a project report on comparative study on performance of differnet industreis on the basis of balance...

INDUSTRIES IN INDIA

In this section of Major Industries in India we will discuss about the leading market industries and industries products. We will discuss in detials about textiles industry, chemicals industry, food processing industry, steel industry, cement industry, mining, petroleum and software.

According to some experts, it is said that the share of the US in the world GDP is expected to fall, from 21% to 18%, and the share of India in 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 global economy.

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 of employment.

The following discusses about the major industries in India and also major export industry:

LIST OF MAJOR INDUSTRIES IN INDIA

Textiles

The Indian textile industry covers a wide gamut of activities. Its production ranges from raw materials such as cotton, jute, silk and wool to a high value-added products like fabrics and garments to consumers. The industry make use of different varieties of fibres, be it natural fibres, man made fibres or blends of such fibres.

In Indian economy, the textile industry plays a significant role. It provides direct employment to approximately 35 million people and contributes 4 per cent of GDP. It fetches 35 per cent of gross export

earnings and contributes 14 per cent of the value-addition in the manufacturing sector.

ChemicalsThe chemical industry in India is one of the oldest domestic industries and it currently produces nearly 70,000 commercial products, from cosmetics and toiletries, to plastics and pesticides. The country is the 13th largest exporter of pesticides and disinfectants globally. In terms of volume, it figures 12th largest producer of chemicals. The petrochemical, agrochemical, and pharmaceutical industries are some of the fastest growing sectors in the Indian economy.

The estimated worth of chemical industry is $28 billion and it accounts for 12.5 per cent of the total industrial production of India and 16.2 per cent of the its total exports.

Food ProcessingIndia is one of the major food producing country in the world but accounts less than 1.5 per cent of international food trade. Hence, there is a vast scope for the expansion of this industry. The food processing industry is estimated (2004) at Rs 3,150 bn (US$ 70 bn), including value added products of Rs 990 bn (US$ 22bn). The estimated growth of this industry is 9-12% and on the basis of estimated 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 37 mn, 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 a growth of 4 per cent and reached 28.3 million tonnes. In the world scenario, Indian steel industry ranks 10th. It represents approximately Rs. 9,000 crore of capital and provides direct employment to more than 0.5 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 and over 300 mini cement plants having total installed capacity of 148.28 million tonnes and 11.10 million tonnes per annum respectively. In addition to this, there are 10 large cement plants owned by various State Governments. So, the total installed capacity of the country as a whole 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 India's GDP is from 2.2% to 2/5% only but it contributes to 10-11% in industrial sector's GDP. The organised mining sector employs nearly 0.7 million people. Small scale mining approximately contributes to 6% of the total value of mineral production.

PetroleumThe petroleum industry in India is one of the oldest industry in the world, with oil being struck as early as 1867 at Makum near Margherita in Assam, nine years after Col. Drake's discovery in Titusville. Since then the industry has come a long way. Today, after over fifty years of independence, the oil sector, has seen the growth of giant national companies, like ONGC. India represents one of the most exciting oil markets in the world today.

Major Players in integrated refining and marketing are HPCL, BPCL and IOC.

SoftwareThe software industry in India symbolizes India's strength in the knowledge based economy. It has witnessed a phenomenal growth in last decade. The Compounded Annual Growth Rate (CAGR) is 42.3%. According to NASSCOM's projection, the software industries contribution is expected to grow to 7% by 2008 which started with 0.59% in 1994-95 and reached to 2.87% by 2001-02.

INTRODUCTION OF COMPANIES IN DIFFERNET INDUSTREIS ggh

top 10 cement companies in India:

1. ACC Limited2. Ambuja Cements Limited3. UltraTech Cement Limited4. India Cement Limited5. Shree Cement Limited6. Rain Cement Limited7. Prism Cement Limited8. Madras Cement Limited9. Birla Cement Limited10.JK Cement Limited

Comparasion between ACC Ltd. and Ambuja Cement Ltd.

ACCLTDACC is the oldest cement manufacturer in the country. ACC's 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.

AMBUJACEMENTAmbuja 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.

EQUITY SHARE DATA

ACC LTD AMBUJA

CEMENTACC LTD/

31/12/2011 31/12/2011 AMBUJA

CEMENT

High 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%

Avg Mkt CapRs m

201,831 213,277 94.6%

No. of employees `000 9 0 -

Total wages/salaryRs m

5,656 4,359 129.8%

Avg. sales/employeeRs Th

11,086.6 20.0 55,433.0%

Avg. wages/employeeRs Th

626.3 21.0 2,982.3%

Avg. net profit/employeeRs Th

1,440.4 22.0 6,547.1%

INCOME DATA

Net 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 (Exp)

Rs m 0 -243 0.0%

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%

BALANCE SHEET DATA

Current assets Rs m 36,761 38,389 95.8%

Current liabilities Rs m 38,006 27,100 140.2%

Net working cap to sales

% -1.2 13.2 -9.4%

Current 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 Months

Year Ending

12 31/12/2009

12 31/12/2010

12 31/12/2011

Net Sales Rs m 84,796 82,606 100,123

Sales Growth % - -2.6 21.2

Gross profit margin % 29.1 18.7 17.1

PAT Rs m 15,639 10,775 13,008

PAT Growth % - -31.1 20.7

Dividend per share Rs 23.00 30.50 28.00

Dividend payout % 27.6 53.1 40.4

RoCE % 36.6 21.7 21.5

RoNW % 26.7 17.2 18.7

Debt to equity ratio x 0.1 0.1 0.1

Mkt Cap Rs m 131,136 172,073 201,831

Mkt Cap / Sales x 1.4 1.9 1.8

PERFORMANCE OF ACC AND AMBUJA CEMENT

Cement: Cautious optimism

If the mood in the stock market is any indication, cement stocks seem to be back on

the average investor's radar. And why not! Cement is one industry that has grown

consistently at around 8% in the past decade and still shows no signs of slowing

down. In fact, if one were to consider the low per capita consumption of cement in the

country, there is still a lot of potential for the industry to capitalise on. In this article,

we try to compare some key parameters of four major cement companies in the

country and also try and throw some 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 Projections

