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ABSTRACT

In this project, titled “COMPARATIVE ANALYSIS AND STUDY OF GMR

GROUPS CREDIT RATING”. This aims to analyse the credit worthiness of the GMR

Infrastructure ltd among the key competitors of the company using the credit rating methodology

This study based on financial statements such as Ratio Analysis, Comparative balance

sheet with the competitors in the same industry and business process analysis like swot analysis.

By using these combined tools it enables to determine in an effective manner.

The study is made to evaluate the financial position, the operational results as well as

financial progress of a business concern.

This study explains ways in which ratio analysis can be of assistance in long-range

planning, budgeting and asset management to strengthen financial performance and help avoid

financial difficulties.

This study makes us to study the credit rating methodology and also about the credit

rating agencies in India and finally gives the credit worthiness of the company

The study not only throws on the financial position of a firm but also serves as a

Stepping stone to remedial measures for GMR Infrastructure ltd.

This project helps to identify and give suggestion to improve some of the concerned area

of businesses in “GMR Infrastructure ltd”

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LIST OF TABLES

TABLE NO NAME OF TABLE PAGE NO 5.1 CRISIL fixed deposit rating symbols 5.2 CRISIL rating symbols for short term instruments 5.3 ICRA rating symbols for long-term debentures,

bonds and preference shares 5.4 ICRA fixed deposit rating symbols 5.5 CARE rating symbols for long-term instruments 5.6 CARE short-term investment symbols 5.7 CARE analysis rating 5.8 Rating methodology for infrastructure industries 5.9 ICRA credit rating methodology 6.1 Comparative balance sheet 6.2 Comparative profit and loss account 6.3 Comparative cash flow statements 6.4 Ratio analysis 6.5 Key parameters of rating 6.6 Rank based on the parameters 6.7 Final ranking 6.8 Sectors involved in infrastructure companies 6.9 Power sector projects involved 6.10 Roads sector projects involved 6.11 Ratings assigned by the agencies 6.12 Care ratings 6.13 Ratings explanation 6.14 Swot analysis for GMR 6.15 Swot analysis for LANCO 6.16 Swot analysis for GVK 6.17 Swot analysis for JPASSOCIAT 6.18 Comparison b/w GMR and JPASSOCIAT 6.19 Comparison b/w GMR and LANCO 6.20 Comparison b/w GMR and GVK

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CHART NO NAME OF CHART PAGE NO

2.1 Organizational chart of GMR

3.1 Process of ratio analysis 3.2 CARE’s rating process 3.3 ICRA’s rating process 3.4 CRISIL’s rating process 6.1 EBITDA margin ratio 6.2 Return on equity 6.3 Price to earnings ratio 6.4 Debt to equity ratio 6.5 Return on capital employed 6.6 Price to book value 6.7 EV/EBITDA 6.8 Cash profit margin 6.9 Operating cash flow ratio 6.10 Current ratio 6.11 Cash ratio 6.12 Asset efficiency ratio 6.13 Operating cash margin 6.14 Operating profit margin 6.15 Basic earning power ratio

LIST OF CHARTS

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CHAPTER-1

INTRODUCTION TO THE STUDY

1.1 INTRODUCTION:

The removal of strict regulatory framework in recent years has led to a spurt in the

number of companies borrowing directly from the capital markets. There have been several

instances in the recent past where the “fly-by-night” operators have cheated unwary investors. In

such a situation, it has become increasingly difficult for an ordinary investor to distinguish

between 'safe and good investment opportunities' and 'unsafe and bad investments'. Investors

find that a borrower's size or names are no longer a sufficient guarantee of timely payment of

interest and principal.

Investors perceive the need of an independent and credible agency, which judges

impartially and in a professional manner, the credit quality of different companies and assist

investors in making their investment decisions. Credit Rating Agencies, by providing a simple

system of gradation of corporate debt instruments, assist lenders to form an opinion on -the

relative capacities of the borrowers to meet their obligations. These Credit Rating Agencies, thus,

assist and form an integral part of a broader programme of financial disintermediation and

broadening the debt market.

Credit rating is used' extensively for evaluating debt instruments. These include long-

term instruments, like bonds and debentures as well as short-term obligations, like Commercial

Paper. In addition, pured deposits, certificates of deposits, inter-corporate deposits, structured

obligations including non-convertible portion of partly Convertible Debentures(PCDs) and

preferences shares are also rated.

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1.2 DEFINITION OF CREDIT RATING:

A published ranking, based cut_down_on detailed financial analysis by a credit

beareu, of one's financial history, specifically as it relates to one's ability to meet debt obligation.

The highest rating is usually AAA, and the lowest is D. Lender use this information to decide

whether to approve a loan.

1.3 DETERMINANTS:

The default-risk assessment and quality rating assigned to an issue are primarily

determined by three factors :

i) The issuer's ability to pay,

ii) The strength of the security owner's claim on the issue, and

iii) The economic significance of the industry and market place of the issuer.

1.4 RATING METHODOLOGIES: Rating is a search for long-term fundamentals and the probabilities for changes in

the fundamentals. Each agency's rating process usually includes fundamental analysis of public

and private issuer-specific data, 'industry analysis, and presentations by the issuer's senior

executives, statistical classification models, and judgement. Typically, the rating agency is privy

to the issuer's short and long-range plans and budgets. The analytical framework followed for

rating methodology is divided into two interdependent segments.

The first segment deals with operational characteristics and the second one with

the financial characteristics. Besides, quantitative and objective factors; qualitative aspects, like

assessment of management capabilities play a very important role in arriving at the rating for an

instrument. The relative importance of qualitative and quantitative components of the analysis

varies with the type of issuer.

Rating is not based on a predetermined formula, which specifies the relevant

variables as well as weights attached to each one of them. Further, the emphasis on different

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aspects varies from agency to agency. Broadly, the rating agency assures itself that there is a

good congruence between assets and liabilities of a company and downgrades the rating if the

quality of assets depreciates. The rating agency employs qualified professionals to ensure

consistency and reliability. Reputation of the Credit Rating Agency creates confidence in the

investor. Rating Agency earns its reputation by assessing the client's operational performance,

managerial competence, management and organizational set-up and financial structure. It should

be an independent company with its own identity. It should have no government interference.

Rating of an instrument does not give any fiduciary status to the credit rating agency. It is

desirable that the rating be done by more than one agency for the same kind of instrument. This

will attract investor's confidence in the rating symbol given.

A rating is a quality label that conveniently summarizes the default risk of an

issuer. The credibility of the issuer's, proposed payment schedule is complemented by the

credibility of the rating agency. Rating agencies perform this certification role by exploiting the

economies of scale in processing information and monitoring the issuer. There is an ongoing

debate about whether the rating agencies perform an information role in addition to a

certification role. Whether agencies have access to superior (private) information, or if agencies

are superior processors of information; security ratings provide information to investors, rather

than merely summarizing existing information. Empirical research confirms the information role

of rating agencies by demonstrating that news of actual and proposed rating changes affects the

price of issuer's securities.

Most studies document numerically larger price effects for downgrades than for

upgrades, consistent with the perceived predilection of

management for delaying bad news.

Despite variations across individual rating agencies, the following features appear

to be common in the rating methodology employed by different agencies:

Two broad types of analyses are done:

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(a) industry and business analysis and

(b) financial analysis

The key factors considered in industry and business analysis:

(a) Growth rate and relationship with the economy

(b) Industry risk characteristics

(c) Structure of industry and nature of competition

(d) Competitive position of the issuer

(e) Managerial capability of the issuer

The key factors considered in financial analysis:

(a)Earning power

(b)Business and financial risk

(c)Asset protection

(d)Cash flow adequacy

(e)Financial flexibility

(f)Quality of accounting

Subjective judgments seem to play an important role in the assessment of the issue/issuer on

various factors. While each factor is normally scored separately, no mechanical formula is used

for combining the scores on different factors to arrive at the ratings conclusion. In the ultimate

analysis of variables which are viewed as interdependent industry risk characteristics are likely

to set the upper limit on rating

1.4.1 Business analyses:

It is the academic desciplines of identifying business needs and determining

solutions to business problems. Solutions often include a systems development component, but

may also consist of process improvement, organizational change or strategic planning and policy

development. The person who carries out this task is called a business analysts or BA.

Those BAs who work solely on developing software systems may be called IT

Business Analysts, Technical Business Analysts, Online Business Analysts or Systems Analysts.

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Business analysis as a discipline has a heavy overlap with requirement analysis

sometimes also called requirements engineering, but focuses on identifying the changes to an

organization that are required for it to achieve strategic goals. These changes include changes to

strategies, structures, policies, processes, and information systems.

1.4.1.1 Goal of business analysis

Ultimately, business analysis wants to achieve the following outcomes:

Reduce waste

Create solutions

Complete projects on time

Improve efficiency

Document the right requirements

1.4.1.2 Business analysis includes:

Enterprise analysis or company analysis:

It focuses on understanding the needs of the business as a whole, its strategic

direction, and identifying initiatives that will allow a business to meet those strategic goals.

Requirements planning and management :

It involves planning the requirements development process, determining which

requirements are the highest priority for implementation, and managing change.

Requirements elicitation:

It describes techniques for collecting requirements from stakeholders in a project.

Requirements analysis

It describes how to develop and specify requirements in enough detail to allow them to be

successfully implemented by a project team.

Requirements communication

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It describes techniques for ensuring that stakeholders have a shared understanding of the

requirements and how they will be implemented.

Solution assessment and validation

It describes how the business analyst can verify the correctness of a proposed solution,

how to support the implementation of a solution, and how to assess possible

shortcomings in the implementation.

There are a number of techniques that a Business Analyst will use when facilitating

business change. These range from workshop facilitation techniques used to elicit requirements,

to techniques for analyzing and organizing requirements.

The best technique to analyse the business is SWOT analysis.This is used to help

focus activities into areas of strength and where the greatest opportunities lie. This is used to

identify the dangers that take the form of weaknesses and both internal and external threats.

*The four attributes of SWOT are strength, weakness, opportunities and threats:.

Strength is defined as any internal asset, technology, motivation, finance, business links,

etc that can help to exploit opportunities and to fight off threats.

Weakness is an internal condition which hampers the competitive position or exploitation

of opportunities.

Opportunity is any external circumstance or characteristic which favour

the demand of the system or where the system is enjoying a competitive advantage.

Threat is a challenge of an unfavorable trend or of any external Circumstance which will

unfavorably influence the position of the system.

1.4.2 Financial statements Analysis:

The financial statements provide some extremely useful information to the

extent that the balance sheet mirrors the financial position on a particular date in terms of the

structure of assets, liabilities and owners’ equity, and so on and the profit and loss account shows

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the results of operations during a certain period of time in terms of the revenues obtained and the

cost incurred during the year.

Thus, the financial statements provide a summarized view of the financial

position and operations of a firm. Therefore, much to be learnt about a firm from a careful

examination of its financial statements as invaluable documents performance reports. The

analysis of financial statements is thus, an important aid to financial analysis.The focus of

financial analysis is on key figures in the financial statements and the significant relationship that

exists between them. The analysis of financial statements is a process of evaluating the

relationship between component parts of financial statements to obtain a better understanding of

the firm’s position and performance.

The first task of the financial analyst is to select the information relevant to the

decision under consideration from the total information contained in the financial statements.

The second step is to arrange the information in a way to highlight significant relationships. The

final step is interpretation and drawing of inferences and conclusion. In brief, the financial

analysis is the process of selection, relation and evaluation.

The term financial analysis is also known as analysis and interpretation of financial

statements. It refers to the establishing meaningful relationship between various items of the two

financial statements i.e. Income statement and position statement. It determines financial strength

and weaknesses of the firm. Analysis of financial statements is an attempt to assess the efficiency

and performance of an enterprise. Thus, the analysis and interpretation of financial statements is

very essential to measure the efficiency, profitability, financial soundness and future prospects of

the business units.

1.4.2.1 Financial analysis serves the following purposes:

Measuring the profitability

The main objective of a business is to earn a satisfactory return on the funds invested in it.

Financial analysis helps in ascertaining whether adequate profits are being earned on the capital

invested in the business or not. It also helps in knowing the capacity to pay the interest and

dividend.

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Indicating the trend of Achievements

Financial statements of the previous years can be compared and the trend regarding various

expenses, purchases, sales, gross profits and net profit etc. can be ascertained. Value of assets

and liabilities can be compared and the future prospects of the business can be envisaged.

Assessing the growth potential of the business

The trend and other analysis of the business provides sufficient information indicating the

growth potential of the business.

1.4.2.3 PARTIES INTERESTED

Analysis of financial statements has become very significant due to widespread

interest of various parties in the financial results of a business unit. The various parties interested

in the analysis of financial statements are :

(i)Investors:

Shareholders or proprietors of the business are interested in the well being of the

business. They like to know the earning capacity of the business and its prospects of future

growth.

(ii) Management:

The management is interested in the financial position and performance of the

enterprise as a whole and of its various divisions. It helps them in preparing budgets and

assessing the performance of various departmental heads.

(iii) Trade unions:

They are interested in financial statements for negotiating the wages or salaries or

bonus agreement with the management.

(iv) Lenders:

Lenders to the business like debenture holders, suppliers of loans and lease are

interested to know short term as well as long term solvency position of the entity.

(v) Suppliers and trade creditors:

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The suppliers and other creditors are interested to know about the solvency of the

business i.e. the ability of the company to meet the debts as and when they fall due.

(vi) Tax authorities:

Tax authorities are interested in financial statements for determining the tax liability.

(vii) Researchers:

They are interested in financial statements in undertaking research work in business

affairs and practices.

(viii) Employees :

They are interested to know the growth of profit. As a result of which they can

demand better remuneration and congenial working environment.

(ix) Government and their agencies:

Government and their agencies need financial information to regulate the activities of

the enterprises/industries and determine taxation policy. They suggest measures to formulate

policies and and regulations.

(x) Stock exchange:

The stock exchange members take interest in financial statements for the purpose

of analysis because they provide useful financial information about companies.Thus; we find that

different parties have interest in financial statements for different reasons.

1.5 Credit rating process:

Receipt of rating request from an issuer

Assigning a rating team

Collecting information

Meeting key officials and the management team

Preview meeting

Rating committee meeting

Rating communication

Rating review

Surveillance

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CHAPTER-2

PROFILE OF THE COMPANY

2.1 HISTORY:

GMR Group is one of the fastest growing Infrastructure organisation in the

country. The GMR Group was found in the year 1976.It is head quartered in Bangalore, India.

