,13,306 66,80,557 16,71,037 8,04,52,796 8,01,22,826 28,046 46,744 5,41,36,120 2,63,16,675 3,02,21,263 4,99,01,562 3,02,21,263 2,84,79,415 52
  • 56. Advances Receivable Advances Advances to Creditors INR Creditor 1 Creditor 2 Creditor 3 867 348 3 Creditor 4 Creditor 5 151,400 25,000 Creditor 6 Creditor 7 Creditor 8 Creditor 9 Creditor 10 Creditor 11 Sub-total Prepaid Expenses 26 639 15 1,500 84,873 13 264,683 Prepaid Gr. Med. Mktg/Personal Accidental (Dr. Loader) Prepaid Group Insurance(in Lieu Of EDLI Scheme) Prepaid Insurance (P & M / Building) Prepaid Insurance (Vehicles) Prepaid Rates & Taxes Prepaid Membership & Subcription Advances to Staff Total 57,996 37,239 90,654 100,124 2,000 88,298 640,994 53
  • 57. Deposits Deposits Income Tax 08-09 Cylinder Deposit Electricity Deposit Entry Tax ( recoverable agst VAT) Excess MAT paid 2007-2008 ( refund) Fringe Benefit Tax 07-08 ( excess paid) Fixed Deposit ( APMC Bank Guarantee) Deposits Guest House Deposit Input Vat @ 5% (Capital Goods) Input Vat @ 12.5% (Capital Goods) Interest receivable on security deposit Internet Deposit Lease Deposit Mobile Deposit Area 3 Depot Deposit Area 3 Guest House Deposit Money Bank Guarantee Sales Tax Deposit Telephone Deposit Total INR 1,42,758 52,000 4,400 4,644 30,184 4,656 21,120 10,800 40,500 1,38,211 9,363 32,561 700 25,000 16,017 20,000 5,000 75,000 22,936 8,350 6,64,200 54
  • 58. Appendix II – Profit and Loss Account Break-up 55
  • 59. Direct Expenses and Employee Benefit Costs Direct Expenses Particulars Consumable Stores and Spares Generator Diesel Electricity Charges Freight Charges Insurance (Plant and Machinery) Laboratory Consumables Loading and Unloading Loss on Sale of Asset Repairs and Maintenance (Plant and Machinery& Deep Freezer) Printing & Stationery Manufacturing Power & Fuel Total FY13 FY12 % Variance % Variance % to Total % to Total % to Total FY13 over FY12 FY12 over FY11 FY13 FY12 FY11 FY11 4,25,540 4,87,912 6,32,372 5,99,742 26,79,553 2,30,270 42,227 6,23,210 29,33,506 3,71,883 46,819 4,11,011 29,32,228 4,78,412 44,868 17,563 1,450 1,57,327 54,403 7,040 13,116 18,990 14,888 69,310 9,09,430 15,42,158 13,13,525 2,14,245 2,67,862 1,96,672 52,77,346 63,47,909 61,12,275 -13% -4% -9% -38% -23% 52% 0% -22% 1% 1% 5% 0% 1% 1% 5% 1% 1% 1% 5% 1% -10% -68% -79% 1100% 4% 186% -53% -81% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% -41% -20% 17% 36% 2% 0% 2% 0% 2% 0% -17% 4% 0% 9% 0% 10% 0% 10% Employee Benefit Expense Particulars Salaries, Wages & Bonus Provident & Family Pension Fund Employees State Insurance Gratuity Fund Employees Group Insurance Group Medi/Accidental Insurance L.W.F - Employer's Contribution Leave Encashment Staff Welfare Expenses Total FY13 1,19,57,402 8,70,440 3,85,754 2,63,707 