ACC

Although ACC's performance was far from impressive in FY03, where bottomline

dropped 30%, one cannot afford to ignore a company that has a pan India presence

and boasts of the largest distribution network in the country. Moreover, in the last six

years, ACC has modernized to world standards, almost 50% of its capacity and has

also raised capacity from 7 to 16 m tonnes. This will definitely help the company in

improving its operating efficiencies and as a result any improvement in the prices will

directly benefit earnings. Therefore, going forward, we expect the company's

bottomline to improve substantially on the back of improved efficiencies as well as

sales realisations. The stock is currently trading at Rs 220, a P/E of 24x its projected

FY04 earnings. Although we expect the company to grow, the growth is not expected

to be high enough to justify such high valuations.

Gujarat Ambuja

In the year, when all other cement majors reported a drop in their earnings on

account of poor sales realisations, Gujarat Ambuja managed to improve its

bottomline by almost 20%. This, more than anything else, underlines the resilience of

the 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, and

as a result, is in a better position to absorb fall in prices. Gujarat Ambuja, due to

better brand recognition and awareness, also enjoys higher realisations for its

cement, despite cement being a commodity. This also to a large extent helped the

company weather the fall in realisation in the last two years. Moreover, its locational

advantages enable it to export the surplus production making sure that its capacities

are effectively utilised and hence give it the benefits of economies of scale.

As far as the future performance is concerned, we expect Gujarat Ambuja's operating

margins to decrease marginally, due to lower projected volume growth. The company

might also face increased competition in its major market, i.e. the western region,

particularly from Grasim who, after the acquisition of L&T's cement division, has

gained an entry in the lucrative western market. Notwithstanding these minor

glitches, Gujarat Ambuja's fundamentals still look strong and the company is well

placed to benefit from the growth in the industry. The stock is currently trading at Rs

238 a P/E of 13x its projected FY04 earnings. Gujarat Ambuja is the most cost

efficient player in the industry and therefore should command a superior valuation

than most of its competitors in the industry

AUTOMOBILE INDUSTRIES

Top Automobile Companies in India

Starting from the era when there was too slim of a variety of cars available in Indian market, Indian automobile industry has come up a long way to have a diverse array of cars these days. There are a number of top automobile companies running their operations in India, which again have a range of models in different segments of cars. However, while looking for top 10 automobile companies in India, one name that would always lead the list is Maruti Suzuki India. Maruti Suzuki has consistently been the dominant leader in the Indian automobile industry. However, there are also other big names like Tata Motors, Mahindra and Mahindra, Hyundai Motors, Hindustan Motors etc.

During its early days, the most of the Indian car auto manufacturers banked upon foreign technologies. But the scenario has changed over the years and currently, the Indian auto manufacturers are using their own technology. Due to the growing pace of Indian automobile market, a number of car manufacturers including the global leaders have locked their horns in the Indian auto market.

After the recent setback due to the global recession, the Indian automobile market has again started to grow up. Though the auto sales except commercial vehicles started creeping up since the beginning of this financial year, it's only the month of September 2009 when the market saw buoyant sales. It fuelled optimism in the industry. The retail trade also started soaring up. The auto sales saw a 9.6% rise in the month of September with a sale of 1,092,262 units. The passenger vehicle sales also grew by 20.32%. The two wheeler market was also augmented by 7.67% during the same period with a total sale of 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 same period.

List of Top Automobile Companies in India, 2011(Figures in ` Crores)

2011 ET 500 Rank

Company Turnover PATMCRP CR

Assets

7 Tata Motors Ltd. 123222.91 9273.62 56499.77 52209.48

21Mahindra & Mahindra Ltd.

37026.37 3079.73 49945.17 36926.19

19Maruti Suzuki India Ltd.

38140.69 2382.37 31475.63 14762.9

41Hero MotoCorp Ltd.

19669.29 1927.9 40398.63 4447.22

46 Bajaj Auto Ltd. 17008.05 3454.89 46885.69 5154.96

67Ashok Leyland Ltd.

11133.04 631.3 6653.15 6621.16

101Sundaram Clayton Ltd.

7419.41 64.63 529.23 2428.87

110TVS Motor Company Ltd.

6569.99 127.94 2985 1745.06

148 Eicher Motors Ltd. 5138.64 243.12 4448.27 474.14

396 Force Motors Ltd. 1574.05 58.62 730.05 583.79

Tata Motors

Tata Motors is the largest automobile company of Asia headquartered in Mumbai, India. Annual Projected revenue for 2010-11 is US$ 27.629 billion. It also occupies the number one position in commercial car segment. Tata Motors enjoys 31.2% of market share in the multi-utility vehicles, which in luxury car segment, it has 6.4% market share. Most of the Tata Motors' vehicles are sold predominantly in India and over 4 million vehicles have been produced domestically within India.

Tata sold 52,531 units of vehicles during September 2009, comparing to 49,647 units during September 2008 (a growth of 6%). In domestic market, Tata Motors sold 49,650 units during the same period, comparing to 45,234 units in September 2008.