GMR also takes part in Indian Premier League's (A Twenty20 Cricket league in India) Delhi

franchise, Delhi Daredevils. Grandhi Mallikarjun Rao is the Chairman and Managing director of

GMR group. With an estimated personal worth of $6.2 billion dollars, G M Rao stands at 198 th

rank in Forbes' 2008 World Billionaire list.

2.2 BACKBONE:

GMR Varalakshmi foundation is the corporate social responsibility arm of the

GMR Group.The foundation is not for profit company.The vision is to emerge as a premier

national body in the area of corporate social responsibility.The mission is to improves the lives

of the poor and needy in a self-generating way.The core activities of the foundation include

education,health& hygiene and empowerment.

2.3 GMR GROUP MEMBERS:

G.M.Rao-Group chairman&founder

Srinivas Bommidala-chairman-Highways&Urban infrastructure

G.B.S.Raju-chairman-Corporate&International business

Kiran kumar grandhi-chairman-Airports

K Balasubramanian-chairman-Corporate social responsibility

P M Kumar-executive director-Group corporate development.

B.V.N Rao-chairman-Energy business

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2.4 VISION & MISSION:

VISION :

GMR will pay a pioneering role in developing innovative projects and provide world

class services in infrastructure.

MISSION :

To build entrepreneurial organisations that make a difference to society through

creation of value.

2.5 VALUES & BELIEFS:

Humility: They value intellectual modesty and detest false pride and arrogance.

Entrepreneurship: They will seek opportunities and they are everywhere.

Teamwork and relationship: Going beyond the individual, encouraging boundary less

behavior.

Deliver the promise: They will value a deep sense of responsibility and self discipline,to

meet and surpass commitments made.

Learning: Nurturing active curiosity-to question, share and improve.

Social responsibility: Anticipating and meeting relevant and emerging needs of society.

Respect for individual: They will treat others with dignity, sensitivity and honour.

2.6 BUSINESS SECTORS :

GMR Groups business interests is in Airports, Highways, Energy and Urban Infrastructure. .

GMR Infrastructure Limited has in the following sectors:

1. Airports

2. Energy

3. Highways

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4. Urban infrastructure

5. EPC

1.Airports:

Under operation:

GMR hyderabad international airport(63%)

Delhi international airport(54%)

Instanbul sabiha gokcen international airport(40%)

Male international airport(100%)

2.Energy:

Under operation:

GMR Energy ltd(100%)

GMR Power corporation(51%)

Vemagiri power generation(100%)

Under development:

Badrinath Hydro Power(100%)

GMR kamalanga energy(80%)

GMR Bajoli Power Project(100%)

GMR Chattisgarh Power Project(100%)

Upper Karnali Power Project(73%)

EMCO Energy limited(100%)

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GMR Rajahmundry energy(100%)

Talong hydro power(100%)

Himtal hydro power co.(80%)

Island power singapore(100%)

GMR Solar Energy (100%)

Deedwana Transmission Line (100%)

Alwar Transmission Line (100%)

3.Highways:

Under operation:

GMR Tambaram-Tindivanam(61%)

GMR Tuni-Ankapalli(61%)

GMR Ambala-Chandigarh(100%)

GMR Adloor-Gundla Ponchanpalli(100%)

GMR Ulunderpet(100%)

GMR Jadcherla(100%)

Under construction:

GMR Hyderabad Vijayawada(74%)

Chennai outer ringroad(90%)

Hungund-Hospet(51%)

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4.Urban Infrastructure:

At Hyderabad Airport

1000 acres for commercial development

250 acres Aviation SEZ

250 acres Logistic SEZ

At Delhi Airport

250 acres for commercial development

In Tamilnadu

3300 acres SEZ

5.EPC:

GMR Group is estimating to save 8-12 percent cost by having an in-house engineering,

procurement and construction unit through extensive procurement for various verticals.GMR

Infrastructure ltd is setting up an in-house division EPC division in order to reduce future project

costs and ensures that deadlines are met.

2.7 MERGERS AND ACQUISITION OF GMR :

The largest deal in November 2010 was China Huaneng Corp's acquisition of US-based

InterGenInc from GMR Infrastructure for $1.232 million

GIL acquires Barasentosa lestare PT,a coal mining company in feb 26 2009

GMR Group acquired 50 percent stake in Intergen for $1.354 million in October 2008

GMR infrastructure ltd acquires a minority stake in DIAL from GMR holdings pvt ltd in

2008.

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GMR Infrastructure ltd, a unit of GMR holdings pvt ltd of india acquired Coralrose ltd ,a

construction company andsunwood properties korea BV,an Amsterdam-based real estate

agency in 2008.

GIL acquires island power co pte ltd , a jurong island-based electric utility company from

InterGen N.V. of 800 MW.

GMR Energy ltd has acquired 63% stake in south africa’s homeland, mining and energy

SA ltd , a unit of canada’s homeland energy group ltd in 2008.

2.8 EVENTS HAPPENED RECENTLY IN GMR:

The important event recently happened is that , Mr.BVN.Rao(business chairman,energy

sector) launched the GMR business excellence reference manual called “blue book”

coinciding with BE assessor workshop on 7th feb 2011.

GMR group has been awarded with “The best infrastructure project” from all over India

by property world magazine.property world belongs to the united business media group.

GVPGL has won the prestigious national energy conversation award at delhi on 14th dec

2010.

GHIAL and luthansa cargo AG(LCAG) on 3rd dec 2010 signed a MOU to jointly

develop RGIA,hyderabad in to a key cargo hub in south asia for the transport of

temperature sensitive pharmaceuticals.

2.9 COMPETITORS OF GMR:

Reliance Infra

Adani Power

Jaypee jaiprakash asso

Unitech

Lanco infrastructure

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GVK Infra

IVRCL Infra

IRB Infra

II&FS Trans

2.10 KEY COMPETITORS OF GMR:

2.10.1 GVK POWER AND INFRASTRUCTURE LTD:

HISTORY:

GVK power and infrastructure ltd is a diversified business entity with a focus on

infrastructure and urban infrastructure.G.V.Krishna reddy,the chairman and managing director of

GVKPIL,is a first generation entreprenuer who establishes the business.

The area of business interests including power,roads,urban infrastructure,bio-science,hotels

and manufacturing.

The company was incorporated in the year 1994 as jagurupadu operating and maintenance

company,a private company ,under the companies act 1956.later the company name has changed

to jagurupadu operating and maintenance private ltd company in the year 2005 and then the

company has changed to private ltd to public ltd and then the company name is changed as

GVK power and infrastructure ltd. GVK foundation is involved in the corporate social

responsibility to help out the needy .

GROUP MEMBERS:

G.V.Krishna Reddy

G.V.Sanjay reddy

A.Issac George

K.Narsim Shenoy

Abid Hussain

G.V.K SECTORS:

POWER:

OPERATIONAL:

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o Jagurupadu combained cycle power plant phase-1(217mw)

o Jagurupadu combained cycle power plant phase-2(220mw)

o Gautami combained cycle power plant(464mw)

UNDER DEVELOPMENT:

o Alaknanda(330mw)-uttarkand

o Goindwal sahib(540mw)-punjab

UNDER IMPLEMENTATION:

o Jagurupadu phase-3(800mw)-A.P

o Gautami-2(800mw)-A.P

o Goriganga(370mw)-Uttarkhand

o Rattle(690mw)-J&K

o Tokisud-Jharkhand

AIRPORTS:

Mumbai international airport(74%)

Bangalore international airport(29%)

ROADS:

Jaipur-kishangarh BOT project(6lane from the 500km)

Deoli-kota road BOT project(4 lane from the 83km)

URBAN INFRASTRUCTURE:

3000 acres SEZ in perambalur(tamilnadu)

2.10.2 LANCO INFRATECH:

HISTORY:

Lanco is the one of the fastest growing integrated infrastructure enterprises of India.The area

of business interests are in power,roads, EPC,infrastructure,property development.

The founder chairman of lanco infratech is L.Rajagopal, a techno-crat turned industrialist. He

started the lanco foundation, a charitable trust in the year 2000 to reach out to the needy.And

also he is the member of parliament,India.

GROUP MEMBERS:

L.Madhusudhan rao-executive chairman

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G.Bhaskara rao-executive vice-chairman

L.Sridhar-vice-chairman

G.Venkatesh babu-managing director

LANCO SECTORS:

CONSTRUCTION:

Power plants based on Gas, Coal, Bio-mass and Hydro.

Irrigation and water supply projects, including dams, tunnels, lift irrigation, sewerage

schemes and marine works.

Civil construction including commercial and residential buildings, mass housing projects

and townships, industrial structures, information technology parks, Corporate offices,

Hospitals and more.

Transportation engineering projects including roads, highways, bridges and flyovers.

POWER:

OPERATIONAL PROJECTS:

o Lanco kondapalli 1&2(734mw)

o Aban power(120mw)

o Lanco power 1&2(600mw)

o Udipi power 1(600mw)

o Lanco,chitradurga(3mw)

o Lanco,thirunelveli(10mw)

o Vamshi hydro energies(10mw)

o Vamshi industrial power(5mw)

UNDER IMPLEMENTATION:

o Lanco kondapalli 3(732mw)

o Lanco power(3&4)(1320mw)

o Lanco anpara(1200mw)

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o Udipi power 2(600mw)

o Lanco babandh(1320mw)

o Lanco budhil hydro power(70mw)

o lanco teesta hydro power(500mw)

o lanco mandakini hydro power(76mw)

ROADS:

Bangalore-madbugal on NH-4(81km)

Neelamangala-devihalli on NH-48(82km)

EPC:

The EPC group at lanco ensures project delivery cycles, greater capital expenditure

control, sourcing the best service and technology providers and most importantly allows its

clients to focus on their core business.the core competence of lanco is its experienced team for

managing contracts during all phases of project,while meeting the highest international

standards.

Lanco provides engineering,procurement,construction,project management and

commissioning services on turnkey basis to the power sector leveraging on the experience and

expertise of its group companies,its construction capability and competent manpower.

INFRASTRUCTURE:

LANCO infrastructure ltd has executed many challenging projects across india

including highways.lanco is currently executing the Varanasi non metro airport project

2.10.3 JAIPRAKASH ASSOCIATION:

HISTORY:

Jaiprakash associates was previously known as jaiprakash industries ltd but after merging

with jaypee cements in the year of 2004, the company gots its present name. Jaiprakash

associates ltd is under the jaypee group,which is an industrial infrastructural group in india .The

group was established in 1974 and has a turnover more than Rs.30,000million.

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Jaiprakash associates has subsidary companies which are jaiprakash hotels,jaiprakash hydro

power and jaiprakash ventures

GROUP MEMBERS:

Manoj gaur-executive chairman

Sunil kumar sharma-executive vice chairman

Sarat kumar jain-vice chairman

Sunny gaur-managing director

Pankaj gaur-joint managing director

JP SECTORS:

Civil Engineering:

Jaiprakash Associates Ltd., the flagship company of the Group, is a pioneer in

construction of river valley and hydropower projects on turnkey basis in India. Jaypee Group has

executed 13 Hydropower projects spread over 6 states of India and neighbouring Bhutan to

generate 10,290 MW of power.

Hydropower :

OPERATIONAL:

o Baspa 2(300mw)

o Vishnuprayag(400mw)

UNDER IMPLEMENTATION:

o Karcham wangtoo(1000mw)

UNDER DEVELOPMENT:

o Lower siang(2700mw)

o Hirong(500mw)

o Kynshi stage-2(450mw)

o Umngot stage-1(270mw)

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Thermal Power:

These all projects are in under implementation

Bina power(1250mw)

Jaypee nigrie(1320mw)

Kannur(240mw)

Karchana(1980mw)

Bara(3300mw)

Transmission System:

Jaiprakash Hydro-Power Limited has plans to venture into the development of

transmission systems with the Power Grid Corporation of India Ltd (PGCIL).

Cement:

Jaypee Group is the 4 th largest cement producer in the country. It produces ordinary

Portland cement and Pozzolana Portland cement under the brand names “Buland” and

“Buniyad”. The group has plants at Rewa and Bela. Jaypee group is poised to achieve cement

production capacity of 20 MTPA by the year 2009.

Hospitality:

Jaypee group owns and operates four five star deluxe hotels through a subsidiary company,

Jaypee hotels limited. These hotels are: Hotel Siddharth and hotel vasant continental in New

Delhi, Hotel Jaypee palace Agra, and Jaypee residency Manor, Mussoorie.

Real estate development:

Jaypee group is developing real estate in Greater Noida. Its property, Jaypee Greens,is spread

over an area of 450 acres. It comprises golf resorts , villas, townhouses.

Expressways & Highways:

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Jaypee Group is constructing the prestigious 160 km long Expressway with Six lane

access that would connect the historical city of Agra with Greater Noida.

Information Technology:

Jaypee Group Company JIL Information Technology Limited (JILIT) specializes in:

Hardware & Networking, Multimedia Services & Software, and Enterprise Resource Planning.

2.11 GMR Group Organizational Chart

CHAIRMAN

Executive director

AssociateVice president

President

Executive vice president

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Chart:2.1

2.12 AWARDS & RECOGNISATIONS:

Mr.G.M.Rao received “first generation entreprenuer of the year” at CNBC TV18-2009 and

he also got a “doctorate” from Andhra University.

“silver plate award” for supporting cause of elders-on october 1,2009, new delhi.

RGIA also won the “essar steel infrastructure excellence award 2009” organised by CNBC

TV18-2009.

General manager(H.R)

General manager(finance)

General manager(marketing)

General manager(production)

Associate manager

Associate manager

Regional officer Associate manager

Senior co-crdinator Senior Co-ordinator

Junior co-ordinator

junior Co-ordinator

Assistant Assistant

Executive manager

Executive manager

Executive manager

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Mr.kiran kumar grandhi , chairman got “young entrepreneur award 2009” in the area of

travel and tourism.

G.M.R Vemagiri power generation ltd has won the “Innovative environmental project”

award at the CII environmental best practices award 2011 organized by CII-Godrej green

business centre on 28 & 29 January 2011

RGIA and IGIA have been rankes 1st and 4th best airports in their respective categories in the

latest ASQ rankings of Airports Council International.

