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OF

FINANCIAL MANAGEMENT

Sub: Financial Management

Submitted to:

Miss. Harjeet Kaur

Submitted by;

Abbas Ansari

Roll No. RS-1904A24

10906034

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Acknowledgements

I am thankful to Miss. HARJEET KAUR for providing me the

task of preparing the Term Paper on the DCM capital structure.

We at Lovely believe in taking challenges and the term paper

provided me the opportunity to tackle a practical challenge in

the subject of Financial Management. This term paper tested

my patience at every step of preparation but the courage

provided by my teachers helped me to swim against the tide

and move against the wind.

I am also thankful to my friends and parents for providing me

help at every step of preparation of the Term Paper.

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Capital Structure: A mix of a company's long-term debt, specific short-term debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Capital structure refers to the way a corporation finances its assets through some combination of equity, debt, or hybrid securities. A firm's capital structure is then the composition or 'structure' of its liabilities. For example, a firm that sells $20 billion in equity and $80 billion in debt is said to be 20% equity-financed and 80% debt-financed. The firm's ratio of debt to total financing, 80% in this example is referred to as the firm's leverage. In reality, capital structure may be highly complex and include tens of sources. Gearing Ratio is the proportion of the capital employed of the firm which come from outside of the business finance, e.g. by taking a short term loan etc.

Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure. A company's proportion of short and long-term debt is considered when analyzing capital structure. When people refer to capital structure they are most likely referring to a firm's debt-to-equity ratio, which provides insight into how risky a company is. Usually a company more heavily financed by debt poses greater risk, as this firm is relatively highly levered.

The Modigliani-Miller theorem, proposed by Franco Modigliani and Merton Miller, forms the basis for modern thinking on capital structure, though it is generally viewed as a purely theoretical result since it assumes away many important factors in the capital structure decision. The theorem states that, in a perfect market, how a firm is financed is irrelevant to its value. This result provides the base with which to examine real world reasons why capital structure is relevant, that is, a company's value is affected by the capital structure it employs. These other reasons include bankruptcy costs, agency costs, taxes, information asymmetry, to name some. This analysis can then be extended to look at whether there is in fact an optimal capital structure: the one which maximizes the value of the firm.

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Evaluating a Company's Capital Structure

For stock investors that favor companies with good fundamentals, a "strong" balance sheet is an important consideration for investing in a company's stock. The strength of a company' balance sheet can be evaluated by three broad categories of investment-quality measurements: working capital adequacy, asset performance and capital structure. In this report, I am looking at evaluating balance sheet strength based on the composition of a company's capital structure. A company's capitalization (market capitalization) describes the composition of a company's permanent or long-term capital, which consists of a combination of debt and equity. A healthy proportion of equity capital, as opposed to debt capital, in a company's capital structure is an indication of financial fitness.

Company Profile::   Profile

DCM has been an industrial front runner in the Indian sub continent. The

history of DCM group goes back to 1889 with the Delhi Cloth Mills, when

industry was in its infancy in India. Anticipating the tremendous boom in

the automobile sector both nationally and internationally, the DCM group

set up a Grey Iron Foundry in 1977 with a capacity of 17000 MTPA(Metric

Tons Per Annum) as Division of DCM Limited. This was subsequently hived

off as an independent company "DCM Engineering Limited” in 2004

(effective April 2001). 

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Capacity of this foundry was increased to 35,000 & 50,000 MTPA in the

year 1994-95 & 2005-06 respectively. Recently, this capacity has been

increased to 72,000 MTPA. This foundry is one of the leading foundries in

India, in the segment of Automotive Castings. The foundry specializes in

the manufacture of Cylinder Heads, Cylinder Blocks and Housings. The

company has achieved the annual turnover level of INR 2488 millions

during the year 2004-05 and further, targets growth of more than 20% in

ensuing year, 2007-08. 