Mahindra & Mahindra Limited (M&M)

Mahindra &Mahindra Limited is another auto-giant in India. A part of the Mahindra Group, M&M is the largest SUV maker in the country. In September 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%). On the other hand, it sold 15,296 units of UV in the same period comparing to 10,641 units in September 2008 (with a whooping growth of 43.7%).

COMPARATIVE STUDY OF TATA MOTORS AND MAHINDRA AND MAHINDRA

TATA MOTORS

Tata Motors is India's largest CV manufacturer, with an overall domestic market share of 61.8% in FY11 and the second largest producer of passenger vehicles (13% in FY11). In 2008, the company acquired two iconic brands, 'Jaguar' and 'Land Rover' from Ford for a total consideration of US$ 2.3 bn and this is likely to transform it into a global player in the passenger vehicles space. It is also credited with the launching of 'Nano', the world's cheapest car till date. Tata Motors is also the first company in the Indian automobile sector to be listed on the New York Stock Exchange.

M&M

Mahindra & Mahindra (M&M) is engaged in the manufacture of UVs, tractors, light commercial vehicles (LCVs) and three-wheelers. While automotive division comprising UVs, LCVs and three-wheelers contributed to 60% of FY11 revenues, farm equipment division accounted for 31% of revenues. Through investment in its subsidiaries, M&M has interests in sectors like software, hotels, real estate and financial services. While the company had a 61% market share in the UV segment in FY11, it had a 42% share in the tractor market.

EQUITY SHARE DATA

TATA

MOTORS

M&M TATA MOTOR

S/

31/3/20

1231/3/20

12M&M

High Rs 289 875 33.0%

Low Rs 140 617 22.7%

Sales per share Rs 522.0 1,008.7 51.7%






Shares outstanding (eoy)

m3,173.5

4589.03 538.8%


FV2,BC ESOP -


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%


Avg Mkt CapRs m

680,724 439,416 154.9%

No. of employees`00

029 18 163.7%


122,985 65,909 186.6%


56,698.0

33,292.8

170.3%


4,209.4 3,693.0 114.0%

Avg. net profit/employee

Rs Th

4,626.2 1,751.9 264.1%

INCOME DATA

Net SalesRs m

1,656,545 594,176 278.8%

Other incomeRs m

6,618 3,130 211.4%

Total revenuesRs m

1,663,163 597,306 278.4%

Gross profitRs m

217,586 76,088 286.0%

DepreciationRs m

56,254 18,017 312.2%

InterestRs m

24,047 17,499 137.4%

Profit before taxRs m

143,903 43,702 329.3%

Minority InterestRs m

-823 667 -123.4%

Prior Period Items

Rs m

0 0 -


Rs m

-8,315 973 -854.6%

TaxRs m

-400 14,076 -2.8%

Profit after taxRs m

135,165 31,266 432.3%

Gross profit margin

% 13.1 12.8 102.6%

Effective tax rate

% -0.3 32.2 -0.9%

Net profit margin

% 8.2 5.3 155.1%

BALANCE SHEET DATA




% -5.3 12.0 -44.5%


Inventory Turnover

Days 40 44 91.3%





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%


Debt to equity ratio

x 0.8 1.0 88.2%

Sales to assets ratio

x 1.2 0.9 126.2%






Net fx Rs m -324 6,840 -4.7%

TATA MOTORS Financial Summary

No. of Mont

hsYear

Endin

12 31/03/20

10

12 31/03/20

11

12 31/03/20

12

g

Net Sales Rs m 918,9341,221,27

91,656,54

5

Sales Growth % - 32.9 35.6

Gross profit margin

% 7.9 13.7 13.1

PAT Rs m 25,710 92,736 135,165

PAT Growth % - 260.7 45.8

Dividend per share

Rs 15.00 20.00 4.00

Dividend payout

% 33.3 13.7 9.4

RoCE % 16.1 41.0 26.0

RoNW % 31.6 48.5 40.8

Debt to equity ratio

x 3.3 0.6 0.8

Mkt Cap Rs m 287,277 650,793 680,724

Mkt Cap / Sales x 0.3 0.5 0.4

MAHINDRA FINANCE Financial Summary

No. of

Months

Year Endi

ng

12 31/03/20

09

12 31/03/20

10

12 31/03/20

11

Interest Income Rs m 13,817 15,612 20,435

Interest Income Growth

% - 13.0 30.9

Net Interest Income

Rs m 8,815 10,684 13,890

Net Interest Margin

% 12.7 11.7 10.4

Gross profit margin

% 43.9 47.2 43.6

PAT Rs m 2,196 3,558 4,927

PAT Growth % - 62.0 38.5

Dividend per share

Rs 5.50 7.50 10.00

Dividend payout % 24.3 20.4 21.1

RoA % 3.0 3.8 3.9

RoNW % 15.2 20.6 19.6

TAXTILE INDUSTREIS IN INDIA

1. Arvind Mills2. Raymonds3. Reliance Textiles4. Bombay Dyeing Ltd5. Grasim Industrie

Arvind Mills: A review

Arvind Mills is the flagship company of the Lalbhai Group. It is world’s third largest

and India’s largest denim

producer and commands 70%

domestic market share with 120 m meters of denim rolling out every year. The

company is also into knitting and shirting. Apart from textiles, Arvind Mills has

presence in ready-to-wear, agrochemical and 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% as

compared to 4% in the global market. Internationally, this segment faces competition

from China, Indonesia and Hong Kong. In India, Arvind rules the market as small

denim manufacturers suffer from financial and capacity limitations.