CHAPTER-3

REVIEW OF THE LITERATURE:

3.1 Techniques and tools of financial analysis

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Financial statements give complete information about assets, liabilities,equity, reserves,

expenses and profit and loss of an enterprise. They are not readily understandable to interested

parties like creditors, shareholders, investors etc. Thus, various techniques are employed for

analysing and interpreting the financial statements. Techniques of analysis of financial

statements are mainly classified into three categories :

(i) Cross-sectional analysis

It is also known as inter firm comparison. This analysis helps in analysing financial

characteristics of an enterprise with financial characteristics of another similar enterprise in that

accounting period.For example, if company A has earned 15% profit on capital invested. This

does not say whether it is adequate or not. If we analyse further and find that a similar company

has earned 16% during the same period, then only we can make a conclusion that company B is

better.Thus, it turns into a meaningful analysis.

(ii) Time series analysis

It is also called as intra-firm comparison. According to this method,the relationship

between different items of financial statement is established, comparisons are made and results

obtained. The basis of comparison may be :

– Comparison of the financial statements of different years of the same business unit.

– Comparison of financial statement of a particular year of different business units.

(iii) Cross-sectional cum time series analysis

This analysis is intended to compare the financial characteristics of two or more

enterprises for a defined accounting period. It is possible to extend such a comparison over the

year. This approach is most effective in analysing of financial statements.

3.2 Comparative position in relation to other firms

The purpose of financial statements analysis is to help the management to make a comparative

study of the profitability of various firms engaged in similar businesses. Such comparison also

helps the management to study the position of their firm in respect of sales,expenses, profitability

and utilising capital, etc.

Assess overall financial strength

The purpose of financial analysis is to assess the financial strength of the business. Analysis also

helps in taking decisions, whether funds required for investing for business growth are provided

29

from internal sources of the business or not if yes, how much? And also to assess how much

funds have been received from external sources.

Assess solvency of the firm

The different tools of an analysis tell us whether the firm has sufficient funds to meet its short

term and long term liabilities or not.

Ratio analysis is used to analyse the present and future earning power of the issuing

corporation and to get insight into the strengths and weaknesses of the firm. Bond rating agencies

have suggested guidelines about what value each ratio should have within a particular quality

rating. Different ratios are favoured by rating agencies. For any given set of ratios, different

values are appropriate for each industry. Moreover, the values of every firm's ratios vary in a

cyclical fashion through the ups and downs of the business cycle.

To assess the strength of security owner's claim, the protective provisions in the

indenture (legal instrument specifying bond owners' rights), designed to ensure the safety of

bondholder's investment, are considered in detail.

The factors considered in regard to the economic significance and size of issuer

includes: nature of industry 'in which issuer is, operating (specifically issues like position in the

economy, life cycle of the industry, labour situation, supply factors, volatility, major

vulnerabilities, etc.), and the competition faced by the issuer (market share, technological

leadership, production efficiency, financial structure, etc.)

3.3Ratio Analysis:

Ratio analysis is a widely-used tool of financial analysis. It can be used to

compare the risk and return relationships of firms of different sizes. It is defined as the

systematic use of ratio to interpret the financial statements so that the financial strengths and

weakness of a firm as well as its historical performance and current financial condition can be

determined. The term ratio refers to the numerical or quantitative relationship between two items

and variables. These ratios are expressed as

1. percentages,

2. fraction and

3. proportion of numbers.

30

These alternative methods of expressing items which are related to each other are, for

purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the

ratios does not add any information not already inherent in the above figures of profits and

sales.What the ratio do is that they reveal the relationship in a more meaningful way so as to

enable equity investors, management and lenders make better investment and credit decisions.

3.3.1 PROCESS OF RATIO ANALYSIS

Chart:3.1

3.4 THE KEY RATIOS USED IN THE STUDY:

The main ratios which are very useful for the study that measures the business and

financial analysis.

1. EBITDA Margin:

Selection of relevant data from the financial statements depending upon the objective of the analysis.

Calculation of appropriate ratios from the above data

Comparison of the calculated ratio with the ratios of the same firm in the past, or ratios developed from projected financial statements or the ratios of other firms in the same year of the same company type or the ratios of the industry to which the firm belongs

Interpretation of ratios

31

A measurement of a company's operating profitability. It is equal to earnings before

interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because

EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with

a cleaner view of a company's core profitability.EBITDA margin measures the extent to which

cash operating expenses use up revenue.

EBITDA

EBITDA margin = _________________

Total revenue

2.Price to earnings ratio:

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:

Market value per share

Price to earnings ratio = ___________________________

Earnings per share

In general, a high P/E suggests that investors are expecting higher

earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio

doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of

one company to other companies in the same industry, to the market in general or against the

company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis

for their investment to compare the P/E of a technology company (high P/E) to a utility company

(low P/E) as each industry has much different growth prospects.

3.Return on equity:

The amount of net income returned as a percentage of shareholder’s equity.return

on equity measures a corporation’s profitability by revealing how much profit a company

generate with the money shareholder’s have invested.

32

Calculated as:

Net income

Return on equity=______________________

Share holder’s equity

Net income is for the full fiscal year(before dividends paid to common stock holders but

after dividends to preferred stock)share holder’s equity does not include preferred shares. Also

known as “return on net worth”(RONW).

4.Debt to equity ratio:

A measure of a company's financial leverage calculated by dividing its total

liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is

using to finance its assets.

Debt to equity ratio= total liabilities .

Shareholder’s equity

Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the

calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal

financial statements as well as corporate ones.

If a lot of debt is used to finance increased operations (high debt to equity), the company

could potentially generate more earnings than it would have without this outside financing. If

this were to increase earnings by a greater amount than the debt cost (interest), then the

shareholders benefit as more earnings are being spread among the same amount of shareholders.

However, the cost of this debt financing may outweigh the return that the company generates on

the debt through investment and business activities and become too much for the company to

handle. This can lead to bankruptcy, which would leave shareholders with nothing.

A high debt to equity ratio generally means that a company has been aggressive in

financing its growth with debt. This can result in volatile earnings

5. Return on capital employed:

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This is considered to be the best measure of profitability in order to assess the over all

performance of the business. As the primary objective business is to earn profit higher the Return

On Capital Employed, the more efficient the firm is in using its funds. The ratio can be funds for

a number of years as to find a trend as to whether the profitability of the company is in

improving or otherwise.

Earnings before interest and tax

Return on capital employed = ____________________________

Net current assets

6.Price to book value:

A ratio used to compare a stock's market value to its book value. It is calculated by dividing the

current closing price of the stock by the latest quarter's book value per share.

Calculated as:

Price to book value= stock price .

Book value

Where,

book value = shareholders equity .

no.of equity shares

A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that

something is fundamentally wrong with the company. As with most ratios, be aware that this

varies  by industry. This ratio also gives some idea of whether you're paying too much for what

would be left if the company went bankrupt immediately.

Also known as price to equity ratio.

7.EV/EBITDA:

EV / EBITDA, is a measure of the cost of a stock which is more frequently valid for

comparisons across companies than the price to earnings ratio. Like the P/E ratio, the EV /

EBITDA ratio is a measure of how expensive a stock is. It measures the price in the form of

34

Enterprise value an investor pays for the benefit of the company's cash flow in the form of

EBITDA.

Enterprise value

EV/EBITDA = _______________________________________________

Earnings before interest and tax depreciation amortization

Where, EV=Market capital+debt+preference shares+minority interest-cash

Market capital=price value*equity shares

EV/EBITDA values can vary depending on EBITDA is calculated. EBITDA can vary

due to differences in counting of depreciation and amortization which can be counted at different

rates over time. Unlike P/E ratios, however, EV / EBITDA ratios can be used to compare a wide

variety of companies.P/E ratios can be an invalid way of comparing different companies for

several reasons which are accounted for in EV / EBITDA. It is a better measurement of

companies takeover value.

8.Operating cashflow:

A measure of how well current liabilities are covered by the cash flow generated from a

Company’s operations.

Formula: OCF Ratio= cash flow from operations .

Current liabilities

The operating cash flow ratio can gauge a company's liquidity in the short term. Using cash flow

as opposed to income is sometimes a better indication of liquidity simply because, as we

know, cash is how bills are normally paid off.

Companies operations

9.Current ratio:

35

The current ratio is the ratio of total current assets to total current liabilities. It is

calculated by dividing current assets by current liabilities:

Current assets

Current Ratio = ________________

Current liabilities

The current assets of a firm, as already stated, represent those assets which can be, in the

ordinary course of business, converted into cash within a short period of time, normally not

exceeding one year and include cash and bank balances, marketable securities, inventory of raw

materials, semi-finished (work-in-progress) and finished goods, debtors net of provision for bad

and doubtful debts, bills receivable and prepaid expenses. The current liabilities defined as

liabilities which are short-term maturing obligations to be met, as originally contemplated, within

a year, consist of trade creditors, bills payable, bank credit, provision for taxation, dividends

payable and outstanding expenses.

10. Cash ratio:

The ratio of a company's total cash and cash equivalents to its current

liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can

therefore determine if, and how quickly, the company can repay its short-term debt. A strong

cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to

extend to the asking party.

Formula: cash ratio = total cash and cash equivalents .

Current liabilities

The cash ratio is generally a more conservative look at a company's ability to cover its

liabilities than many other liquidity ratios. This is due to the fact that inventory and accounts

receivable are left out of the equation. Since these two accounts are a large part of many

companies, this ratio should not be used in determining company value, but simply as one factor

in determining liquidity.

11.Asset efficiency ratio:

The asset efficiency ratio provides an indication of how well the assets of a company

36

are utilized to generate a cash flow return. As an alternative measure, total property,

plant and equipment could be used in place of total assets for the denominator to reflect a

company’s ability to minimize waste in generating cash flows from operations based on its

investment in operational assets. These measures, tracked over a period of time, can provide

useful insights especially when the results are compared to other companies in the same industry.

Formula:

asset efficiency ratio = cash flow from operations .

Total assets

12.operating cash margin:

The operating cash margin ratio is somewhat similar to a traditional profit margin ratio

except for the use of CFO in place of either net income or operating income as the

numerator. Thus, the operating cash margin ratio provides a more robust indicator of

performance based on cash generating ability as opposed to a profit margin ratio with its focus

on accrual based accounting income. Essentially, the operating cash margin ratio highlights the

timing of cash flows with respect to the timing of sales.

Formula:

Operating cash margin = cash flow from operations .

sales

Therefore, this ratio can prove useful as part of a process to evaluate cash management

performance, as well as, credit granting policies and receivable collections. However, since cash

flow margins are likely to exhibit substantial variations among companies in different industries,

it is more effective to focus a comparative analysis on companies within the same industry.

13.Operating profit margin:

A ratio used to measure a company's pricing strategy and operating efficiency.

Calculated as:

37

Operating profit margin = earning before interest and tax .

Net sales

Operating profit margin is a measurement of what proportion of a company's revenue is

left over after paying for variable costs of production such as wages, raw materials, etc. A

healthy operating margin is required for a company to be able to pay for its fixed costs, such as

interest on debt. Also known as "net profit margin".

Operating profit margin gives analysts an idea of how much a company makes (before

interest and taxes) on each dollar of sales. When looking at operating margin to determine the

quality of a company, it is best to look at the change in operating margin over time and to

compare the company's yearly or quarterly figures to those of its competitors. If a company's

margin is increasing, it is earning more per dollar of sales. The higher the margin, is the better.

14.Basic earning power:

The basic earning power ratio compares earnings apart from the influence of taxes or

financial leverage,to the assets of the company.this allows more direct comparision of similar

firms that use different financing strategies or have different tax situations.

Formula:

Basic earning power = earnings before tax and interests .

38

Total assets

The ratio indicates basic probability of assets and is useful in comparing firms with different

degree of leverage.

15.EBITDA to Interest coverage ratio:

The ratio that is used to assess a company’s financial durability by examining whether it is

at least profitably enough to pay off its interest expenses.

Formula:

EBITDA to interest coverage ratio= EBITDA .

Interest payments

A ratio greater than 1 indicates that the company has morethan enough interest coverage to

pay off its interest expenses.

3.5 Tips to improve financial health.

Author: Bill Hudley

Spend less money, or save more money or do both. If the annual income does nothing more

than remain constant, your financial condition will improve.

The above statement may sound come across as flippant, but it’s a fact of life,

regardless.Needless to say we all have different personalities and different responses to needs

and desires in life.

A very important yardstick, in my view, is the growth rate of personal assets. If you sit

down to all of the savings accounts, investment accounts and properly values and the total value

is greater than the same time of the previous year, it stands to improve that the financial health

intact and possibly improved.

3.5.1 Steps to Improve Financial Performance

Author: Terry Peltes

Given the challenges facing physicians, successful practices must take proactive steps to combat

negative trends and improve their overall financial performance.

39

To improve practice operations, processes can be streamlined to reduce costs; productivity

improvements can be implemented by the employees to increase revenue; a reporting structure

can be created that allows for better decision making by employees; and a rewards system can

be implemented to recognize hard-working employees.

To determine how you can improve your practice's performance, consider the

following management procedures.

1) Internal Cost Reduction Strategies

Cost reduction strategies focus on reducing the internal costs generated by

services provided to the marketplace.

2) External Cost Reduction Strategies

These strategies include the cost of services purchased from outside consultants or

vendors.

3) Asset and Credit Management Strategies

These strategies ensure that you are getting the most value from the resources invested in your

practice.

4) Personnel Resources

When managed properly, personnel costs and productivity can have a substantial

impact on profitability.

5) Management Reporting

The use of timely, relevant, properly formatted reports to manage your practice cannot

be overstated. This is a crucial link between setting financial and operational goals and

managing the practice to achieve them.

6) Revenue Enhancement

Industries can improve their financial performance by improving their ability to negotiate

favorable managed care contracts and reducing practice expenses as a percentage of revenue.

3.5.2 Excellence in Financial Management

Author: Matt H. Evans

Ratio analysis can be used to determine the time required to pay accounts payable

40

invoices.If the average number of days is close to the average credit terms, this may indicate

aggressive working capital management; i.e. using spontaneous sources of financing. However,

if the number of days is well beyond the average credit terms, this could indicate difficulty in

making payments to creditors.

3.5.3 Analyze Investments Quickly With Ratios

Author: Jonas Elmerraji

The information you need to calculate ratios is easy to come by: Every single number or

figure you need can be found in a company's financial statements. Once you have the raw data,

you can plug in right into your financial analysis and put those numbers to work for you.