1,40,960 1,86,923 17,175 15,263 4,23,404 1,42,61,028 FY12 1,07,61,554 7,84,261 3,60,128 2,61,736 54,341 1,87,144 18,990 41,062 4,11,412 1,28,80,628 FY11 95,28,752 6,90,616 3,07,692 2,18,977 66,905 1,94,465 17,460 19,719 2,90,474 1,13,35,060 % Variance % Variance % to Total % to Total % to Total FY13 over FY12 FY12 over FY11 FY13 FY12 FY11 11% 13% 21% 17% 15% 11% 14% 2% 1% 1% 7% 17% 1% 1% 0% 1% 20% 0% 0% 0% 159% -19% 0% 0% 0% 0% -4% 0% 0% 0% -10% 9% 0% 0% 0% -63% 108% 0% 0% 0% 3% 42% 1% 1% 0% 11% 14% 25% 20% 18% 56
  • 60. Administrative Overheads Other Administrative Overheads FY11 % Variance % Variance % to Total % to Total % to Total FY13 over FY12 FY12 over FY11 FY13 FY12 FY11 -100% 28% 0% 0% 0% -91% 14% 0% 1% 1% -100% 0% 0% 0% -100% 0% 0% 0% 0% 11% 39% 1% 0% 0% 8% 24% 1% 1% 1% -16% -10% 0% 0% 0% -100% 171% 0% 0% 0% -100% -92% 0% 0% 0% -72% -50% 0% 0% 0% 40% -45% 1% 0% 1% -67% -20% 0% 0% 0% 5% 110% 0% 0% 0% 0% 0% 0% 0% 0% -100% -18% 3% 0% 1% 1% -22% 1% 0% 0% 0% -95% -20% 0% 0% 0% 11% -10% 0% 0% 0% -46% 43% 0% 0% 0% Particulars FY13 FY12 Analysis Charges Bonus Books and Periodicals Broker Charges Consultation Charges Conveyance Expenses Entry Tax Fax Charges Garden Material & Expenses General Expenses Guest House Rent goa / Others Guest House Maintenance Hardware Maintenance Charges Lease Rent Legal Fees Mobile Expenses Office Expenses Pooja Expenses Postage and Courier Charges Printing and Stationery Professional Charges, Statutory & Tax Audit Fees Rates & Taxes Rent Pune Depot /Godown Repairs & Maintenance of Land & Building Security Service Charges Service Tax Software Maintenance Charges Subscription & Membership A/c. Telephone Expenses Total 34,675 3,23,000 7,76,934 1,47,808 22,737 2,99,000 17,690 70,479 36,270 15,222 3,81,188 4,000 2,89,736 7,19,777 1,76,249 1,167 1,685 80,868 2,13,108 53,734 67,234 36,270 2,81,236 1,32,303 270 13,245 1,42,092 3,42,022 1,69,373 5,087 11,880 2,62,723 11912 335387 8375 4000 208500 580609 196780 430 21977 160578 384500 66756 32000 36270 3000 332990 168256 6329 13143 183590 55,944 54,062 82777 3% -35% 0% 0% 0% 1,22,439 20,800 67,317 2,79,630 102595 204870 82% -93% -34% 36% 0% 0% 0% 0% 0% 0% 1,567 2,080 175039 -25% -99% 0% 0% 0% 5,31,568 5,673 12,300 1,01,835 31,49,865 5,13,852 7,534 70,200 18,350 1,22,177 39,66,525 415863 9354 64200 12350 148376 39,70,806 3% -25% -100% -33% -17% -21% 24% -19% 9% 49% -18% 0% 1% 0% 0% 0% 0% 5% 1% 0% 0% 0% 0% 6% 1% 0% 0% 0% 0% 6% 57