Shirting contributed to around 22% to FY03 revenues. Domestically, the division

faces competition from the lower end of the market. The company expects shirting

business volumes to increase, as the global shirting business is growing at around

6% whereas domestically, this segment is growing at around 25%. Arvind Mills is

focusing on HVCS (High Value Cotton Shirting) because it commands premium in

both domestic and international markets. The major consumers of HVCS are

countries like Europe, Japan and US. But due to quota restrictions applied by

European and US markets, the company is not able to cash the opportunity.

However, prospects for this segment looks better post 2005. Arvind Mills is also

targeting key brands that are expected to improve its orderbook position and

margins.

The company has presence in the garments segment through its subsidiary. Garment

is a growth area and has low capital requirement but high value addition. The

industry is labour intensive, so the company has the opportunity to take advantage as

it has access to cheap labour.

Knitting is another key growth area for the company, as demand in the domestic and

international markets are expected to grow by 15% and 5% respectively in medium

term. The company is already supplying to domestic majors Wills and Madura

Garments. Domestically, this segment faces competition largely from unorganised

and regional players.

Raw material cost as percentage of net sales is expected to go down from the current

level of 25% because of good cotton crop this year. Debt restructuring is expected to

improve net profit margin (8.7% in FY03). To put things in perspective, interest cost

was lower by 22% YoY, in 1QFY04. However, rupee appreciation as against US

dollar can affect the margins, because company earns more than 50% revenues from

exports. 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 FY03

earnings. The phasing out of the MFA (multi fiber arrangement) in 2005 would

provide Indian majors like Arvind Mills an opportunity to improve access to major

textile-consuming markets based in the Europe and US. However, concerns

regarding the sustainability of strength in denim prices and the past track record

remain intact

Comparison Result ARVIND LTD

Arvind Mills is India's 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 Venture's stake in Arvind Brands. Poor performance of the denim division and forex losses has eroded the company's bottomline over the past couple of quarters.

RAYMONDRaymond is India's largest and world's 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.

EQUITY SHARE DATA

ARVIND

LTDRAYMOND ARVIND

LTD/

31/3/2011 31/3/2012 RAYMOND

High Rs 75 430 17.4%

Low Rs 30 300 10.0%







Shares outstanding (eoy) m 254.40 61.38 414.5%


ESOS - -


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%


Avg Mkt CapRs m

13,356 22,404 59.6%

No. of employees `000 0 0 -


3,948 4,754 83.0%


20.0 20.0 100.0%


21.0 21.0 100.0%

Avg. net profit/employeeRs Th

22.0 22.0 100.0%

INCOME DATA

Net Sales Rs m 40,212 36,129 111.3%

Other income Rs m 247 1,002 24.7%


Gross profit Rs m 5,077 4,135 122.8%


Interest Rs m 2,142 1,405 152.5%


Minority Interest Rs m -5 -12 41.7%

Prior Period Items Rs m 0 -1 0.0%


Rs m 301 109 276.1%

Tax Rs m 105 613 17.1%



Effective tax rate % 7.2 29.6 24.4%


BALANCE SHEET DATA




% 30.2 15.1 200.0%





Share capital Rs m 2,544 614 414.3%


Net worth Rs m 16,941 13,623 124.4%


Total assets Rs m 50,081 39,849 125.7%


Debt to equity ratio x 0.7 0.6 108.3%







Net fx Rs m 9,065 -1,606 -564.4%

INDIAN TELECOM INDUSTRY

At 861.48 million connections in April 2011' Indian Telecom Industry' is the third largest and fastest growing in the world. According to Cellular Operators' Association of India (COAI), the GSM cellular subscriber base has reached to 590.19 million in May 2011 from 580.66 million at the end of April 2011. There were 826.93 million total wireless subscribers (including GSM and CDMA) in the country at the end of April 2011. As per projections, wireless telephony will continue to fuel growth in the Indian telecom industry with mobile subscribers base in India is expected to reach 1.159 billion by 2013.

The wireless technologies currently in use in ' Indian Telecom Industry ' are Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). There are primarily 11 GSM and 5 CDMA operators providing mobile services in 22 telecommunication circles, covering more than 2000 towns and cities across the country. Among leading mobile operators in India include Bharti Telecom with 19.88% market share, followed by Reliance with 16.80%, Vodafone with 16.59%, Idea Cellular with 11.16%, state owned BSNL with 11.05%, TATA with 10.8%, Aircel with 6.79%, and all others accounting for just about 6.93% of market share.

Over the last 5 years, nine out of every ten new telephone connections have been wireless. Consequently, wireless now accounts over 95% of the total telephone subscriber base, as compared to only 40% in 2003. And the numbers are still growing for 'Indian Telecom Industry '. ' Telecom Industry in India ' is regulated by 'Telecom Regulatory Authority of India' (TRAI). It has earned good reputation for transparency 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 Tata Teleservices.

Foreign invested companies like - Hutchison-Essar, Bharti Tele-Ventures, Escotel, Idea Cellular, BPL Mobile, Spice Communications etc.

The ' Indian Telecom Industry ' services is not confined to basic telephone but it also extends to internet, broadband (both wireless and 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 make inroads and achieving break-even is difficult.

Huge initial investments.

Limited spectrum availability and interconnection charges between the private and state operators.

The Government Broadband Policy 2004, had a target to create 9 million broadband connections and 18 million internet connections in 2007. Broadband subscription reached 12.01 million in April 2011.' Indian Telecom Industry ' is currently expected to contribute nearly 1% to India's GDP which is heartening and estimated to grow further and brighten the ' Scenario of Indian Telecom Industry '.

The Communication Industry in India is one of the fastest developing sectors in the country and is estimated to become the second biggest international telecom market in the next few years. As per the report published by the Telecom Regulatory Authority of India (TRAI), the total number of telephone users in India crossed 806.13 million in January 2011 as compared to 787.28 million in the previous year during the same period. The Indian communication industry has thereby registered a growth of 2.39 %. The wireless telephone subscribers touched 771.18 million in January 2011 as against 752.19 million during the same period in 2010.