Everyone wants an edge in investing but one of the best tools out there frequently is

misunderstood and avoided by new investors. When you understand what ratios tell you, as well

as where to find all the information you need to compute them, there's no reason why you

shouldn't be able to make the numbers work in your favour.

3.6 BUSINESS ANALYSIS:

Business analysis is the list of academic disciplines of identifying business needs and

determining solutions to business problems. Solutions often include a systems development

component, but may also consist of process improvement, organizational change or strategic

planning and policy development.

SWOT ANALYSIS:

A technique that enables a group or individual to move from everyday problems and

traditional strategies for a fresh perspective.swot is said to be strength and weakness as internal

environment ,opportunities and threats as external environment.

Strength:

Any existing or potential resources or capability within the organization that provides a competitive advantage in the market.

Weakness:

41

Any existing or potential force which could serve as a barrier to maintaining or achieving a competitive advantage in the market

Opportunities:

Any existing or potential force in external environment that ,if properly leveraged ,could provide a competitive advantage

Threats:

Any existing or potential force in the external environment that could erode a competitive advantage.

Aim of swot analysis:

Take advantage of strengths and opportunities Minimize weaknesses and eliminate threats

3.6.1 Measures to improve the business process:

A Business process improvement (BPI) typically involves six steps:

1. Selection of process teams and leader:

Process teams, comprising 2-4 employees from various departments that are involved in the

particular process, are set up. Each team selects a process team leader, typically the person who

is responsible for running the respective process.

2. Process analysis training:

The selected process team members are trained in process analysis and documentation

techniques.

3. Process analysis interview:

The members of the process teams conduct several interviews with people working along the

processes. During the interview, they gather information about process structure, as well as

process performance data

42

4. Process documentation:

The interview results are used to draw a first process map. Previously existing process

descriptions are reviewed and integrated, wherever possible. Possible process improvements,

discussed during the interview, are integrated in to the process maps.

5. Review cycle:

The draft documentation is then reviewed by the employees working in the process.

additional review cycle may be necessary in order to achieve a common view(mental image) of

the process with all concerned employees. This stage is an interaction process.

6.Problem analysis:

A thorough analysis of process problems can then be conducted, based on the

process map, and information gathered about the process. At this time of the project, process

goal information from the strategy audit is available as well, and is used to derive measures for

process improvement.

3.7 CREDIT RATING AGENCIES IN INDIA:

The popular credit rating agencies in India are:

1.Credit Rating and Information Services of India Limited(CRISIL).

2. Investment Information and Credit Rating Agency of India Limited (ICRA) .

3. Credit Analysis and Research Limited (CARE).

4.Duff&phelps credit rating india private ltd(DCR)

5.FITCH rating agency

43

1.CRISIL :

CRISIL was set-up by ICICI and UTI in 1988, and rates debt instruments. Nearly half of

its ratings on the instruments are being used. CRISIL's market share is around 75%. It has

launched innovative products for credit risks assessment viz., counter party ratings and bank loan

ratings. CRISIL rates debentures, fixed deposits, commercial papers, preference shares and

structured obligations. Of the total value of instruments rated, debentures' accounted for 3 1.196,

formed deposits for 42.3% and commercial paper 6.6%. CRISIL publishes CRISIL rating in

SCAN that is a quarterly publication in Hindi and Gujarati, besides English.

CRISIL evaluation is carried out by professionally qualified persons and includes data

collection, analysis and meeting with key personnel in the company to discuss strategies, plans

and other issues that may effect ,evaluation of the company. The rating process ensures

confidentiality. Once the company decides to use rating, CRISIL is obligated to monitor the

rating over the life of the debt instrument.

2. ICRA :

ICRA was promoted by IFCI in 1991. During the year 1996-97, ICRA rated 261 debt

instruments of manufacturing companies, finance companies and financial institutions equivalent

to Rs. 12,850 crore as compared to 293 instruments covering debt volume of Rs. 75,742 crore in

1995-96. This showed a decline of 83.0% over the year in the volume of rated debt instruments.

Of the total amount rated cumulatively until March-end 1997, the share in terms of number of

instruments was 28.5% for debentures(including long term instruments), 49.4% for Fixed

Deposit programme (including medium- term instruments), and 22.1% for Commercial Paper

Programme (including shortterm instruments). The corresponding figures of amount involved for

these three broad rated categories was 23.8% for debentures, 52.2% for fixed deposits, and

24.0% for Commercial Paper.

The factors that ICRA takes into consideration for rating depend on the nature of

borrowing entity. The inherent protective factors, marketing strategies, competitive edge,

competence and effectiveness of management, human resource development policies and

practices, hedging of risks, trends in cash flows and potential liquidity, financial flexibility, asset

44

quality and past record of servicing of debt as well as government policies affecting the industry

are examined. Besides determining the credit risk associated with a debt instrument, ICRA has

also formed a group under Earnings Prospects and Risk Analysis (EPRA). Its goal is to provide

authentic information on the relative quality of the equity. This requires examination of almost

all parameters pertaining to the fundamentals of the company including relevant sectoral

perspectives. This qualitative analysis is reinforced and completed by way of the unbiased

opinion and informed perspective of one analyst and wealth of judgement of committee

members. ICRA opinions help the issuing company to broaden the market for their equity. As

the name recognition is replaced by objective opinion, the lesser know compapies are also able to

access the equity market.

3.CARE :

CARE is a credit rating and information services company promoted by IDBI jointly with

investment institutions, banks and finance companies. The company commenced its operations

in October 1993. 'In January 1994, CARE commenced publication of CAREVIEW, a quarterly

journal of CARE ratings. In additioh to the rationale of all accepted ratings, CAREVIEW often

carries special features of interest to issuers of debt instruments,investors and other market

players.

4.DCR:

DCR India or Duff & Phelps Credit Rating India Private Ltd is one of the top credit

rating agencies in India. Over the years, DCR India has been providing excellent services to its

clients. Duff & Phelps Credit Rating India Private Ltd (DCR India) has played an important role

in rating India's forex debt obligations.

45

Duff & Phelps Credit Rating India Private Ltd (DCR India) rated the forex debt

obligations of India as ' BBB-' or a Triple B Minus. This rating is of great importance for the

economy of India and the credibility of the national government.

This rating reflects the fact that the Indian national government is trying its best to improve the

state of Indian economy. As per the rating of DCR India, the national government of India is

trying to bring about a better economic environment through the introduction of several

economic policies and plans for the last 17 years.

Over the years India has had powerful accounts of payments. Since the decade of 1990s

the records of debt service have also been impressive. The external debt indicators of India are

also showing better patterns. All these support the rating provided by Duff & Phelps Credit

Rating India Private Ltd (DCR India)

5.FITCH:

Fitch ratings was founded as fitch publishing company on December 24,1913 by John

Knowles fitch.Located in the heart of the financial district in new York city,the fitch puvlishing

company began as a publisher of financial statistics whose consumers included the new York

stock exchange.it became a recognized leader in providing critical financial statistics to the

investment community through such publications as the “fitch bond book” and the “fitch stock

and bond manual.”In 1924,the fitch publishing company introduced the now familiar

“AAA”to”D” ratings scale to meet the growing demand for independent analysis of financial

securities.

Fitch ratings was one of the three ratings first agencies first recognized as a nationally

recognized statistical rating organization(NRSRO) by the securities and exchanges commission

in 1975.

3.7.1 Rating symbols and their explaination:1.Rating symbols used by CRISIL:

Symbols CRISIL fixed deposit rating symbol

46

FAAA(F triple A)Highest safety

This rating indicates that the degree of safety regarding timely payment of interest and principal is very strong

FAA(F double A)High safety

This rating indicates that the degree of safety regarding timely payment of interest and principal is strong

FA Adequate safety

This rating indicates that the degree of safety regarding timely payment of interest and principal is satisfactory

FBInadequate safety

This rating indicates that the in adequate safety of timely payment of interest and principal

FCHigh risk

This rating indicates that the degree of safety regarding timely payment of interest and principal is doubtful

FDDefault

This rating indicates that the issuer is either in default or expected to be in default upon maturity

Table:5.1

Symbols CRISIL rating for short term instrumentP1Highest safety

This rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is very strong

P2High safety

This rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is strong

P3Adequate safety

This rating indicates that the degree of safety ragarding timely payment of interest and principal on the instrument is satisfactory

P4Inadequate safety

This rating indicates that the degree of safety regarding timely payment on the instrument is minimal

P5Default

This rating indicates that the issuer is either in default or expected to be in default upon maturity

Table:5.2

2.Rating symbols used by ICRA: Symbols Long term debt-debentures,bonds and preference

shares

47

LAAAHighest safety

Indicates fundamentally strong position.Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms

LAAHigh safety

Risk factors are modest and may vary slightly. The protective factors are strong and prospects of timely payment of interest and principal as per terms, under adverse a circumstances, as may be visual-ised, differ from LAAA only marginally.

LAAdequate safety

Risk factors are more variable and greater in periods of economic stress. The protective factors are average and any adverse change in circumstances, as may be visualised, may alter the fundamental strength and affect the timely payment of principal and interest as per terms

LBBBModerate safety

Considerable variability in risk factors.The protective factors are below average. Adverse changes in business/economic circumstances are likely to affect the timely payment of principal and interest as per terms.

LBRisk prone

Risk factors indicate that obligations may not be honoured when due. The protective factors are narrow. Adverse changes in business/ ecanomic conditions could result in inability unwillingness to service debt on time as per terms.

LCSubstantial risk

There are inherent elements of risk and timely servicing of debt/obligations could be possible only in case of continued existence of favourable circumstances.

LDDefault

Extremely speculative. Either already in default of payment of interest and/or principal as per terms or expected to default. Recovery is only likely on liquidation or reorganisation.

Table:5.3

Symbols Medium term debt including fixed deposit

48

programmesMAAAHighest safety

The prospect of timely servicing of the interest and principal as per terms is the best

MAAHigh safety

The prospect of timely servicing of the interest and principal as per terms is high but not high as in MAAA rating

MAAdequate safety

The prospect of timely servicing of the interest and principal is moderate.however,debt servicing may be affected by adverse changes in the business/economic conditions

MBInadequate safety

The timely payment of interest and peincipal are more likely to be affected by future uncertainties

MCRisk prone

Susceptibility to default high.adverse changes in business/economic conditions could result in inability/unwillingness to service debts on time and as per terms

MDDefault

either in default or expected to default

A1Highest safety

The prospect of timely payment of debt/obligation is the best

A2High safety

The relative safety is marginally lower than in A1 rating

A3Adequate safety

The prospect of timely payment of interest and instalment is adequate but any adverse change in business/economic conditions may affect the fundamental strength

A4Risk prone

The degree of safety is low.likely to default in case of adverse changes in business/economic conditions

A5Default

Either in default or expected to default

Table:5.4

3.Rating symbols used by CARE:

Symbols Long term and medium term instrumentsAAA Debt instrument carrying the rating are considered to be of

49

Highest safety the best quality,carrying negligible investment risk.debt service payments are protected by stable cash flows with good margin.while the underlying assumptions may change,such changes as can be visualised are most unlikely to impair the strong position of such instruments

AAHigh safety

Instruments carrying this rating are judged to be of high quality by all standards.They also classified as high investment grade.They are rated lower than AAA.

AAdequate safety

Instruments with this rating are considered upper medium instrument and have many favourable investment attributes.safety for principal and interest are considered adequate.assumptions that do not materialise may have a greater impact as compared to the instruments rated higher.

BBB Such instruments are considered to be of investment grade.they indicate sufficient safety for payment of interest&principal,at the time of rating.however,adverse changes in assumptions are more likely to weaken the debt servicing capability compared to the higher rated instruments.

BB Such instruments are considered to be speculative,with inadequate protection for interest and principal payments

B Instruments with some ratings are generally classified susceptible to default.while interest and principal payments are being met,adverse changes in business conditions are likely to lead to default.

C Such instruments carry high investment risk with likelihood of default in the payment of interest and principal

D Such instruments are of the lowest category.They are either in default or are likely to be in default soon

Table: 5.5

Symbols Short term investmentsPR-1 Instruments would have superior capacity for repayments

of short term promissiory obligations.issuers of such instruments will normally be characterised by leading market positions in established industries, high rates of return on funds employed etc.,

PR-2 Instruments would have strong capacity for repayment of

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short term promissory obligations.issuer would have most of the characteristics as for those with PR-1 instruments but to a lesser degree.

PR-3 Instruments have an adequate capacity for repayment of short term promissiory obligations.the effect of industry characteristics and market composition may be more pronounced.variability in earnings and profitability may result in changes in the level of debt protection

PR-4 Instruments have minimal degree of safety regarding timely payment of short term promisiory obligations and safety is likely to be adversally affected by short term adversity or less favourable conditions

PR-5 The instrument is in default or is likely to be in default on maturity

Table: 5.6

Symbols Credit analysis ratingCARE-1 Excellent debt management capability.such companies

will normally be characterised as leaders in the respective industries

CARE-2 Very good debt management capability.such companies would normally be regarded as close to those rated CARE-1,but with a lower capability to withstand changes in assumptions

CARE-3 Good capability for debt management.such companies are considered medium grade.assumptions that do not materialise may impair debt management capability in future

CARE-4 Barely satisfactory capability for debt management.the capacity to meet obligations is likely to be adversely affected by short term adversity or less favourable conditions

CARE-5 Poor capability of debt management.such companies are in default or are likely to default in meeting their debt obligations

Table: 5.7

3.7.2 RATING PROCESS

Client Agencies

Required for

Submits information and detailed schedules

Interacts with team, responds to queries&provides additional data necessary for the analysis

Assigns rating

Team interacts with client, undertakes site visits & analyses data submitted by clients.

Press release, published in website, care view.

Rating kept under periodic surveillance

Appeal for review of rating (once)

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Yes

NO

Chart: 3.2

3.7.3 RATING AGENCIES METHODOLOGIES: The construction is one of the important sectors in India today. The industry can

be gauged from the fact that supports a large number of upstream and downstream industries.

Moreover, the industry has strong linkages with the overall economy and enjoys a large

economic multiplier effect.

The team does analysis of the information

Rating commitee awards rating.rating letter and rationale issued to client

Accept rating

52

The Indian construction industry can classified into three broad subgroups as follows:

Category List of construction activities

Residential and

Commercial/industrial

Residential and commercial buildings and complexes

such as houses,offices,hospitals,restaurants,shops and

shopping complexes etc.