  • 61. Sales and Distribution Overheads Sales & Distribution Overheads Particulars Advertisement Debit Balance Written Off A/c Discount Paid Excise Duty Lodging & Boarding Insurance of Vehicles Octroi Charges Rates and Taxes of Vehicles Repairs & Maintenance Vehicles/others Sundry Expenses Toll Charges Travelling Expenses Travelling Expenses (TA/DA) Value Added Tax Van Hire Charges Vehicle Maintenance (Diesel/Petrol) Total FY13 2,81,494 40,872 5,15,027 11,38,803 84,307 1,87,776 4,13,066 1,12,964 9,32,141 14,402 91,373 1,73,378 3,40,637 6,12,854 61,350 30,44,578 80,45,023 FY12 12,85,663 84,199 2,38,427 6,21,549 1,14,182 1,47,521 6,86,673 1,13,780 10,84,304 21,546 1,09,615 2,35,020 4,19,484 5,54,321 84,230 34,63,104 92,63,617 FY11 9,18,885 3,105 10,26,596 59,707 84,177 1,49,977 7,30,818 1,33,563 12,58,428 58,432 95,561 1,25,277 3,51,253 7,01,319 48,190 32,73,613 90,18,900 % Variance % Variance % to Total % to Total % to Total FY13 over FY12 FY12 over FY11 FY13 FY12 FY11 -78% 40% 0% 2% 1% -51% 2612% 0% 0% 0% 116% -77% 1% 0% 2% 83% 941% 2% 1% 0% -26% 36% 0% 0% 0% 27% -2% 0% 0% 0% -40% -6% 1% 1% 1% -1% -15% 0% 0% 0% -14% -14% 2% 2% 2% -33% -63% 0% 0% 0% -17% 15% 0% 0% 0% -26% 88% 0% 0% 0% -19% 19% 1% 1% 1% 11% -21% 1% 1% 1% -27% 75% 0% 0% 0% -12% 6% 5% 6% 5% -13% 3% 14% 15% 14% 58
  • 62. Appendix III – Key Employee Details 59
  • 63. Key Employee Details Sr. No. 1 EMPLOYEES NAME MR. K DOJ Designation No of Yrs. of Service Gross salary 14 years 4 months 59,500 1 MRS. L Since inception 9/1/1999 4 MR. M 1/1/2002 Marketing Manager 11Yrs 6 Months 31,000 5 MR. N 3/2/2009 Marketing Manager (Area 2) 4 Yrs 3 Months 29,000 6 MR. O 9/15/2004 Assistant Sales Manager (Area 1) 8 Yrs 9 months 21,000 7 MR. P 6/1/2005 8 Yrs 11,000 8 MRS. Q 13Yrs 6 Months 14,300 9 MR. R 12/1/2011 Production Manager 1 Year 6 Months 22,000 10 MR. S 1/12/2012 Maintenance Manager 25,000 11 MR. T 1 Year 5 Months 8 months Managing Director Manager - Accounts 13Yrs 10 Months 30,000 Assistant Sales Manager (Area 1) 12/10/1999 Market Coordinator 10/16/2012 Assistant Sales Manager (Area 1) 15,000 60
  • 64. Appendix IV – Insurance Cover 61
  • 65. Insurance Cover Sr. No. Description of Assets Sum Insured Policy Premium 1 Building 62,00,000 2 Compund Wall 3,60,000 3 Plant and Machinery 1,73,83,000 4 Boiler 1,68,000 5 Homogenizer 4,80,000 6 Addition to Boiler 66,000 7 Continious Freezer 11,30,000 8 Harding Tunnel 20,00,000 9 Furniture, Fixtures and Fittings 12,00,000 10 Stock of Row Material, Packing Materials, Finished Goods and Stock in Process 46,00,000 TOTAL 3,35,87,000 40,333 62
  • 66. Appendix V – Secured Loans Details 63
  • 67. Secured Loan Details 64
  • 68. Appendix VI – Ageing of Debtors 65
