A report on

Financial Statement Analysis and Valuation

(NATIONAL TUBES LIMITED)

Department of Finance

Faculty of Business Studies

University of Dhaka

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A report on

Financial Statement Analysis and Valuation

(NATIONAL TUBES LIMITED)

Course Title: Financial Statement Analysis and Valuation

Course Code: F-401

Prepared For

Prof. Dr. Mahmood Osman Imam

Professor

Department of Finance

University of Dhaka

Prepared By

Muhammad Shamim Hossain

16-151; Section: A

Department of Finance

University of Dhaka

Date of Submission:

July 27, 2013

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Executive Summary

The project on Financial Statements Analysis and Valuation has been a very good experience. Every investor whether individual or organization have conducted Financial Statements Analysis and Valuation in their investment and managerial decisions. An individual or organization investor’s expected return can be earned by conducting Financial Statements Analysis and Valuation efficiently.

This project is a sincere effort to study and analyze the Financial Statements Analysis and Valuation of National Tubes Ltd. The project focused on making a financial overview of the company by conducting Financial Statements Analysis and Valuation analysis of National Tubes Ltd for the 2008 to 2012 and & various other industry and macroeconomic analysis correlated with the analysis.

The report is a bridge between the institute and the organization. This made us to be involved in a project that helped us to employ my theoretical knowledge about the myriad and fascinating facets of finance. Moreover, in the process I could contribute substantially to the organization’s growth. The experience that I gathered over the past two months has certainly provided the orientation, which I believe will help me in shouldering any responsibility in future.

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Contents

1. Introduction 05

2. Analysis of the performance of National Tubes Ltd. 08

3. Dupont Analysis 09

4. Identification of red flags 10

5. Analysis of Cash Flow Statement 11

6. Analysis of Sustainable Growth 12

7. Operating and Financial Leverage 13

8. Comments on disclosures practices 14

9. Economic characteristics and strategies 15

10. Pro-forma Statements and FCF valuation 17

11. Policy implications and conclusion 20

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Introduction

About National Tubes Limited was established in 1964 in the private sector. It was nationalized and placed under Bangladesh Steel & Engineering Corporation (BSEC) in 1972. It is the only Govt owned steel pipe producer in Bangladesh. In 1989 the enterprise was transformed into a public limited company by off-loading 49 percent shares to the general public. Now a sovereign Board of Directors manages the company.

The factory situated on the Dhaka-Mymensingh highway on 14.31. acre land at 131-142 Tongi Industrial Aarea- 20 km north of the capital city.of Bangladesh.

MissionTo contribute to the well being of the nation by producing high quality import-substitute Gas/Oil line pipes according to the specifications (Spec. QI & 5L) of American Petroleum Institute (API) and water line pipes (GI) according to British Standard (BS - 1387 & BS-729). As an API Licensee and an ISO 9001 : 2000 Certified Company, we are firmly committed to all our stakeholders such as : Our valued customers, business associates, shareholders and above all fellow citizens.

VisionBuilding a unique enterprise reflecting utmost integrity, transparency and accountability at all levels, thereby marketing products manufactured under uncompromising quality program. We aspire to achieve continuous improvements for customers satisfaction with modern technology,

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innovative vision and motivated workforce developed through strategic management of human resource.

StrategyThe strategy of the company is to expand its production facilities & diversify its products to cater the future needs of the country. Introduction of modern technology in production & quality control activity is also under consideration.

THE PLANT:Consists of 3 units. The first unit with 6000 metric tons per year welding capacity was established in 1964 and abandoned in 1993 due to exhaustion of its useful life. The second unit with product range-1/2 inch. to 4 inch. dia was established in 1980 has welding capacity of 9000 metric tons. The third unit with product range -4 inch. to 8 inch. dia was established in 1982, The welding capacity of this unit is 30000 metric tons per year and the total WELDING capacity of both the operative units is 39000 metric tons per year.

PRODUCT National Tubes produces two types of steel pipes:1. GENERAL PURPOSE MS AND GI PIPES (1/2 inch. to 8 inch. dia) are produced according to the British Standard BS-1387 and Bangladesh Standard BDS¬1031:2006. Galvanizing is done according to the British Standard BS-729 which is equivalent to DIN-2444 and IS-4736. The gi pipes are used for water supply and irrigation.

2. THE API PIPES (3/4 API to 8-5/8 API) are produced under the license from American Petroleum Institute (API). These pipes are produced strictly according to the requirements of API Spec. Ql & 5L which correspond to the Grade A-53B of the ASTM (American Society for Testing and Materials) specification. The Major Buyer of the Entire Quantity of API Pipes are Gas Transmission & Distribution Companies of Petrobangla- i.e. Titas Gas, Bakhrabad Gas, Jalalabad Gas and Pashchimanchal Gas Company. API Pipes are used for Transmission & Distribution of Natural Gas & Oil.

NTL has acquired ISO 9001: 2008 Certificate for its quality system for MS, GI and API Line Pipes in 2004.

INDUSTRY ANALYSIS

Degree of actual and potential competition:National Tubes Limited belongs to Engineering industry. This industry is at matured stage. There are around 16 firms in this industry. Most of the firms have been doing business for 15 years. Average size of the firms is almost similar and there are not any giant firms in the industry. The

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products produced by the firms are not similar there is high switching cost. Fixed – variable cost proportion are very high. Most of the firms have huge sophisticated plant and equipment. There is economics of scale in production. There exists excess capacity as industry is larger than customers demand.

Threat of new entrants in this industry are moderate as industry are at matured stage, has excess capacity, large economics of scale.

The products are much differentiated and their performance, price differs significantly. So threat of substitute’s products is moderate.