Infrastructure Roads,ports,bridges,flyovers,dams,power

plants,telecom facilities,oil&gas plants,refineries

Urban-infrastructure Municipal roads,water supply,sewerage and

drainage,sanitation,solid waste management systems

etc.

Table:5.8

1.CRISIL’S CREDIT RATING METHODOLOGY:

CRISIL extensive experience in the credit evaluation of construction

companies has led to the evaluation of specific rating methodology for companies in this

industry.A discussion of the specific parameters used in the methodology follows.

BUSINESS RISK ANALYSIS:

Market position:

Area of expertise and business potential therein:

Construction company which has expertise in or are active in sectors of the

construction industries where higher activity levels are anticipated,benefit from significantly

better business prospects than their counterparts whose area of expertise has a relatively lower

growth expectation. It is crisils view, as indeed as that of most observers of the indian

economy,that the countries physical infrastructure needs of significant improvement.This

includes areas of construction activity like roads, ports,energy and housing,with each sector

carrying a demand potential that would call for an expenditure of several billion rupees each. The

timing and extent of activity in each sector would, however, depend on the interplay of numerous

factors.

53

Using this knowledge and understanding of economic environment, CRISIL

continally attempts to identify segments of the construction industry that are likely to witness

more actively than others. This view is coupled with the area of expertise of individual

construction companies to arrive at the demand potential for those companies.

Diversity and dispersion of project portfolio:

CRISIL views construction companies that have a diversified project portfolio

both across sectors and geographies of implementation ,more favourably than companies that

tend to have a more concentrated portfolio.In similar situation,other things remaining equal,a

construction company with a large number of small projects would be viewed more favourably

from a credit perspective than a company whose portfolio includes a small number of large

projects.such diversity and dispersion enables the company to better withstand unforeseen

adverse developments in any project that is being implemented.

Operating efficiency:

Track record and implementation expertise:

Construction companies that have a strong track record of project implementation to

the required quality standards and without cost,or time overrun enjoy,in crisils opinion,a strong

position with respect to winning future business in their future expertise.The track record

importance arises from the fact that most the construction projects are awarded on the tender

basis,where experience in the sector is a prerequisite for bidding.Moreover,this prior experience

also enhances the companies expected skills. Some large players, however, have been able to

establish project manager expertise spanning much wider range of technical skills.

Cost structure and operating philosophy:

Construction companies,cost structure is also an important element to determine the

operating efficiencies.A high fixed cost structure will make it unviable for the company for the

quoting aggressively for projects and impact success ratio. Similarly, if such companies quote

aggressively,then they may not be able to cover their cost.therefore several companies operate

extensively through sub-contractors to increase the variable element of their cost

54

structures.Thus,having an optimum cost structure is critical for the longterm viability of a

construction company.while,analysing the operating efficiency of a company,CRISIL will access

the company’s opearting philosophy,its cost structure,past track records in tenders,reasons for

losing tenders etc.

Knowledge of and comfort with the local environment:

Construction companies that are more kowledgeable about the environment in

which they operate are significantly better eqquiped to handle uncertainties and surprises that are

a potential part of all construction projects.with increasing globalisation,most business activities

have tended to span national and regional boundaries.However this process has been particularly

slow in the construction industry, which has retained its predominantly local character in most

markets.In CRISIL view,this is likely to continue over the short to medium term,given the

continuing importance of the awareness of naunces and detail about the local environment as an

ingredient of successful project implementation of the construction industry

FINANCIAL RISK ANALYSIS:

CRISIL’S analysis of financial risk for construction company is broadly in line with the

creiteria adopted for other manufacturing companies.The following elements are centrally

included in our analysis for construction companies.

Accounting quality:

Construction company that follow a consistent,transparent and conservative policy on

financial accounting tend to be viewed more favourably in crisil’s credit analysis than those that

do not.since construction companies can adopt varying accounting policies for income and profit

recognition,analysis of accounting is very critical first step in the financial risk analysis of such

companies.construction companies have followed diverse policies with respect to income

recognition.the analysis focuses on project-wise activity on a year to year basis in order to

determine the companies effective business level.

Cash flow and liquidity analysis:

55

Construction companies revenue and cash flow profile could be covered given to the

nature of business they undertake.Additionally, there could be a sharp distinction between the

cash flows and the accrued income.Therefore,conventional techniques of ratio analyis are often

not sufficient to ascertain the credit worthiness of a construction company.CRISIL analysis of

construction companies tends to be more focused on a cash based analysis of revenues, expenses

and financial indicators. Construction companies that have a strong liquidity position and a more

predictable project cashflows are viewed more favourably from a credit

perspective.predictability of cash flows is often supported by project,geographic and customer

diversification and hence companies with diversified revenue streams may be viewed more

favourably compared to companies with concentrated revenue streams.

CONCLUSION:

CRISIL’S analysis of Construction Company is unique from that of a typical manufacturing

company. This unique approach leverages on crisils in depth understanding of this sectors and on

specific naunces.In crisils opinion, the key success factors for the construction sectors include:

Expertise in high growth segments

Diversified and dispersed project portfolio

Strong track record of project implementation

Optimum cost structure

Strong cashflow generation capabilities

2. ICRA’S CREDIT RATING METHODOLOGY:

The methodology for assigning Credit Ratings entails a comprehensive evaluation of the

risks that could impact an issuer’s ability to generate cash flows. This risk analysis is

complemented by a cash flow analysis that seeks to capture the adequacy of the issuer’s

projected cash flows vis-à-vis its debt servicing obligations.

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All factors that have a bearing on the issuer’s ability to generate cash flows are

considered while assigning ratings. Conceptually, these factors may be classified as business

risk, financial risk drivers, and management related factors. ICRA’s rating process places

considerable emphasis on evaluating business risks, as it does on evaluating the financial ratios.

For credit risk evaluation, stable businesses (low industry risk) even with lower level of cash

generation are viewed more favourably as compared with businesses with higher cash generation

potential but relatively high degree of volatility associated with such cash flows (higher industry

risk). This risk analysis is complemented by a cash flow analysis that seeks to capture the

adequacy of the issuer’s projected cash flows vis-à-vis its debt servicing obligations.

The risk analysis framework for a typical construction company may be depicted as follows:

BUSINESS RISK FINANCIAL RISK

-industry risk

-competitive position

-management quality

-new project risk

-financial position

-profitability

-capital structure

-financial capability

-future cashflow adequacy

Table:5.9

Some of the key risk factors that ICRA analyses while arriving at a Credit Rating are discussed

in the following sections.

Business Risk

The business risk that an issuer is exposed to is a combination of the industry risk in its major

product segments and its competitive position within the industry.

- Industry Risk

The objective here is to understand the attractiveness of the industry in which the issuer operates.

The aspects examined include:

57

Intensity of competition

Vulnerability to imports

Regulatory risks

Outlook for user industries

Working capital intensity

Overall prospects and outlook for the industry

The rating analysis begins with an evaluation of the business that the company is in.

The dynamics of the business influence a company’s operating risk to a large extent. The

analysis thus focuses on the overall industry prospects as well as the key success factors in the

industry.

- Issuer’s Competitive Position

An assessment of the issuer’s competitive position within an industry is made on the basis of its

operating efficiency as well as its market position. Some of the factors assessed are:

Scale of operations

Vintage of technology used

Capital cost position

Location advantage in terms of proximity to construction

Operating efficiencies (yields, rejection rates, energy consumption, etc.)

Market position as reflected in trends in market share, ability to command premium

pricing, extent of distribution network, and relationship with key customers

Usually, a peer comparison is carried out to evaluate each of the above factors.

Financial Risk

The objective here is to determine the issuer’s current financial position and its financial risk

profile. Some of the aspects analysed in detail in this context are:

Operating profitability: The analysis here focuses on determining the trend in the issuer’s

operating profitability and how the same appears by peer comparison.

Gearing: The objective here is to ascertain the level of debt in relation to the issuer’s own funds

and is viewed in conjunction with the business risks that the issuer is exposed to.

Debt service coverage ratios: Here, the trends in the issuer’s key debt service coverage ratios

like Interest Coverage and Net Cash Accruals/Total Debt are examined.

58

Working capital intensity: The analysis here evaluates the trends in the issuer’s key working

capital indicators like Receivables, Inventory and Creditors, again with respect to industry peers.

Accounting quality: Here, the Accounting Policies, Notes to Accounts, and Auditor’s

Comments are reviewed. Any deviation from the Generally Accepted Accounting Practices is

noted and the financial statements of the issuer are adjusted to reflect the impact of such

deviations.

Contingent liabilities/Off-balance sheet exposures: In this case, the likelihood of devolvement

of contingent liabilties/off-balance sheet exposures and the financial implications of the same are

evaluated.

Financial flexibility: The issuer’s financial flexibility—as reflected by it unutilised bank / credit

limits, liquid investments, and the nature of its relationship with banks, financial institutions and

other intermediaries—is assessed.

CONCLUSION:

ICRA’s credit ratings are a symbolic representation of its opinion on the relative

credit risk associated with the instrument being rated. This opinion is arrived at following a

detailed evaluation of the issuer’s business and financial risks, its competitive strengths, its likely

cash flows over the life of the instrument being rated, and the adequacy of such cash flows vis-à-

vis its debt servicing obligations.

3.CARE’S CREDIT RATING METHODOLOGY:

The term infrastructure projects is used to describe projects to provide water

supply, sanitation, solid waste management,power,bridges and roads, urban transport, bus

terminals, public housing, shopping complexes,ports and other public facilities.Infrastructure

services in India have been traditionally provided by public agencies operating at different levels

of government viz., local, state and central. These include municipalities, utility boards,

development authorities and government departments. For instance in India, water supply and

sanitation, is provided by different institutions in different areas. While generally, municipal

corporations are responsible for capital works and maintenance; a few cities have metropolitan

utility boards that undertake this function. In smaller cities, project implementation is done by

state level utility boards or the state’s Public Health Engineering Department whereas the

59

maintenance function is done by the local bodies. The term ‘municipal bodies’ is used to

describe local administrations or statutory undertakings providing civil or infrastructural

services.

CARE undertakes rating exercise based on

Information provided by the company

In-house database and data from other sources that CARE considers reliable. CARE does

not undertake unsolicited ratings

The primary focus of the rating exercise is to assess future cash generation capability and

their adequacy to meet debt obligations in adverse conditions.

The analysis attempts to determine the long-term fundamentals and probabilities of

change in these fundamentals which could affect the credit worthiness of the borrower

The analytical framework of CARE’s rating methodology is divided into two

interdependent segments. The first deals with the operational characteristics and the

second with the financial characteristics.

Besides quantitative factors,qualitative aspects like assessment of management

capabilities play a very important role in arriving at the rating for an instrument.

The relative importance of qualitative and quantitative components of the analysis varies

with the type of issuer

Rating determination is a matter of experience and holistic judgement,based on the

relevant quantitative and qualitative factors affecting the credit quality of the issuer.

Financial analysis:

The term financial analysis is also known as analysis and interpretation of financial

statements. It refers to the establishing meaningful relationship between various items of the two

financial statements i.e. Income statement and position statement. It determines financial strength

and weaknesses of the firm.

Analysis of financial statements is an attempt to assess the efficiency and performance of

an enterprise. Thus, the analysis and interpretation of financial statements is very essential to

measure the efficiency, profitability financial soundness and future prospects of the business

units.

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3.5.4 In addition Rating Agencies also does sectoral analysis as stated below:

Rating agencies has developed a rating methodology for debt issues of long term and

short term. The rating procedure is designed to facilitate appropriate credit risk assessment,

keeping in view the characteristics of the Indian infrastructure sector. Agencies rating looks at a

time horizon over the life of the debt instrument being rated and covers the following areas:

Demand analysis, Competition:

The viability of the road project is critically dependent on the extent and nature of benefits to the

users of the facility and their willingness to pay for the same. Agencies focus in rating toll road

debt issues is on traffic demand and potential variation of demand due to economic changes and

competition. The linkage of demand to toll pricing and the users willingness to pay is also

examined critically.

Demand Analysis

• Demand analysis involves analysis of the toll road region in terms of economic strength

and diversity. For this, regional wealth indicators like: level of industrialisation,

availability of facilitating infrastructure etc. Are examined. A sound and growing local

economy assures a high level of commercial and business travel, the mainstay for

revenue generation. Demand analysis is crucial as wrong estimation of demand or

deterioration in the economic base would result in flat or declining traffic flow, adversely

affecting debt servicing. Agencies traffic demand analysis is based on studies carried out

by reputed traffic consultants, with adequate experience.

• In order to comprehend risk, they considers it is essential to study the nature and

composition of traffic as well as volatility of traffic due to business cycles, natural factors

(floods, landslides, etc.), social unrest and escalation in fuel prices.

While commercial traffic tends to serve as a stabilising force, they would favorably

consider a balance between commercial and private vehicle traffic. Commercial traffic is

less sensitive to toll increases than private traffic, since additional cost (tax deductible),

can be passed on to customers. As a general rule, a diverse traffic mix cushions the

impact of a decline in any one segment.

Focus on demand and potential variation of demand due to economic changes, as the

most essential ingredient for commercially viable operation.

61

In such a case, the capital programmes of the appropriate state, regional and

local authorities are examined to factor in any possible competing facility. Covenants in the

Concession Agreement (CA) which explicitly prohibit the government from setting up

competing facilities upto a stipulated period will reduce the risk of the project.

Operating risks

Agencies believes that port operations carry unique operating risks which it analyses in detail:

• Susceptibility to the vagaries of weather and other natural hazards

• Proportion of firm commitments for cargo movement

• Ability of the operator to maintain optimum operating conditions

• Changes in global shipping practices

• Contract terms with the shipping lines

• Customer profile and degree of diversification

• Competition from any other alternative mode

• Technology

Operating risk covers the ability of the project to achieve the performance as envisaged. The

evaluation is done by

Considering the following factors.

(a) Technology

(b) Fuel supply arrangements:

- dedicated fuel linkages to the power plant;

- Proximity of the plant to fuel sources;

- Reliability of the transportation system to carry fuel from the source to the plant;

- Flexibility of the plant use alternative fuels; and

- In case of hydro electric power plants, the variability of rainfall in the catchment area and its

impact utilisation.

(c) Fuel cost risk arises when the PP is unable to pass on the rising cost of fuel to the purchaser.