The growth in communication industry was triggered by an increase in the revenues generated from both landline and mobile facilities. As per the Business Monitor International report, the nation is all set to include 8 to 10 million cellular phone subscribers on monthly basis. At this pace the communication industry is expected to encompass more than half of India's population i.e. 612 million cellular phone subscribers by mid 2012.

In addition, as per a research carried out by Nokia, the communications sector is estimated to surface as the biggest driving

component in India's GDP with a contribution of about 15.4% by the FY2014.

Key Players in Indian Communication Industry

With the coming in of several new players the level of competition has 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 of India of September 30, 2010, it is Bharti Airtel that is leading the communication sector in India with 20.8 per cent market share, followed by Reliance Communication which holds 17.1 per cent market share, Vodafone with 16.8 per cent market share, BSNL with 11.4 per cent market share, Tata with11.5 per cent, Idea with 10.8 per cent and Aircel holding 6.8 per cent. The remaining market share is held by the other small players that are relatively new in the industry.

Revenue and Profit of Top Company for year 2010

Company Revenue Profit

Bharti Airtel $9.290 billion $2.079 billion

Reliance $ 45.25 billion $ 99 million

BSNL 32,045 crore 78.06 crores

Tata Communications 11,025.56 crore 538.80 crore

India as an emerging Value-Added Services Market

As per a research conducted by KPMG, the Indian mobile value-added services (MVAS) reached US$ 2.45 billion in FY December 2010. Value-Added Services account for almost 10 percent of the total revenues earned by the wireless industry. Furthermore the revenues earned by VAS are going to increase by almost 12-13 per cent by the end of 2011. To benefit from the emerging MVAS

market in India, Reliance Communications and Bharti Airtel Limited are all set to introduce online cellular phone applications in Indian retail stores.

India as an emerging telecom equipment manufacturing Market

The manufacturing of Cellular phone in India is predicted to expand at an annual rate of 28.3% till the FY 2011. The production would automatically generate profits and is predicted to increase at an annual rate of 26.6% till 2011, reaching the target of USD13.7 billion.

Chief Investments in the Communication Industry in India

Over the past one decade, the flourishing Indian Communication industry has been successful in drawing the attention of conglomerates that have invested and are willing to invest more in the 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 Result

BHARTI AIRTELBharti Airtel is the largest mobile telephony operator in the GSM space with 22% share of the Indian wireless market (as at the end of June 2010). The company, apart from being the largest player in the mobile segment with subscribers in all the 22- telecom circles of the country, also provides varied services like fixed line, broadband and retail internet access. Bharti's network spans over 440,023 non-census towns and villages in India. During the period FY05 to FY10, the company grew its sales and profits at compounded annual rates of 39% and 50% respectively.

RELIANCE COMMUNICATIONSReliance Communication Ltd. (RCL) is the second largest private sector mobile telephone operator in India with a wireless (CDMA and GSM) subscriber base of nearly 50 m. The business of the company is spread across three segments - Global, Enterprise and Personal. The 'Global' business caters to voice and data market. In the voice market, RCL is the carrier of national and international voice traffic for telecom operators, telecom service providers and its internal customers. The data business owns the largest private submarine cable system in the world, which carries data across six continents. The 'Enterprise' segment serves 750 of the top 1,000 enterprises in India, by offering a wide array of products that comprise of voice, data, Internet, and IT infrastructure management services. The 'Personal' segment offers voice, data and value added services for the individual consumers and enterprises, via its CDMA and GSM-based mobile and fixed wireless services.

EQUITY SHARE DATA

BHARTI AIRTEL

RELIANCE COMMUNICATIO

BHARTI AIRTEL/

NS

31/3/20

1131/3/2011 RELIANCE

COMMUNICATIONS

High Rs 373 205 182.0%

Low Rs 257 75 342.7%







Shares outstanding (eoy)

m3,797.5

32,064.03 184.0%


- - -


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%


Avg Mkt CapRs m

1,196,222

288,964 414.0%

No. of employees`00

023 28 83.3%


32,784 14,757 222.2%


25,444.9

7,992.3 318.4%


1,402.8 525.8 266.8%

Avg. net profit/employee

Rs Th

3,066.7 479.5 639.6%

INCOME DATA

Net Sales Rs m 594,672 224,304 265.1%

Other income Rs m 4,882 6,214 78.6%


Gross profit Rs m 199,315 83,943 237.4%


Interest Rs m 25,349 10,163 249.4%


Minority Interest Rs m 0 -1,503 0.0%

Prior Period Items Rs m 0 0 -


Rs m 12,681 121 10,480.2%

Tax Rs m 17,790 118 15,076.3%



Effective tax rate % 23.2 0.8 2,936.6%


BALANCE SHEET DATA




% -43.3 11.2 -388.3%







Net worth Rs m 487,668 404,992 120.4%


Total assets Rs m 1,420,003 947,227 149.9%


Debt to equity ratio x 1.1 0.5 203.8%





Exports to sales % 0.0 0.0 -


Net fx Rs m -20,574 -13,397 153.6%

BANKING INDUSTRY IN INDIA

The growth in the Indian Banking Industry has been more qualitative than quantitative and it is expected to remain the same in the coming years. Based on the projections made in the "India Vision 2020" prepared by the Planning Commission and the Draft 10th Plan, the report forecasts that the pace of expansion in the balance-sheets of banks is likely to decelerate.