DCM is supplying castings across all segments in automotive market: car,

multi-utility vehicle, tractor, light commercial vehicle, heavy commercial

vehicle and earth moving equipments.  DCM is also exporting consistently

for last 10 years. Its association with international customers includes GM-

Daewoo, Korea; General Motors, USA; Perodua Perkins Motors(Subsidiary

of Daihatsu Motor Co., Japan), Malaysia; and Hepworth Heating, UK.  

In domestic market DCM is associated with top automotive players: Maruti

Udyog, Hyundai Motors, Mahindra & Mahindra, International Tractors Ltd.,

Ashok Leyland, Eicher Motors, Escorts, Swaraj Mazda, JCB India, Force

Motors, Simpson & Co and many more. 

India is emerging as major auto component supplying hub to the global

automotive manufacturers resulting in tremendous scope for increased

business opportunities in domestic as well as international markets. Set

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up another plant in south India, project engineering work for which has

commenced.  

"Company employs more than 1700 people at its manufacturing plant at

Ropar, Punjab. At its Ropar plant company houses two high pressure

moulding lines with press pour, state of the art tooling & designing facility

in addition to other supporting processes and equipments." 

Company’s registered office is at New Delhi. It is a subsidiary of DCM

Limited. DCM Engineering Limited is not a listed entity. Its holding

company is however listed at BSE and NSE.

Company Profile: History

DCM Engineering Limited is part of the DCM group. 

DCM started its journey with formation of public limited Company

incorporated on March 26, 1889 in the name and style of Delhi Cloth &

General Mills Co. Ltd. under the provisions of Act VI of 1882. The name of

the Company was changed on October 6, 1983 to DCM Limited. 

DCM started its operations in 1889 by establishing a spinning mill at Delhi.

Over the years, it expanded and diversified its activities into a number of

manufacturing activities such as Textiles, Sugar, Chemicals, Rayon, Tyre

Cord, Fertilizers, Electronic Data Processing Machines and Engineering

Products etc. 

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The business of the Company was reorganized with effect from 1.4.1990

under a Scheme of Arrangement under section 391 / 394 of the

Companies Act, 1956 approved by the shareholders, creditors and the

financial institutions and sanctioned by the Honourable High Court of Delhi

at New Delhi in CP No. 4 of 1990 vide an order dated 16.4.1990. Under the

said reorganization, all units of the Company existing at that time stood

vested and / or continued to vest in terms of the said Scheme into four

separate companies namely, 

DCM Limited (holding company of DCM Engineering)

DCM Shriram Industries Limited

DCM Shriram Consolidated Limited

Shriram Industrial Enterprises Limited 

The Company along with its subsidiaries has been engaged, inter

alia in the following business activities: 

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Scheme of Restructuring and Arrangement   ;-

In order to restructure its debt in just and equitable manner and to

ensure the growth avenues for the operating businesses, DCM

formulated a comprehensive Scheme of Restructuring and

Arrangement which was approved by the court and notified on

2.1.2004 under section 391-394 of the Companies Act. 

Company Profile: Vision and Values

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VISION:

To become preferred supplier of castings to world's leading Companies. 

VALUES: 

Tenacity

Unwilling to accept defeat

Doggedly pursue till logical conclusion 

Team Work 

Combined effort

Organised co-operation

Helping each other 

Customer Focus 

Always pay attention to customer requirements

Customer oriented company 

Learning Organisation 

Always ready to gain knowledge

Eager to learn new techniques

Keep on improving knowledge 

Fair and Just to Employees 

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Should always hear/listen what other has to say

Give others opportunity to speak and listen to them

Acting in a just and honourable manners

Treat all men with impartiality

Respect for people and drive out fear 

Integrity and Transparency 

Honest and upright in character

Clean and clear act which is easily understand without any

doubt

Openness in every action

Balance SheetDCM Shriram Industries Ltd.

From Year To Year

Balance SheetDCM Shriram Industries Ltd.