Toassess such risk, sensitivity analysis is carried out to study the effect of rising cost on the

margins on the company.

Project implementation risk:

62

The risk associated with the completion of a Greenfield power project on time is quite high, due

to the long gestation period and large investments involved. They analyses the following factors

to estimate the risks associated with the completion of the project.

• The extent of tie-up for finance.

• Capability of the PP to raise additional resources in case of cost overruns.

• Contractor capability, based on technical and financial strengths as well as past

experience.

• Political risks.

• Environmental issues.

• Cushion provided in the financing plan and construction schedule for possible delays.

Financial Analysis

An in-depth analysis of the projected operations is undertaken to assess the ability of the port

operations to service its debt obligations. This would also entail a critical examination of the

underlying assumptions in context of the above factors. They would also examine the following

as part of its financial evaluation:

• Adequacy and stability of cash flow

• Coverage available for debt servicing

• Financial flexibility

• Comparison with other sectors

• Factors which could have a critical impact on the servicing ability

They will analyse each of the above factors and their linkages to arrive at the overall

assessment of credit quality. The reduction in credit risk due to any credit enhancement provided

is carefully evaluated before assigning the final rating.

While the methodology encompasses comprehensive technical, financial, commercial,

economic and management analysis, the credit rating is awarded by the rating committee on the

basis of an overall assessment of all aspects.

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CHAPTER-4

OBJECTIVE OF THE STUDY

4.1 PRIMARY OBJECTIVE:

To know the credit worthiness of GMR infrastructure among the competitors by using

the credit rating methodology

4.2 SECONDARY OBJECTIVE:

To know the financial performance of the company.

To know the financial position of the concern.

To analyse the liquidity solvency position of the firm.

To study the working capital management of the firm.

To understand the profitability position and cash flow adequacy of the firm.

To know the competitive position and managerial capability of the issuer.

To understand the credit ratings given by the rating agency.

CHAPTER-5

RESEARCH METHODOLOGY

5.1 SCOPE OF THE STUDY:

The present study is intended to cover the 3 key competitors of gmr and comparing the

financial statements of the year 2010 and also an analysis and study of credit ratings of each

competitor along with the GMR Infrastructure ltd.

64

5.2 SOURCES OF DATA:

The project evaluates the credit ratings given by the rating agencies in India and finding

the rankings of the companies by using the credit rating methodologies like business analysis and

the financial analysis.

The data is the first hand information that has to be collected during the period of the

research. This data has been gathered through oral conversations with the employees in the

finance department.

Secondary data studies whole company records and company’s balance sheet in which

the project work has been done. In addition, a number of reference books, journals and reports

are also used to formulate the theoriotical model for the study and some information also drawn

from the websites.

5.3 TOOLS FOR THE STUDY:

Cross sectional and time-series analysis:

Weighted average ranking scale

Credit rating methodologies:

* financial analysis

-comparative financial statements

-ratio analysis

* business analysis

-swot analysis

CHAPTER-6

DATA ANALYSIS AND INTERPRETATION

6.1. Financial analysis using ratio analysis:

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “The

Indicated Quotient of Two Mathematical Expressions” and as “The Relationship between Two or

More Things”. In financial analysis, a ratio is used as a benchmark for evaluating the financial

65

position and performance of firm. The absolute accounting figures reported in the financial

statement do not provide a meaningful understanding of the performance and financial position

of a firm. The relationship between two accounting figures, expressed mathematically is known

as a financial ratio. Ratios help to summaries large quantities of financial data and to make

qualitative about the firm’s financial performance. The point to note is that a ratio reflecting a

quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial

ratios.

6.1.1 Significance of Using Ratios:

The significance of a ratio can only truly be appreciated when:

1. It is compared with other ratios in the same set of financial statements.

2. It is compared with the same ratio in previous financial statements (trend analysis).

3. It is compared with a standard of performance (industry average). Such a standard

may be either the ratio which represents the typical performance of the trade or

industry, or the ratio which represents the target set by management as desirable for

the business.

6.1.2 Comparative balance sheet:

Comparative balance sheets as on two or more different dates can be used for

comparing assets, liabilities, capital and finding out any increase or decrease in those items. In

the words of Foulke “comparative balance sheet analysis is the study of the trend of the same

items, group of items and computed items in two or more balance sheets of the same business

enterprise on different dates”. Such analysis often yields valuable information as regards

progress of business concern

Comparative Balance sheet Rs in CrsPARTICULARS GMR JPASSO LANCO GVKsources of fundsshare holders fundsshare capital 366.74 424.93 238.547 157.97reserves and surplus 6300.32 8075.79 3106.226 2998deferred income 178.65preference shares issued by a subsidiary 200minority interest 1790.15 710.819 250.05loan fundssecured loans 16229.4 11358.01 7561.908 4430.48

66

unsecured loans 4607.95 6550.7 799.469 15deferred payment liability 333.92deferred tax liability 956.08 100.303 89.01Total 29828.48 27365.51 12517.272 8119.16application of fundsfixed assets:gross block 14889.64 12847.14 6164.39 4841.12less:revaluation reserveless:accumulated depreciation/amortization 2341.58 2228.46 1086.66 892.8net block 12548.06 10618.68 5077.73 3948.32capital work-in-progress 10382.87 3891.68 1328.088 1589.17expenditure during construction 595.641 406.29

22930.93 14510.36 7001.459 5943.78Investments 4641.05 5576.26 2022.892 1938.2deferred tax asset(net) 80.47 32.83 0.52foreign currency monetary item translation difference account 0.53

81 32.83 0 0.52current assets,loans and advancesInventories 115.92 1553.63 1626.708 35.47projects under development 1356.05sundry debtors 864.93 2285.03 2226.997 67.56cash and bank balances 1682.62 3879.18 962.771 50.81other current assets 161.65 30.38 7.429 193.32loans and advances 1315.63 3994.72 2180.029 93.81

4140.75 13098.99 7003.934 440.97less:current liabilities and provisionsLiabilities 1582.14 5201.43 3411.51 180.55Provisions 383.11 651.46 99.503 23.76

1965.25 5852.89 3511.013 204.31w.c:current assets-current liabilities(net current assets) 2175.5 7246.1 3492.921 236.66Total 29828.48 27365.55 12517.272 8119.16

Table:6.1

6.1.3 Comparative profit and loss account:

The profit and loss account is having an alternative term as revenue account. It shows

the inflows of money from the sale of goods or services and the cost and expenses chargeable

against it, over an accounting period and also we can say that profit and loss account is a report

of the company’s profit on the sale of their goods or the provision of their service over a trading

period, normally one year.

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COMPARITIVE PROFIT AND LOSS ACCOUNT rs in crsPARTICULARS GMR JPASSO LANCO GVKIncomesales and operating income 5123.42 3540.36 8107.556 1786.6359Revenue 6566.19 asbestes sheets of sales 82.36less:revenue share paid/payable to concessionaire grantors 556.91 75.536

4566.51 8032.02other income 163.39 1582.87 183.944 29.1825net income 4729.9 11671.78 8215.964 1815.8184Expenditure increrase/decrease in stocks and work in progress 83.1exice duty on stocks 22.34 1054.2312generation and operating expenses 2576.59 5703.62 6149.377selling and distribution expenses 683.86Personnal 665.29 23.9935administration and other expenses 625.61 619.35 431.148 240.112interest and finance charges(net) 722.33 1055.79 355.411 217.1depreciation/amortization 612.24 456.06 347.88 137.1201

4536.77 2382.37 7283.816 1672.5668prior period adjustments -0.7profit before taxation,minority interest and share of profits/losses of associates 193.13 2381.67 932.153 143.2616provision for taxationcurrent tax 70.76 439.69 311.027 24.1585less:MAT credit entitlement -4.41 60.372 -9.2deferred tax credit -98.56 233.62 82.822 0.2592income tax for earlier years 4.8052fringe benefit tax 0.417 -0.0142profit after taxation and before minority interest/share of profits/(losses) of associates 225.34 1708.36 567.87 123.2529share of profits/losses of associates -21.58 -17.797 51.6838minority interest-profits/losses -45.36 -91.524 -19.0621net profit after minority interest/share of profits/losses of associates 158.4 1708.36 458.549 155.8746surplus brought forward 778.36 1879.68 779.553 279.7382debenture redemption reserve no longer required 100profit available for appropriation 936.76 3638.04 1238.204appropriations:transfer from debenture redemption reserve -16.25 117.32transfer to debenture redemption reserve 24.41 483.44 -2.423transfer to general reserve 240 19transfer of profits on minority on dilutionof interest in subsidiaries 12.68preference dividend declared by a subsidiary 1.39

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dividend distribution tax 0.41 19.06available surplus carried to balance sheet 914.12 2645.03 1221.525 435.6128earnings per share 0.43 0.4 2.04 1.02no of equity shares 3667354392 2124634633 2407804920 1532189062price value 62.35 150.45 54.15 44.85

Table:6.2

6.1.4 Cash flow statements:

Financial statements that reflects the inflow of revenue and outflow of expenses resulting

from operating, investing and financing activities during a specific time period. Cash flow

statements express a business results or plans in terms of cash in and out of the business, without

adjusting for accrued revenues and expenses. It doesn’t shows whether the business will be

profitable, but it shows cash position of the business.

Cash flow statements Rs.in crs.PARTICULARS GMR JPASSO LANCO GVKa.cash flow from/(used in) operating activitiesprofit before taxation and minority interest/share profits/(losses) of associates 193.13 2006.79 932.15 143.26adjustments for:depreciation/amortization 612.24 492.36 347.88 137.12provision for diminution in value of investments 0.07 75.3 -1.98liabilities/provisions no longer required,written back -72.77 -1.885profit from sale of investments(net) -37.33 -8.49 -14.61 -0.78loss from sale of fixed assets 3.85 0.98 0.83 0.02interest on borrowings 1286.38profit on sale of beneficiary trusts -1316.35excess provisions/credit balance return back -0.62provision for doubtful advances and debts(net) 0.79 2.11employee compensation expenses 211.94 57.08effect of changes in exchange rates on transaltion of subsidiaries/joint ventures -21.97 75.53loss/gain of foreign exchanges -72.4 0.059bad debts writtenoff 11.45 2.66dividend income -1.58 -7.58 -7.09 -13.03other income -1.99interest income -256.66 -158.4 -62.16 -6.76mark to market losses on derivative instruments 25.93interest and finance charges 824.35 467.21 208.47

69

operating profit before working capital changes 1283.5 2581.73 1724.64 468.408adjustments for:(increase)/decrease in inventories 15.96 -343.75 -304.41 2.708increase in projects under development -2652.68increase in sundry debtors -210.86 -688.85 -121.03trade and other receivables 6.56 -1292.01increase in loans and advances -90.74 -1175.16 -35.78increase in current liabilities and provisions 304.35 1613.91 341.98 61.48cash generated used in operations 18.71 -658.23 470.2 375.78direct taxes paid -51.1 -356.9 -314.51 -21.99net cash from operating activities 1251.11 1015.13 155.61 353.78b.cash flow from/(used in) investing activitiespurchase of fixed assets -6875.29 -1810.03 -1538.31 -813.34sale/ transfer of fixed asset -10508.02 3.041proceeds from sale fixed assets 2.79 8.21 0.008purchase of investment-long term -456.11 -2958.86 -605.53 -1247.1sale of shares held in trusts 1680.79 38.3miscellanous expenditure -29.95refund of share application money -102.84 0.12proceeds from sale of investments-long term 0.37 37.02 4.26(purchase)/sale of investments-current(net) -2718.49 1491.85 -628.58 0.78intercorporate deposites given 121 30.621consideration paid on acquisition of subsidiaries -185.95 37.843 -112.63interest received 171.85 132.04 68.96 9.039dividend received 1.58 7.58 7.09 15.308other income 1.19direct taxes paid 223.71

net cash used in investing activities-10059.25 9221.55 -2840.9 -2112.93

c.cash flow from/(used in)financing activitiesproceeds on issue of preference shares 300 311 727.3 705payment of debenture/share issue expenses -70.81 -14.24issue of common stock in consolidated entities 83.91 83.48proceeds from minority interest 96.24 -83.98 0.44increase in capital reserve 57proceeds from ESOP shares(including securities premium) 61.81proceeds/repayments of short term borrowings 591.92 947.25proceeds from borrowings 9143.75 15950.93 2864.8 1094.32repayments of borrowings -585.52 -603.37 -537.96repayment of share application money -0.29interest and finance charges paid -761.51 -1195.03 -848.41 -208.16dividend paid(including dividend distribution tax) -195.27net cash from financing activities 8109.32 14800.46 2695.92 2004.46

70

net increase/(decrease) in cash and cash equivalents -698.82 4563.78 10.61 245.49cash and cash equivalents as at april 1 2466.52 3921.41 755.38 178.14cash and cashequivalents on acquisation during the year 29.93 effect of changes in exchange rates on cash and cash equivalent -115.01cash and cash equivalents as at march 31 1682.62 8485.19 766 423.63

Table:6.3

6.1.5 Ratio analysis:

An integral aspect of fundamental analysis involves performing what many would call “ratio

analysis”. This involves calculating a number of different industry standard ratios and comparing

them to various benchmarks. The benchmark can be the ratios of other competitors. There’s no

set procedure for performing ratio analysis because it all depends on the type of company you’re

analyzing certain industries have industry specific ratios.

RATIO ANALYSISratios GMR JPASSO LANCO GVKrevenue 4566.51 10188.91 8032.02 1786.6359ebitda 1364.31 2411.35 1451.50 468.30

ebitda margin 0.30

0.24

0.18

0.26

pat 225.34 1708.36 567.87 123.2529

roe 0.55

1.37

2.03

0.51

eps 0.61

8.04

2.36

0.80

debt 20,837.35

17,908.71

8,361.38

4,445.48

p/e 101.47

18.71

22.96

55.75

equity 8,657.21

8,500.72

4,055.59

3,584.67

D/E 2.41

2.11

2.06

1.24

roce 0.35

0.27

0.32

1.40

ebit 752.07

1,955.29

1,103.62

331.18

Price/Book value

71

2.64 3.76 3.21 1.92

book value 23.61

40.01

16.84

23.40

ev 44,010.83

45,994.66

21,147.69

11,516.59

mc 22,865.95

31,965.13

13,038.26

6,871.87

ev/ebitda 32.26

19.07

14.57

24.59

current ratio 2.11

2.24

1.99

2.16

asset efficiency 0.30

0.08

0.02

0.80

ocf ratio 0.64

0.17

0.04

1.73

ocm 0.24

0.29

0.02

0.20

cash ratio 0.86

1.45

0.22

2.07

basic earning power

0.18

0.15

0.16

0.75

opm 0.15

0.55

0.14

0.19

EBITDA/Intetrest 1.89

2.28

4.08

2.16

Table:6.4

1. EBITDA Margin:

A measurement of a company's operating profitability. It is equal to earnings

before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because

EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with

a cleaner view of a company's core profitability.EBITDA margin measures the extent to which

cash operating expenses use up revenue

EBITDA MARGIN= EBITDA .