The total assets of all scheduled commercial banks by end-March 2010 is estimated at ` 40,90,000 crores. That will comprise about 65 per cent of GDP at current market prices as compared to 67 per cent in 2002-03. Bank assets are expected to grow at an annual composite rate of 13.4 per cent during the rest of the decade as against the growth rate of 16.7 per cent that existed between 1994-95 and 2002-03. It is expected that there will be large additions to the capital base and reserves on the liability side.

The Indian Banking Industry can be categorized into non-scheduled banks and scheduled banks. Scheduled banks constitute of commercial banks and co-operative

banks. There are about 67,000 branches of Scheduled banks spread across India. As far as the present scenario is concerned the Banking Industry in India is going through a transitional phase.

The Public Sector Banks(PSBs), which are the base of the Banking sector in India account 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 Private Sector Banks are making tremendous progress. They are leaders in Internet banking, mobile banking, phone banking, ATMs. As far as foreign banks are concerned they are likely to succeed in the Indian Banking Industry.

In the Indian Banking Industry some of the Private Sector Banks operating are IDBI Bank,ING Vyasa Bank, SBI Commercial and International Bank Ltd, Bank of Rajasthan Ltd. 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 banks operating in the Indian Banking Industry

TOP BANKS IN INDIA

1. SBI 2. HDFC 3. AXIS 4. BANK OF INDIA5. PNB 6. BANK OF BARODA7. ICICI BANK 8. UNION BANK OF INDIA9. CITY BANK 10. CANARA BANK

ICICI BANK

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ICICI Bank is the largest private sector bank in India in terms of market capitalization. It is also the second largest bank in India in terms of assets with a total asset of ` 3,674.19 billion (US$ 77 billion) as on June 30, 2009. For the quarter 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, ICICI Bank has an extensive network of 1,544 branches with about 4,816 ATMS located across India and in 18 other countries. ICICI Bank serves over 24 Million customers throughout the world. It is considered as one of the ‘Big Four Banks’ in India along with State Bank of India, HDFC Bank and Axis Bank.

ICICI Bank provides a wide array of banking products and financial services to its retail and corporate customers. It has a wide variety of delivery channels and specialized affiliates and subsidiaries that ensure the flow of its offerings in the areas like investment banking, venture capital, life and non-life insurance and asset management. This bank is also India's largest credit card issuer. The equity share of ICICI Bank is listed on various stock exchanges like NSE, BSE, Kolkata Stock Exchange and Vadodara Stock Exchange etc. Its AD` are also listed on the New York Stock Exchange.

HDFC BANK

The Housing Development Finance Corporation Limited, popularly called HDFC Bank, 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 a part of the liberalization of the banking industry in the country by R. B. I. in the same year

However, this scheduled business bank started its operations mainly from January, 1995. Headquartered in the city of Mumbai, this is one of the main companies 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 as well 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 this same quarter of 2010

Balance Sheet of ICICI Bank ------------------- in Rs. Cr. -------------------

Mar '12 Mar '11 Mar '10

12 mths 12 mths 12 mths

Capital and Liabilities:

Total Share Capital 1,152.77 1,151.82 1,114.89

Equity Share Capital 1,152.77 1,151.82 1,114.89

Share Application Money 2.39 0.29 0.00

Preference Share Capital 0.00 0.00 0.00

Reserves 59,250.09 53,938.82 50,503.48

Revaluation Reserves 0.00 0.00 0.00

Net Worth 60,405.25 55,090.93 51,618.37

Deposits255,499.9

6225,602.11 202,016.60

Borrowings140,164.9

1109,554.28 94,263.57

Total Debt395,664.8

7335,156.39 296,280.17

Other Liabilities & Provisions 17,576.98 15,986.35 15,501.18

Total Liabilities473,647.1

0406,233.67 363,399.72

Mar '12 Mar '11 Mar '10

12 mths 12 mths 12 mths

Assets

Cash & Balances with RBI 20,461.29 20,906.97 27,514.29

Balance with Banks, Money at Call 15,768.02 13,183.11 11,359.40

Advances253,727.6

6216,365.90 181,205.60

Investments159,560.0

4134,685.96 120,892.80

Gross Block 9,424.39 9,107.47 7,114.12

Accumulated Depreciation 4,809.70 4,363.21 3,901.43

Net Block 4,614.69 4,744.26 3,212.69

Capital Work In Progress 0.00 0.00 0.00

Other Assets 19,515.39 16,347.47 19,214.93

Total Assets473,647.0

9406,233.67 363,399.71

Contingent Liabilities858,566.6

4883,774.77 694,948.84

Bills for collection 64,457.72 47,864.06 38,597.36

Book Value (Rs) 524.01 478.31 463.01

HDFC Bank Balance Sheet

Particular 201203 201103 201003

Capital & Liabilties

Share Capital 465.23 457.74 425.38

Reserves & Surplus 24914.04 21064.75 14226.43

Shareholders Funds 25379.27 21522.49 14651.82

Deposits 208586.41 167404.44 142811.58

Borrowings 14394.06 12915.69 9163.64

Loan Funds 222980.47 180320.13 151975.22

Total Liabilities 248359.73 201842.63 166627.03

Assets

Fixed Assets

Gross Block 5244.21 4707.97 3956.63

Less: Accumulated Depreciation 3029.32 2540.92 2205.65

Lease Terminal Adjustments 44.25 44.25 44.25

Net Fixed Assets 2170.65 2122.81 1706.73

Capital Work In Progress 0.00 0.00 0.00

Total Fixed Assets 2170.65 2122.81 1706.73

Investments 70929.37 58607.62 58817.55

Advances 159982.67 125830.59 98883.05

Current Assets

Cash & Bank Balances 29668.83 29942.40 17506.62

Loans & Advances 13412.37 5111.64 5494.01

Total Current Assets 43081.20 35054.04 23000.63

Current Liabilities & Provisions

Current Liabilities 27340.42 19215.13 15385.77

Provisions 1652.44 1400.81 1257.97

Other Liabilities & Provisions 28992.86 20615.94 16643.74

Net Current Assets 14088.35 14438.09 6356.89

Total Assets 248359.73 201842.63 166627.03

PERFORMANCE OF ICICI BANK AND HDFC BANK

ICICI, HDFC banks battle for mkt share

The stage is set for the country's top two private banks to test their skills in pursuit of market share. After consolidating its balance sheet for 18 months, ICICI Bank now plans to be more aggressive, while HDFC Bank is in no mood to allow its bigger rival regain lost market share.