From Year To Year

2008 2009 In millions Go

2006 2007 In millions Go

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Open In new windowBalance Sheet (Rs. in millions)

Liabilities

March- 2007(12 Months)

March- 2006(12 Months)

Share Capital 153.00 152.98

Reserves & Surplus 1,190.80 1,174.99

Net Worth (1) 1,793.00 1,824.63

Secured Loans (2) 2,289.60 1,891.20

Unsecured Loans (3) 56.60 56.29

Total Liabilities(1+2+3) 

4,139.20 3,772.12

Assets

March- 2007(12 Months)

March- 2006(12 Months)

Fixed Assets

Gross Block 2,268.10 4,022.12

(-) Acc. Depreciation 0.00 1,971.67

Net Block (A) 1,818.90 1,553.80

Capital Work in Prgs. (B)

143.30 172.16

Investments (C) 53.60 30.82

Current Assets, Loans & Advs.

Inventories 2,212.00 1,966.53

Sundry Debtors 313.70 407.10

Cash And Bank 40.60 98.06

Loans And Advances 561.00 441.84

(i) 3,127.30 2,913.54

Current Liab. & Provs.

Current Liabilities 1,333.60 1,271.65

Provisions 121.40 128.95

(ii) 1,455.00 1,400.61

Net Curr. Assets (i - ii) (D)

1,672.30 1,512.93

Misc. Expenses (E) 1.90 5.75

Total Assets (A+B+C+D+E) 

4,139.20 3,772.12

Balance SheetDCM Shriram Industries Ltd.

From Year To YearOpen In new windowBalance Sheet (Rs. in millions)

Liabilities March- 2006

March- 2005(12 Months)

2005 2006 In millions Go

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(12 Months)

Share Capital 152.98 152.98

Reserves & Surplus 1,174.99 918.15

Net Worth (1) 1,824.63 1,615.30

Secured Loans (2) 1,891.20 2,514.28

Unsecured Loans (3) 56.29 68.86

Total Liabilities(1+2+3) 

3,772.12 4,198.44

Assets

March- 2006(12 Months)

March- 2005(12 Months)

Fixed Assets

Gross Block 4,022.12 3,777.13

(-) Acc. Depreciation 1,971.67 1,825.23

Net Block (A) 1,553.80 1,407.74

Capital Work in Prgs. (B)

172.16 155.87

Investments (C) 30.82 44.82

Current Assets, Loans & Advs.

Inventories 1,966.53 2,301.39

Sundry Debtors 407.10 444.80

Cash And Bank 98.06 272.97

Loans And Advances 441.84 394.08

(i) 2,913.54 3,413.23

Current Liab. & Provs.

Current Liabilities 1,271.65 1,260.01

Provisions 128.95 117.16

(ii) 1,400.61 1,377.17

Net Curr. Assets (i - ii) (D)

1,512.93 2,036.06

Misc. Expenses (E) 5.75 9.78

Total Assets (A+B+C+D+E) 

3,772.12 4,198.44

P&L AccountsDCM Shriram Industries Ltd.

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From Year To YearOpen In new windowProfit & Loss Accounts (Rs. in millions)

March - 2009(12 months)

% March - 2008(12 months)

%

Sales 8,314.88 +0.99 5,791.12 +0.99

Other Income 43.77 +0.01 80.28 +0.01

Total Income 8,358.65 - 5,871.39 -

Raw Material Cost 5,339.76 +0.64 3,943.44 +0.67

Excise 2,062.22 +0.25 1,828.30 +0.31

Other Expenses -29.04 -0.00 -159.56 -0.03

Operating Profit 941.94 +0.11 178.94 +0.03

Interest Name 351.98 +0.04 280.15 +0.05

Gross Profit 589.96 +0.07 -101.21 -0.02

Depreciation 171.00 +0.02 146.70 +0.02

Profit Bef. Tax 462.72 +0.06 -169.55 -0.03

Tax 148.53 +0.02 -33.84 -0.01

Net Profit 314.19 +0.04 -135.70 -0.02

Other Non- Recurring Income

-26.40 -.00 93.65 +.02

Reported Profit 287.79 +0.03 -42.06 -0.01

Equity Dividend 34.80 +0.000.00

P&L AccountsDCM Shriram Industries Ltd.