Total revenue

72

Chart:6.1

Notes:EBITDA Margin is to measure the extent to which cash operating expenses use up

revenues.

Inference:

Comparing the above graph the GMR is having the ratio of 0.30 as well as JPASSO-0.24,

LANCO-0.18 and GVK-0.26. Here GMR is highest in its EBITDA margin ratio comparing with

the other companies. so GMR is using revenue for their expenses.this is very useful for investors

to know the companies profitability position.

2.Return on equity:

The amount of net income returned as a percentage of shareholder’s equity.return on

equity measures a corporations profitability by revealing how much profit a company generates

with the money shareholder’s have invested.

ROE is calculated as:

73

Net income

Return on equity=______________________

Share holder’s equity

Chart:6.2

Notes: It shows how well the company uses investment funds to generate earnings growth.

Inference:

Comparing the above graph GMR is having the return on equity ratio as 0.55 as well as for

JPASSO-1.37, LANCO-2.03 and GVK-0.51.Here LANCO’s ratio is higher than the other

companies. so Lanco uses the investment funds to generate earnings growth

3.Price to earnings ratio:

A valuation ratio of a company's current share price compared to its per-share earnings.

Calculated as:

Price to earnings ratio= Market value per share .

Earnings per share

74

Chart:6.3

Notes:In general,a high P/E suggests that investors are expecting higher earnings growth in

future compared to the companies with lower P/E.

Inference:

By comparing the above graph GMR is having the price to earning ratio as 101.47 as well as for

JPASSO is having the ratio as 18.71 and for LANCO and GVK is 22.96 and 55.75 respectively.

Here GMR is highest comparing with the other companies.so for GMR investors are expecting

higher earnings growth in future period.

4.Debt to equity ratio:

A measure of a company’s financial leverage calculated by dividing its total liabilities by

stock holder’s equity.It indicates what proportion of equity and debt the company is using to

finance its assets.

Debt to equity ratio = Total liabilities .

Shareholder’s equity

75

A high debt/equity ratio generally means that a company has been aggressive in financing its

growth with debt.This can result in volatile earnings and additional growth.

Chart:6.4

Notes:Debt- equity ratio is that the low ratio of the company is exposing itself to large amount of

equity this is betterthan a high ratio of 2 or more.

Inference:

By comparing the above graph GMR is having the debt to equity ratio as 2.41 ,JPASSO is

having 2.11 and for LANCO and GVK are having 2.06 and 1.24 respectively.Here GVK is

having the less debt so it is exposing itself to large amount of equity where as GMR is having

high ratio so one way to improve their situation would be to issue more debt and use the cash to

buy back some of its outstanding shares.

5.Return on capital employed:

This is considered to be the best measure of profitability in order to assess the over all

performance of the business. As the primary objective business is to earn profit higher the Return

On Capital Employed, the more efficient the firm is in using its funds.

Return on capital employed= earnings before interest and tax .

76

Net current assets

Chart:6.5

Notes:A ratio indicates the efficiency and profitability of companies capital investments.roce

always should be higher than the rate at which the company borrows.

Inference:

By comparing the above graph GMR is having the ROCE as 0.35,JPASSO is having 0.27 as well

as LANCO and GVK are having 0.32 and 1.40 respectively.Here GVK is having the high ratio

so that it indicates that GVK has high efficiency and profitability of companies capital

investments.

6.Price to book value:

A ratio used to compare a stock's market value to its book value. It is calculated by

dividing the current closing price of the stock by the latest quarter's book value per share.

Calculated as:

Price to book value = stock price .

Book value

Where,

Book value = shareholders equity .

77

No. of equity shares

Chart:6.6

Notes:It is used to compare the stock market price to its book value. A lower P/B ratio could

mean that the stock is undervalued. However, it could also mean that something is fundamentally

wrong with the company.

Inference:

By comparing the above graph GMR is having the price to book value as 2.64 ,JPASSO is

having 3.76,LANCO is 3.21 ratio and GVK is having 1.92.Here JPASSO is having the high ratio

than others and remaining all three companies having the lower ratio so that the stock is

undervalued and also mean that something is fundamentally wrong with the company.

7.EV/EBITDA:

EV/EBITDA is a measure of the cost of a stock which is more frequently valid for

Comparisions across companies than the price to earnings ratio.like the P/E ratio, the

EV/EBITDA ratio is a measure of how expensive a stock is.it measures the price in the form of

enterprise value an investor pays for the benefit of the company’s cash flow in the form of

EBITDA

Calculated as:

EV/EBITDA= Enterprise value .

78

Earnings before interest and tax depreciation amortization

Chart:6.7

Notes:It is a measure of how expensive a stock is.it measures the price an investor pays for the

benefit of the companies cashflow.

Inference:

From the above graph the GMR is having the EV/EBITDA as 32.26,JPASSO as 19.07 ,LANCO

is having 14.57 and GVK as 24.59.by comparing all the four companies GMR is having high

ratio with 32.36 so GMR stock is expensive than other companies and investors will pay the

price for the benefit of the companies cashflows

8.Operating cash flow:

A measure of how well current liabilities are covered by the cash flow generated from the

company’s operations.

Formula: OCF Ratio = cash flow from operations .

Current liabilities

79

The operating cash flow ratio can gauge a company's liquidity in the short term. Using cash flow

as opposed to income is sometimes a better indication of liquidity simply because, as we

know, cash is how bills are normally paid off.

Chart:6.8

Notes:It is to measure how well the current liabilities are covered by the cashflow generated

from the company’s operations.

Inference:

From the above graph GMR is having the operating cashflow ratio as 0.64,JPASSO as

0.17,LANCO as 0.04 and GVK is having the ratio as 1.73.by comparing all the four companies

GVK is having the highest ratio.so that the current liabilities are covered by the cashflow

generated from the company’s operations.

9.Current ratio:

The current ratio is the ratio of total current assets to total current liabilities. It is

calculated by dividing current assets by current liabilities:

Current assets

Current Ratio = ________________

Current liabilities

80

Chart:6.9

Notes:This ratio measures the ability to pay its current liabilities.the ideal current ratio is 2:1

i.e,current asset must be twice current liabilities.if the current ratio is less ,the short term

financial position is not supposed to be very sound.

Inference:

From the above graph GMR is having the current ratio as 2.11,JPASSO as 2.24,LANCO is

having the ratio as 1.99 and the GVK as 2.16.by comparing all the four ratios JPASSO is having

the high raio so that the company is having ability to pay its current liabilities and LANCO is

having the less ratio so that the short term financial position is not supposed to be very

sound.Individually all the four companies are having the ability to pay its current liabilities.

10.Cash ratio:

The ratio of a company's total cash and cash equivalents to its current

liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can

therefore determine if, and how quickly, the company can repay its short-term debt. A strong

cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to

extend to the asking party.

81

Formula: cash ratio = total cash and cash equivalents .

Current liabilities

Chart:6.10

Notes: This ratio is to find the liquidity position of the firm and also finds how quickly the

company can repay its short term debt.

Inference:

From the above graph GMR is having the cas ratio as 0.86 ,JPASSO as 1.45,LANCO as 0.22 and

GVK as 2.07.by comparing all the four companies we have GVK with high ratio so the liquidity

position of the firm is high and also the company can repay its short term debt very quickly.

11.Asset efficiency ratio:

The asset efficiency ratio provides an indication of how well the assets of a company

are utilized to generate a cash flow return.

Formula: asset efficiency ratio = cash flow from operations.

Total assets

82

Chart:6.11

Notes: The cfo and finance area must continually look at the companies efficiency.it is to know

how well the company is using the assets and liabilities internally.

Inference:

From the above graph GMR is having the asset efficiency ratio as 0.30,JPASSO as 0.08,LANCO

as 0.02 and GVK is having the ratio as 0.80.by comparing the ratios the GVK is having high

ratio so that the company is using assets and liabilities internally.

12.Operating cash margin:

The operating cash margin ratio highlights the timing of cash flows with respect to the

timing of sales.

Formula:

Operating cash margin = cash flow from operations .

Sales

83

Chart:6.12

Notes:This ratio is to evaluate the cash management performance as well as credit granting

policies and receivable collection.

Inference:

From the above graph GMR is having the operating cash margin ratio as 0.24,JPASSO as

0.29,LANCO as 0.02 and GVK is having ratio as 0.20.By comparing all the four ratios JPASSO

is having the high ratio so that the cash management performance is going well.

13.Operating profit margin:

Company is used to measure a company’s pricing strategy and operating efficiency

Calculated as:

Operating profit margin = earnings before interest and tax .

84

Net sales

Operating profit margin is a measurement of what proportion of a company's revenue is

left over after paying for variable costs of production such as wages, raw materials, etc.

Chart:6.13

Notes:It indicates how effective a company is at controlling the costs and expenses associated

with their normal business operations.

Inference:

From the above graph GMR is having the operating profit margin as 0.15,JPASSO as

0.55 ,LANCO as 0.14 and the GVK is having the ratio as 0.19.by comparing all the four ratios

JPASSO is having higher ratio with 0.55 so the company is very effective at controlling the costs

and expenses associated with their normal business operations

14.Basic earning power:

The basic earning power ratio compares earnings apart from the influence of taxes or

financial leverage,to the assets of the company.

Formula:

Basic earning power = earnings before tax and interests .

Total assets

85

The ratio indicates basic probability of assets and is useful in comparing firms with different

degree of leverage.

Chart:6.14

Notes:A business ability to generate profit from conducting its operations.earning power is to

analyze stocks to assess whether the underlying company is worthy of investment.

Inference:From the above graph GMR is having the basic earning ratio as 0.18,JPASSO as

0.15,LANCO as 0.16 and GVK is having the ratio as 0.75.by comparing the all companies GVK

is having the high ratio with 0.75 so the company is having ability to generate profit from

conducting operations so this is worthy of investment

15.EBITDA to interest coverage ratio:

The ratio that is used to assess a company’s financial durability by examining whether

it is at least profitably enough to pay off its interest expenses.

Formula:

EBITDA to interest coverage ratio= EBITDA .

Interest payments

86

A ratio greater than 1 indicates that the company has morethan enough interest coverage to

pay off its interest expenses.

Table:6.15

Notes: it examines whether it is atleast profitably enough to pay off its interest expenses.a ratio

greaterthan 1 indicates that the company has morethan enough interest coverage to pay off its

interest expenses.

Inference: From th above graph GMR is having the EBITDA to Interest coverage ratio

1.89,JPASSO as 2.28,LANCO as 4.08 and GVK is having the ratio as 2.16.by comparing all the

four companies LANCO is having the best ratio so that the company profitably enough to pay

off its interest expenses.but individually all the company’s are profitably enough to payoff their

interest expenses.

RATING SCALE:

Constructed a rating scale based on a few key parameters to arrive at rankings for each of the

companies under coverage

Comp anies PE D/E P/BV

EV/ EBIT DA ROE ROCE

CUR RENT OCF ASSET OCM

CASH FLOW BEP

EBITDA MARGIN

EBITDA/INT OPM

GMR 101.5 2.41 2.64 32.26 0.55 0.35 2.11 0.64 0.30 0.24 0.86 0.18 0.3 1.89

0.15

JPASSO 18.71 2.11 3.76 11.74 1.37 0.48 2.24

0.17 0.08 0.29 1.45 0.37 0.34 2.28 1.38

87

LANCO 22.96 2.06 3.21 14.57 2.03 0.32 1.99 0.04 0.02 0.02 0.22 0.16 0.18 4.08 0.14

GVK 55.75 1.24 1.92 23.15 0.51 6.08 2.16 1.73 0.80 0.2 2.07 0.82 0.27 2.16 0.2

Key parameters for rating:

Table:6.5

Rank based on above parameters

Comp anies PE D/E P/BV

EV/ EBITDA ROE ROCE

CURR ENT OCF ASSET OCM

CASH FLOW BEP

EBITDA MARGIN

EBIT DA/ INT OPM

GMR 1 1 3 1 3 3 3 2 2 2 3 3 2 4 3JPASSO 4 2 1 4 2 2 1 3 3 1 2 2 1 2 1LANCO 3 3 2 3 1 4 4 4 4 4 4 4 4 1 4GVK 2 4 4 2 4 1 2 1 1 3 1 1 3 3 2

Table:6.6

Final rank of companies based on the above parameters

COMPANIESWeighted average ranking Final ranking

GMR 2.40 2JPASSO 2.07 4LANCO 3.27 1GVK 2.27 3

Table:6These are the final rankings given to all the companies by using ratio analysis and weighted average ranking scale methods .

Sectors Involved in Infrastructure Ltd

88

Table:6.8

For my

study I have refered three credit rating agencies in India. They are

1.Credit Rating and Information Services of India Limited(CRISIL).

2. Investment Information and Credit Rating Agency of India Limited (ICRA) .

3. Credit Analysis and Research Limited (CARE)

Now we are looking at the ratings given to the companies concern:

Rating agencies

GMR JPASSOCIAT LANCO GVK

ICRA N N N CRISIL N N NCARE Table:6.11From the above table we have care rating as common for all the companies so we have choosen

that to analyze

Table:6.12

GMR JPASSOCIAT LANCO GVK

Sectors GMRINFRA

JPASSOCIAT

LANCO

GVKPIL

AIRPORTS N N POWER ROADS URBANINFRA N EPC N NCEMENT N N NIT N N NSPORTS N N N

CARE RATINGSCOMPANIES RATINGS AMOUNT(rs.crores) INSTRUMENTS

GMRINFRA A(SO) 132secured non-convertible debenture

JPASSOCIAT A+ 500 long term bank facilities

LANCO A- 100long term non-convertible debenture

GVKPIL PR2+ 125 short term bank facilities

89

Rating given by careCare has retained A(SO) rating to secured non-convertible debenture issue for an outstanding amount of rs.132

Care has retained A+ rating to longterm bank facilities issue for an outstanding amount of rs.500

Care has retained a A- rating to the long-term non-convertible debenture issue for an outstanding amount of rs.100

Care has retained a PR2+ rating to short term bank facilities issue for an outstanding amount of rs.125

Rating definesInstruments carrying this rating are judged to be of high quality by all standards. They also classified as high investment grade. They are rated lower than A+

Debt instrument carrying the rating are considered to be of the best quality, carrying negligible investment risk. debt service payments are protected by stable cash flows with good margin.