The current macro-economic situation is similar to the economic crisis of 2008. If it was the collapse of US' fourth-largest investment bank, Lehman Brothers, which triggered the biggest financial crisis of the decade three years back, Standard & Poor's decision to downgrade US' sovereign rating by a notch last week has intensified fears of another economic storm now.

Unlike the last time, the country's largest private lender, ICICI Bank, is now firm on growing its deposits and advances. While most Indian banks say their loan books narrowed sequentially for the quarter ended June 30, ICICI was one of the few lenders that reported growth in advances.

"We will continue to improve the quality of our earnings and balance sheet. While the industry is expected to face headwinds on margins, we expect to maintain our net interest margin at the current 2.6 per cent this year," Managing Director and Chief Executive Officer Chanda Kochhar said, while announcing the bank's earnings last month. For

2011-12, the bank has set a target of 18-20 per cent credit growth.

HDFC Bank, the second-largest private lender in the country, also has no plan to take its step off the gas in expanding its business. The bank, known for its consistent earnings performance, aims to grow its balance 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 and the credit multiplier is two and half times the GDP, credit growth for the system would be 19-20 per cent. We will gain a couple of hundred percentage points more than the system. We have been gaining market share continuously," Aditya Puri, managing director of HDFC Bank, told Business Standard in an interview in May.

There is, however, dissimilarity in the growth ambitions of the two banking giants. For ICICI Bank, balance sheet expansion would primarily be on the corporate segment, as the bank is still selective in offering unsecured loans to its retail clients. HDFC Bank, on the other hand, has chalked out its growth targets mostly around its retail customer base. The lender has been disbursing Rs 5,000 crore of retail loans every month in the April-June period, which it claims is the highest in the industry.

The bank has also moved away from its traditional practice of offering credit cards to its existing clients. Currently, HDFC Bank's first-time clients who have been offered credit cards, account for 25 per cent of the card base, compared with 10 per cent a year ago. The lender also aims to compete with American Express Card and has launched the 'Infinia' credit card for the ultra rich high networth community in India.

Despite their divergent focus, both banks are not willing to give each other space in other businesses. Kochhar, in a recent newspaper interview, had said ICICI Bank was not ceding its leadership position in retail. HDFC Bank, on its part, has strengthened its investment banking business and managed its first ever equity issuance as the co-book running lead manager for Muthoot Finance's Rs 900-crore initial public

offer.

In the mobilisation of deposits, the duo has decided to bank on a similar strategy of opening more branches to increase the share of low-cost current account and savings account deposits. While none of the banks were willing to comment on the rival's business plan, both felt the market was big enough for both the banks to grow their businesses. "I wish ICICI Bank well, but they don't really affect our growth rate. There is enough business for everybody," Puri said in an interview 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 street

FINDINGS 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 and profit 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).

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Usually, debentures, bonds and loans for fixed assets are secured

by fixed assets, while loans from banks for working capital, i.e.,

current assets are secured by current assets. These loans enjoy

priority over unsecured loans for settlement of claims against the

company.

Such unsecured loans rank second and subsequent to secured

loans for settlement of claims against the company. There are

other 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 overall short-

term liquidity. Means current ratio does indicate liquidity of the

enterprise.

Too much liquidity is also not good, as opportunity cost is very high of

holding such liquidity. This means that we are carrying either cash in

large quantities or inventory in large quantities or receivables are getting

delayed. All these indicate higher costs. Hence, if you are too liquid, you

compromise with profits and if your liquidity is very thin, you run the risk

of inadequacy of working capital.

Range – No fixed range is possible. Unless the activity is very profitable

and there are no immediate means of reinvesting the excess profits in

fixed assets, any current ratio above 2.5:1 calls for an examination of the

profitability of the operations and the need for high level of current

assets. Reason = net working capital could mean that external borrowing

is involved in this and hence cost goes up in maintaining the net working

capital. It is only a broad indication of the liquidity of the company, as all

assets cannot be exchanged for cash easily and hence for a more accurate

measure 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 easily

converted into cash. This assumes that all other current assets like

receivables can be converted into cash easily. This ratio examines

whether the quick assets are sufficient to cover all the current liabilities.

Some of the authors indicate that the entire current liabilities should not

be considered for this purpose and only quick liabilities should be

considered by deducting from the current liabilities the short-term bank

borrowing, as usually for an on going company, there is no need to pay

back this amount, unlike the other current liabilities.

Significance = coverage of current liabilities by quick assets. As quick

assets are a part of current assets, this ratio would obviously be less than

current ratio. This directly indicates the degree of excess liquidity or

absence of liquidity in the system and hence for proper measure of

liquidity, this ratio is preferred. The minimum should be 1:1. This should

not be too high as the opportunity cost associated with high level of

liquidity could also be high.