From Year To YearOpen In new window

Profit & Loss Accounts (Rs. in millions)

March - 2008(12 months)

% March - 2007(12 months)

%

Sales 5,791.12 +0.99 5,995.90 +0.95

Other Income 80.28 +0.01 339.00 +0.05

Total Income 5,871.39 - 6,334.90 -

Raw Material Cost 3,943.44 +0.67 3,702.60 +0.58

Excise 1,828.30 +0.31 1,440.90 +0.23

Other Expenses -159.56 -0.03 817.30 +0.13

Operating Profit 178.94 +0.03 35.10 +0.01

Interest Name 280.15 +0.05 182.70 +0.03

Gross Profit -101.21 -0.02 -147.60 -0.02

Depreciation 146.70 +0.02 133.90 +0.02

Profit Bef. Tax -169.55 -0.03 57.50 +0.01

Tax -33.84 -0.01 41.60 +0.01

Net Profit -135.70 -0.02 15.90 +0.00

Other Non- Recurring Income

93.65 +.02 0.00

2008 2009 In millions Go

2007 2008 In millions Go

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Reported Profit -42.06 -0.01 15.90 +0.00

Equity Dividend 0.000.00

P&L AccountsDCM Shriram Industries Ltd.

From Year To Year

Profit & Loss Accounts (Rs. in millions)

March - 2007(12 months)

% March - 2006(12 months)

%

Sales 5,995.90 +0.95 7,165.60 +1.00

Other Income 339.00 +0.05 32.11 +0.00

Total Income 6,334.90 - 7,197.71 -

Raw Material Cost 3,702.60 +0.58 4,684.34 +0.65

Excise 1,440.90 +0.23 1,395.94 +0.19

Other Expenses 817.30 +0.13 235.64 +0.03

Operating Profit 35.10 +0.01 849.69 +0.12

Interest Name 182.70 +0.03 215.31 +0.03

Gross Profit -147.60 -0.02 634.38 +0.09

Depreciation 133.90 +0.02 119.31 +0.02

Profit Bef. Tax 57.50 +0.01 543.15 +0.08

Tax 41.60 +0.01 202.66 +0.03

Net Profit 15.90 +0.00 340.49 +0.05

Other Non- Recurring Income

0.00 -49.58 -.01

Reported Profit 15.90 +0.00 290.92 +0.04

Equity Dividend 0.00 15.30 +0.00

P&L AccountsDCM Shriram Industries Ltd.

2006 2007 In millions Go

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From Year To Year

Profit & Loss Accounts (Rs. in millions)

March - 2006(12 months)

% March - 2005(12 months)

%

Sales 7,165.60 +1.00 5,452.04 +0.99

Other Income 32.11 +0.00 44.71 +0.01

Total Income 7,197.71 - 5,496.75 -

Raw Material Cost 4,684.34 +0.65 3,510.96 +0.64

Excise 1,395.94 +0.19 1,280.17 +0.23

Other Expenses 235.64 +0.03 52.34 +0.01

Operating Profit 849.69 +0.12 608.56 +0.11

Interest Name 215.31 +0.03 243.78 +0.04

Gross Profit 634.38 +0.09 364.78 +0.07

Depreciation 119.31 +0.02 73.25 +0.01

Profit Bef. Tax 543.15 +0.08 331.62 +0.06

Tax 202.66 +0.03 111.34 +0.02

Net Profit 340.49 +0.05 220.28 +0.04

Other Non- Recurring Income

-49.58 -.01 66.37 +.01

Reported Profit 290.92 +0.04 286.65 +0.05

Equity Dividend 15.30 +0.00 0.00

2005 2006 In millions Go