Instruments with this rating are considered upper medium instrument and have many favorable investment attributes. Safety for principal and interest are considered adequate.

Instruments would have strong capacity for repayment of short term promissory obligations .issuer would have most of the characteristics as for those with PR-1 instruments but to a lesser degree.

Strengths:It established track record in terms of identification of strong operating assets, efficient project partners and project execution skills

The rating draws comfort from the market dominance, expertise in hydro power project construction business, successful track record, satisfactory order book position and consistent profitability

The experienced and resourceful promoters with established track record in engineering and construction business, order book position , comfortable profitability margins and low gearing levels.

The experienced management, track record of successful execution of projects, well diversified portfolio of assets under operation and construction, financial flexibility, growth prospects in infrastructure sector

Constrains:Corporate guarantees extended towards loans raised by its subsidiaries and group companies, limited experienced in hydro projects, elevated gearing, high term debt to gross cash accruals and moderate interest and large debt funded expansion plans mainly in energy sectors.

Increase in competition with construction, cement industries and inherent risk and cyclicality associated with real estate business, impact of increasing funding requirements on the capital structure, ability to infuse funds through alternative sources and consistency in profitability margin

Project execution risk given the large size of projects under development, substantial funding requirements and sectorial concentration of the current order book are the key rating sensitivities.

Any delay in the financial closure of projects will bring additional financial risks and ability of the company to meet its investment commitments without much change in its financial flexibility along with access to relatively low cost funds for its projects under execution are the key rating sensitivities

.

table:6.13

90

Now we have to do the business analysis by using the swot analysis:

Swot analysis of GMR:

STRENGTH:

1.The rating given by the credit rating agency

is A and this is judged to be of high quality in

all standards and also classified as high

investment grade

2.By the analysis the investors are expecting

highest earning growth in the future.so the

investors are having a good will on GMR

group.

3. the EV/EBITDA is high so that the investors

will pay the price for the benefit of the

companies cashflows.

4. It established track record in terms of

identification of strong operating assets,

efficient project partners and project execution

skills.

WEAKNESS:

1.The debt to equity ratio for GMR is high so

one way to improve their situation would be to

issue more debt and use the cash to buy back

some of its outstanding shares.

2.Short term financial position is not very

sound so it has to improve

3.Earning power of GMR is not very worthy of

investment

4. EBITDA to interest is morethan 1 so the

company is profitably enough to payoff their

interest but by comparing the GMR has to

improve.

OPPORTUNITIES:

1.Earning power of GMR is not very worthy of

investment but it is having the opportunity

from the investors who are going to invest in to

the company by looking in to the future of

GMR.

2.Get debt in lower interest rate( repayment on

time both principle+interest and good Debt

Service)

THREATS:

1.ROCE should be higher than the rate at

which the company borrows where as the roce

is moderate

2. The GMR has to complete their projects

with in time.

Table:6.14

91

Swot analysis for lanco:

Strengths:

1. The rating draws comfort from the market

dominance, expertise in hydro power project

construction business, successful track record,

satisfactory order book position and consistent

profitability

2.The company uses its investment funds to

generate the earnings growth

3.LANCO is having the high EBITDA to

interest ratio so that the company is profitably

enough to payoff their interest expenses

Weakness:

1.Lanco uses only less revenue for their

expenses.

2.The financial ,profitability position are not

very sound.

3.The company is not at all worthy for an

investment

4.The cash management performance is very

low.

5.The company doesn’t know to control the

costs and expenses associated with their

operations.

Opportunities:

1.Price/book value is to compare the stock

market value to the book value it is moderate

for lanco

2.There is a chance to investors to expect

earnings growth in the future. And stock value

should be moderate.

Threats:

1.The debt/equity is at high so that it would

expose the company to risk such as interest rate

increases and creditor nervousness.

2.Corporate efficiency is not yet present in the

company Project execution risk given the large

size of projects under development, substantial

funding requirements and sectorial

concentration of the current order book are the

key rating sensitivities

Table:6.15

92

SWOT analysis for GVK:

Strengths:

1.Return on capital employed is very high than

its rate at which the companies borrowed

2.Current liabilities are very well covered by

the cash flow generated by the company

3.Business is having ability to generate profit

from conducting its operations so the company

is worthy of investment

4.Corporation efficiency and liquidity position

is very good in the company

5.debt/equity ratio is very low so the industry

risk is also very low

Weakness:

1.The price/book value ratio is very low it

means that stock is undervalued and the

something is fundamentally wrong with the

company

2.The company doesn’t uses the investment

funds properly to generate the earnings growth.

Opportunities:

1.The company is very good at efficiency and

liquidity position it is having a chance to

improve the profitability position also

2.The investors is having the moderate view on

the company and the stock value is also

moderate.and the investors are having

expectation on the companies earning growth

Threats:

1.The main problem is that the company is

having something fundamentally wrong.

2 Any delay in the financial closure of projects

will bring additional financial risks and ability

of the company to meet its investment

commitments without much change in its

financial flexibility.

Table:6.16

93

SWOT analysis for JPASSO:

Strengths:

1.The rating given by the credit rating agency

is A+ and this is judged to be of high quality in

all standards than the A rank .

2.They compare the stock market value to the

book value very clearly.

3.The profitability position,liquidity position

and the cash management performance is at

good position.

4.The company is very effective in controlling

the cost and expenses associated with their

business operations.

5.ROCE is relatively high than the rate of the

company borrows

Weakness:

1.By the analysis the investors are not

expecting highest earning growth in the future.

2.The EV/EBITDA is low so that the investors

will not pay the price for the benefit of the

companies cashflows

Opportunities:

1.They might get an chance to improve the

corporate efficiency

2.They have to reduce debt obligations in the

coming future

Threats:

1.The investors are not having good view on

the company.

2.Stock value is very low so that the company

is not very worthy to invest

3. Increase in competition with construction,

cement industries and inherent risk and

cyclicality associated with real estate business,

impact of increasing funding requirements on

the capital structure

Table:6.17

94

Comparision of GMR and the JPASSOCIAT:

GMR JAYPEE

1.The credit rating retained by the care agency

is A(SO) rating to secured non-convertible

debenture issue for an outstanding amount of

rs.132

1. Care has retained A+ rating to longterm

bank facilities issue for an outstanding amount

of rs.500

2. Instruments carrying this rating are judged

to be of high quality by all standards. They

also classified as high investment grade. They

are rated lower than A+

2. Debt instrument carrying the rating are

considered to be of the best quality, carrying

negligible investment risk. debt service

payments are protected by stable cash flows

with good margin.

3.comparatively EBITDA to interest ratio is

low

3.EBITDA to interest ratio is high these are

enough to payoff their interest

4.for GMR the investors are expecting more

earnings growth in the future

4.relatively for JPASSO the investors are not

expecting more earnings growth in the future

5.stock value is going to very expensive 5.stock value is going to be very cheap

6.the profitability position,liquidity position

and cash management performance are in

moderate position

6.The profitability position,liquidity position

and cash management performance are in very

good position

7.it is not very much effective to controlthe

costs and expenses associated with the normal

operations

7.it is very effective to control the costs and the

expenses associated with the normal

operations.

8.earning power is very low so that it is not

worthy of investment

8.earning power is relatively high so it is

moderatly worthy of investment

9.the debt/equity ratio is high 9.the debt/equity ratio is relatively low so the

company is having a less amount of risk

Table:6.18

95

Comparision of GMR and LANCO:

GMR LANCO

1. The credit rating retained by the care agency

is A(SO) rating to secured non-convertible

debenture issue for an outstanding amount of

rs.132

1. Care has retained a A- rating to the long-

term non-convertible debenture issue for an

outstanding amount of rs.100

2. Instruments carrying this rating are judged

to be of high quality by all standards. They

also classified as high investment grade. They

are rated lower than A+

2.Instruments with this rating are considered

upper medium instrument and have many

favorable investment attributes. Safety for

principal and interest are considered adequate.

Assumptions that do not materialize may have

a greater impact as compared to the

instruments rated higher.

3.comparatively the EBITDA to interest is low 3.here EBITDA to interest is very high that’s

means it wil payoff their interests very quickly

4.it is to measure the extent to which cash

operating expenses use up revenues

4.where as lanco uses only less revenue for

their expenses

5.for gmr the investors are expecting higher

earning growths in the future

5.for lanco the investors are expecting lower

earnings growth in the future.

6.debt-equity ratio is high 6.debt-equitty ratio is very low so that the

company is not having risk

7.the shortterm financial position is supposed

to be very sound

7.the short-term financial position is relatively

not very sound

8.the profitability position,corporation

efficiency and cash management performance

are moderate

8.the profitability position, corporation

efficiency and cash management performance

are very low

9.it is moderatly effective to controll the cost

and expenses in associated with the normal

operations

9.the company is not effective to control the

costs and expenses in associated with the

company’s operations

Table:6.19

96

Comparision of GMR and GVK:

GMR GVK

1. The credit rating retained by the care agency

is A(SO) rating to secured non-convertible

debenture issue for an outstanding amount of

rs.132

1.Care has retained a PR2+ rating to short term

bank facilities issue for an outstanding amount

of rs.125

2. Instruments carrying this rating are judged

to be of high quality by all standards. They

also classified as high investment grade. They

are rated lower than A+

2. Instruments would have strong capacity for

repayment of short term promissory

obligations .issuer would have most of the

characteristics as for those with PR-1

instruments but to a lesser degree.

3. it is to measure the extent to which cash

operating expenses use up revenues

3.where as gvk uses the revenue for their

expenses were relatively low

4.the company uses the investment funds

moderatly to generate earnings growth

4.the company uses the investment funds

relatively low to generate earning growth

5. for gmr the investors are expecting higher

earning growths in the future

5.for gvk the investors are expecting moderate

earning growth in the future

6.debt-equity ratio is relatively low so that the

risk involved

6.debt-equity ratio is very high so it is having

less amount of equity and there is risk

involved

7.price-book value ratio is high so that the

company fundamentals are going right

7.where as the ratio is very low so that the

stock is undervalued and something is

fundamentally wrong in the company

8.profitability position and cash mangement

performance are high

8.profitabilitty position and cash management

performance are relatively low

9.gmr stock is very expensive 9.gvk stock is moderatly expensive

Table:6.20

97

CHAPTER-7

FINDINGS OF THE STUDY

1. The GMR credit worthiness is 2 when compared along with all the three competitors by doing

the analysis and by comparing with ratings given by the agencies.

2. The GMR is uses moderate revenue for their expenses.

3. The GMR is not using more investment funds to generate earnings growth.

4. Price-earnings ratio is very high in GMR.so it means that investors are expecting higher

earnings growth in the future.

5. Debt-equity ratio is high so, GMR is exposing itself to large amount of equity so that, the

company is not having risk.

6. Stock is very expensive it means that the price an investors pays to the benefit of the

company’s cash flow.

7. The profitability position of the GMR is moderate among the competitors.

8. The GMR is not very worthy of investment because there is no ability to generate profits from

conducting its operations.

9. The corporation’s efficiency is good at GMR because they are using its assets and liabilities

internally.

10. The liquidity position of the company is moderate and short term financial position is not

very sound. it indicates of working capital.

11. The cash management performance, credit granting policies, receivable collections are in the

2nd position by comparing with the competitors.

12. The asset efficiency and basic earnings are moderate.

13. The competitive position of GMR is good compared with the competitors concern

14. The managerial capability of issuer is very good at GMR.

98

CHAPTER-8

SUGGESTIONS, RECOMMENDATIONS AND CONCLUSION

8.1 Suggestions and recommendations:

1. The liquidity position of the company can be utilized in a better or other effective

manner.

2. The company can be utilized the investment funds to increase their earnings growth.

3. The debt equity is not very effective. So to improve that situation would be to issue more debt

and uses the cash to buy back some of its outstanding shares.

4. Efforts should be taken to increase the overall efficiency in return on capital

employed by making used of the available resource effectively.

5. The company can increase its sources of funds to make effective research and

Development system for more profits for the coming years.

8.2 CONCLUSION:

The study is made on the topic comparative analysis and study of GMR Infrastructure ltd credit

rating along with the competitors

The current and liquid ratio indicates the short term financial position of GMR Infrastructure

Ltd.whereas debt equity and proprietary ratios shows the long term financial position.

Similarly, profitability ratios are helpful in evaluating the efficiency of performance in GMR

Infrastructure ltd.

The financial performance of the GMR has been analyzed and proved that the company is

financially sound and also its credit worthiness of corporation is good

99

CHAPTER-9

LIMITATIONS AND SCOPE FOR FURTHER STUDY

9.1 LIMITATIONS OF THE STUDY:

The figures in a financial statement are likely to be last several months out of date, and so

might not give a proper indication of the company’s current financial position.

The rankings given to the financial analysis alone we have to look at the business

analysis also. In this study we analyzed the business analysis by using the financial analysis but

we didn’t consider entire business performance of the company.

This study need to be interpreted carefully.while doing ratios the formulas may differ

from others

9.2 SCOPE FOR FURTHER STUDY:

Financial performance covers the liquidity , leverage and profitability position of

“GMR Infrastructure ltd”.

It helps to the investors for decision making by the credit rating given to the company

by the credit rating agencies.

This study further includes the interior business projects and the analysis of each

project of that company

100

BIBLIOGRAPHY

BOOKS:

M Y Khan and P K Jain Financial Management Fourth Edition-2006, Tata McGrew Hill

publishing company limited, New Delhi.

A.Murthy Management Accounting First Edition, S.Viswanathan (printers & publishers)

private limited.

WEBSITES:

WWW.NSEINDIA.COM

WWW.MONEYCONTROL.COM

WWW.INVESTOPEDIA.COM

WWW.GMRGROUP.CO.IN

WWW.JAYPEEGROUP.COM

WWW.LANCOGROUP.COM

WWW.GVKGROUP.COM