What is working capital gap? The difference between all the current

assets known as “Gross working capital” and all the current liabilities other

than “bank borrowing”. This gap is met from one of the two sources,

namely, net working capital and bank borrowing. Net working capital is

hence defined as medium and long-term funds invested in current assets.

Turn over ratios:

Generally, turn over ratios indicate the operating efficiency. The higher

the ratio, the higher the degree of efficiency and hence these assume

significance. Further, depending upon the type of turn over ratio,

indication would either be about liquidity or profitability also. For example,

inventory or stocks turn over would give us a measure of the profitability

of the operations, while receivables turn over ratio would indicate the

liquidity in the system.

Debtors turn over ratio

Conditions of the market – monopolistic or competitive – monopolistic, this

would be higher and competitive it would be less as you are forced to give

credit;

Whether new enterprise or established – new enterprise would be required

to give higher credit in the initial stages while an existing business would

have a more fixed credit policy evolved over the years of business;

Hence any deterioration over a period of time assumes significance for an

existing business – this indicates change in the market conditions to the

business and this could happen due to general recession in the economy

or the industry specifically due to very high capacity or could be this unit

employs outmoded technology, which is forcing them to dump stocks on

its 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 ratio

Not much of significance as fixed assets cannot contribute directly either

to liquidity or profitability. This is used as a very broad parameter to

compare two units in the same industry and especially when the scales of

operations are quite significant. Formula = Cost of goods sold/Average

value of fixed assets in the period (book value).

Investment on capital ratios/Earnings ratios:

Return on net worth

Profit After Tax (PAT) / Net worth. This is the return on the shareholders’

funds including Preference Share capital. Hence Preference Share capital

is not deducted. There is no standard range for this ratio. If it reduces it

indicates less return on the net worth.

Return on equity

Profit After Tax (PAT) – Dividend on Preference Share Capital / Net worth –

Preference share capital. Although reference is equity here, all equity

shareholders’ funds are taken in the denominator. Hence Preference

dividend and Preference share capital are excluded. There is no standard

range for this ratio. If it comes down over a period it means that the

profitability 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 business

in pre-tax terms. Again there is no standard range for this ratio. If it

reduces, it is a cause for concern.

Earning per share (EPS)

Dividend per share (DPS) + Retained earnings per share (REPS). Here the

share refers to equity share and not preference share. The formula is =

Profit after tax (-) Preference dividend (-) Dividend tax both on preference

and equity dividend / number of equity shares. This is an important

indicator about the return to equity shareholder. In fact P/E ratio is related

to this, as P/E ratio is the relationship between “Market value” of the share

and the EPS. The higher the PE the stronger is the recommendation to sell

the share and the lower the PE, the stronger is the recommendation to buy

the share.

This is only indicative and by and large followed. There is something

known as industry average EPS. If the P/E ratio of the unit whose shares

we contemplate to purchase is less than industry average and growth

prospects are quite good, it is the time for buying the shares, unless we

know for certain that the price is going to come down further. If on the

other hand, the P/E ratio of the unit is more than industry average P/E, it is

time for us to sell unless we expect further increase in the near future.

Leverage ratios

Leverages are of two kinds, operating leverage and financial leverage.

However, we are concerned more with financial leverage. Financial

leverage 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 the

beginning 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 capital

within the same capital structure. Given the advantage of debt also, as

even risk of default, i.e., non-payment of interest and non-repayment of

principal amount increases with increase in debt capital component, the

market accepts a maximum of 2:1 at present. It can be less. Formula for

debt/equity ratio = Medium and long-term loans + redeemable preference

share capital / Net worth (-) Redeemable preference share capital.

From the working capital lending banks’ point of view, all liabilities are to

be included in debt. Hence all external liabilities including current liabilities

are taken into account for this ratio. We have to add redeemable

preference share capital and reduce from the net worth the same as in the

previous formula.

Coverage ratios

Interest coverage ratio

This 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 after

paying interest, tax has to be paid and afterwards dividend and dividend

tax.

Asset coverage ratio

This indicates the number of times the medium and long-term liabilities

are 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 indicates

inadequate coverage of the liabilities.

Debt Service coverage ratio

This indicates the ability of the business enterprise to service its

borrowing, especially medium and long-term. Servicing consists of two

aspects namely, payment of interest and repayment of principal amount.

As interest is paid out of income and booked as an expense, in the formula

it gets added back to profit after tax. The assumption here is that dividend

is ignored. In case dividend is paid out, the formula gets amended to

deduct from PAT dividend paid and dividend tax.

Formula is:

(Numerator) Profit After Tax (+) Depreciation (+) Deferred

Revenue Expenditure written off (+) Interest on medium and long-term

borrowing

(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 existing

company dividend will have to be paid and hence in the numerator,

instead of PAT, retained earnings would appear. The above ratio is

calculated for the entire period of the loan with the bank/financial

institution. The minimum acceptable average for the entire period is

1.75:1. This means that in one year this could be less but it has to be

made 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 of

two parameters and compare it with the past trend. In the statements of

accounts, there are several such pairs of parameters and hence ratio

analysis assumes great significance. The most important thing to

remember in the case of ratio analysis is that you can compare two units

in the same industry only and other factors like the relative ages of the

units, the scales of operation etc. come into play.

¨ Comparison with past trend within the same company is one type of

analysis and comparison with the industrial average is another analysis

While one can derive a lot of useful information from analysis of the

financial statements, we have to keep in mind some of the limitations of

the financial statements. Analysis of financial statements does indicate a

definite trend, though not accurately, due to the intrinsic nature of the

data 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 statements

relating 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. This may

prove invaluable as a tool in investment decision or sale decision of

shares/debentures/fixed deposits etc.

a project report on comparative study on performance of differnet industreis on the basis of balance...

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