  • 69. Ageing of Debtors SUNDRY DEBTORS Debtor 1 Debtor 2 Debtor 3 Debtor 4 Debtor 5 Debtor 6 Debtor 7 Debtor 8 Debtor 9 Debtor 10 Debtor 11 Debtor 12 Debtor 13 Debtor 14 Debtor 15 Debtor 16 Debtor 17 Debtor 18 Debtor 19 Debtor 20 Debtor 21 Debtor 22 Debtor 23 Debtor 24 Debtor 25 Debtor 26 Debtor 27 Debtor 28 Debtor 29 Debtor 30 Debtor 31 Debtor 32 Debtor 33 Debtor 34 Debtor 35 Debtor 36 Debtor 37 Debtor 38 Debtor 39 Debtor 40 Debtor 41 Debtor 42 Debtor 43 Debtor 44 Debtor 45 <6 MONTHS >6 MONTHS 57,959 14,273 2,553 1,414 22,148 3,026 1,514 970 4,394 1,157 2,661 696 1,459 5,215 1,096 1,876 1,259 798 3,514 4,521 509 566 2,603 3,476 803 1,694 2,072 3,384 4,667 6,206 1,033 562 8,770 6,308 2,231 574 1,767 5,508 202,575 528 244 638 3,755 134,560 1,617 TOTAL 57,959 14,273 2,553 1,414 22,148 3,026 1,514 970 4,394 1,157 2,661 696 1,459 5,215 1,096 1,876 1,259 798 3,514 4,521 509 566 2,603 3,476 803 1,694 2,072 3,384 4,667 6,206 1,033 562 8,770 6,308 2,231 574 1,767 5,508 202,575 528 244 638 3,755 134,560 1,617 SUNDRY DEBTORS Debtor 46 Debtor 47 Debtor 48 Debtor 49 Debtor 50 Debtor 51 Debtor 52 Debtor 53 Debtor 54 Debtor 55 Debtor 56 Debtor 57 Debtor 58 Debtor 59 Debtor 60 Debtor 61 Debtor 62 Debtor 63 Debtor 64 Debtor 65 Debtor 66 Debtor 67 Debtor 68 Debtor 69 Debtor 70 Debtor 71 Debtor 72 Debtor 73 Debtor 74 Debtor 75 Debtor 76 Debtor 77 Debtor 78 Debtor 79 Debtor 80 Debtor 81 Debtor 82 Debtor 83 Debtor 84 Debtor 85 Debtor 86 Debtor 87 Debtor 88 Debtor 89 Debtor 90 Debtor 91 <6 MONTHS >6 MONTHS 1,700 1,387 595 125,149 6,219 508 1,297 388 4,162 949 72,091 570 552 1,310 200 2,419 481 991 2,313 5,141 484 1,163 2,306 1,620 339 1,032 884 1,471 4,632 884 3,000 3,380 3,149 13,660 1,240 62,039 2 3,672 1,339 3,315 1,390 4,502 1,586 2,272 6,247 2,862 TOTAL 1,700 1,387 595 125,149 6,219 508 1,297 388 4,162 949 72,091 570 552 1,310 200 2,419 481 991 2,313 5,141 484 1,163 2,306 1,620 339 1,032 884 1,471 4,632 884 3,000 3,380 3,149 13,660 1,240 62,039 2 3,672 1,339 3,315 1,390 4,502 1,586 2,272 6,247 2,862 SUNDRY DEBTORS Debtor 92 Debtor 93 Debtor 94 Debtor 95 Debtor 96 Debtor 97 Debtor 98 Debtor 99 Debtor 100 Debtor 101 Debtor 102 Debtor 103 Debtor 104 Debtor 105 Debtor 106 Debtor 107 Debtor 108 Debtor 109 Debtor 110 Debtor 111 Debtor 112 Debtor 113 Debtor 114 Debtor 115 Debtor 116 Debtor 117 Debtor 118 Debtor 119 Debtor 120 Debtor 121 Debtor 122 Debtor 123 Debtor 124 Debtor 125 Debtor 126 Debtor 127 Debtor 128 Debtor 129 Debtor 130 Debtor 131 Debtor 132 Debtor 133 Debtor 134 Debtor 135 Debtor 136 TOTAL <6 MONTHS >6 MONTHS 1,605 1,079 137,334 700 23,150 4,927 1,538 499 1,261 10,734 108,157 398 1,225 1,491 5,220 1,494 1 2,383 795 1 3,557 1,300 1,140 3,181 2,949 259,696 5,408 798 2,566 3,948 4,998 803 10,497 1,888 156,776 3,755 2,167 7,459 12,020 61,187 657 764 3,877 2,863 824 1,781,586 172,507 TOTAL 1,605 1,079 137,334 700 23,150 4,927 1,538 499 1,261 10,734 108,157 398 1,225 1,491 5,220 1,494 1 2,383 795 1 3,557 1,300 1,140 3,181 2,949 259,696 5,408 798 2,566 3,948 4,998 803 10,497 1,888 156,776 3,755 2,167 7,459 12,020 61,187 657 764 3,877 2,863 824 1,954,093 66