Bargaining power in input and output markets:NTL produces two types of steel pipes in different sizes and shapes. These include GENERAL PURPOSE MS AND GI PIPES and THE API PIPES. 95% of the NTL’s products are bought by the firms of petrobangla. Number of buyers is not large and concentrated to only gas transmission firms under petrobangla. There is little substitutes of NTL products. Quality of NTL’s products is high and certified by American Petroleum Institute.

NTL purchase raw material like steel strips from domestic and foreign suppliers and there are large number of suppliers. NTL can switch from one supplier to another and raw materials are not differentiated.

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Ratio Analysis

Particulars NTL AZIZ PIPES01. Liquidity

Current raio 1.777513992 0.569119739Quick ratio 0.893193542 0.316428689

02. Activitiy/Efficiencyavg. collection period 33.9671401 109.4883545inverntory turnover 0.630985772 3.005816576fixed assets turnover 0.047850144 2.763348209

03. Leverage/SolvencyDebt to Assets 0.035678402 0.332191394time interest earned -0.80874644 31.51547746fixed charges coverage N/A N/A

04. ProfitabilityProfint margin on sales -0.11399831 0.010143287ROE -0.0080996 -0.009273162ROA -0.00745335 0.004446238

05. Market RatioP/E -16.5887027 44.87179487P/NAV 0.134361833 -0.416270219P/Cashflow 67.13244003 10.11560694P/EBITDA -0.000001471 0.0000043049P/Book Value 4.18 1.75

NTL’s liquidity position is better than its peer firm AZIZ PIPES having more than double liquidity. NTL’s activity or efficiency are very low than competitors. This is due to the less production as a result of postponed gas line supply. Being a govt. organization, its debt position is very low than its competitors. NTL is allowed to have interest free loan from govt. NTL is not earning any profit for last two years rather incurring net losses. As a result its profit margin is very low and it can to utilizing its assets.

Market condition of NTL is not satisfactory. All market based ratios are less than its competitors except P/Cash flow ratio.

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Du-pont Analysis

In the dupont analysis, we done the five factor analysis by the following subcomponents and the results are shown in the below table. The roe shows a decreasing trend in last three years.

ROE= O. profit margin * Total asset Turnover * interest burden * after tax retention rate * financial leverage

Particulars 2010 2011 2012O. Profit margin 0.126777944 -0.05898231 -0.113998305total asset turnover 0.577303262 0.36001165 0.041992371interest burden 1.070176118 0.460435588 1.513001926after tax retention rate 0.725000012 1.194670236 1.029065617financial leverage 2.004535385 2.116802657 1.086706224

ROE 0.11383 -0.02472 -0.00810

We also checked the sensitivity of roe in terms of O. profit margin, Total assets turnover, interest burden, after tax retention rat and financial leverage. Roe is -450% sensitive to O. Profit margin. -40% sensitive to total asset turnover, 166% sensitive to interest burden, 154% sensitive to after tax retention rate and -126% sensitive to financial leverage. So the most sensitive is O. Profit margin and least sensitive to financial leverage. The calculation is given in Appendix.

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Red Flags and Earning Quality

There is significant gap between the reported operating cash flow and cash flow from operating activities.

Firm revalued its fixed assets in only 2012 for which rationales are not explained. There is increasing gap between firms’ reported income and its tax income.

Earnings quality of NTL is not neither sustainable nor predictable. Both in terms of balanced sheet based aggregate accruals ratio and Cash flow based aggregate accruals ratio shows very fluctuating result over the year. In terms of Balanced Sheet Based Aggregate Accruals Ratio it shows very high increasing rations over the year from 2008 to 2012.

In terms of Cash Flow Based Aggregate Accruals Ratio, it shows very fluctuating results. In 2008 it was very low (high earning quality) and 2009 to 2011 it was increasing and became low in 2012 indicating high earnings quality in that year. Over all earnings quality is not satisfactory level.

Particulars 2,008 2009 2010 2,011 2012

Operating Assets 981,347,069

796,928,085

842,189,534

910,356,295

6,080,208,861

Operating Liabilities 330613669

370219991

379031642

364799707

268691031

Net operating Assets 650,733,400

426,708,094

463,157,892

545,556,588

5,811,517,830

Balanced Sheet Based Aggregate Accruals

……. (224,025,306)

36,449,798

82,398,696

5,265,961,242

Balanced Sheet Based Aggregate Accruals Ratio

-42% 8% 16% 166%

Net income9315074

1 854366485090819

8

-1073637

0-45401525

CFO-

138899969

96873741 6614590-

96319743

-145711818

CFI -3880521 -1946406 -211252 -1942112 0

Cash flow based Aggregate Accruals 235931231

-9490687 44504860

87525485

100310293

Cash flow based Aggregate Accruals ratio

…… -1.76% 10.00% 17.35% 3.16%

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Analysis of Cash Flow Statement

Free Cash Flow of NTL show a decreasing trend over the last four years and in 2011 it becomes negative duce to the huge working capital requirement financing.

Operating Cash Flow is also decreasing over the year significantly because of less sales and high fixed operating cost.

Particulars 2009 2010 2011 2012Free cash flow 332,170,021 28,113,517 (67,527,186) 5,784,855

Operating cash flow 9,6873,741 6,614,590 -9,6319,743 -145,711,818OCF/Net sales 11.25% 1.28% -29.11% -56.96%

We calculate OCF/Net Sales ratio over the years which is also significantly low. The firm can retain 11.25% and 1.28% taka in 2009 and 2010 respectively. After 2010 firms can not retain any cash from its sales rather incurring high cost/loss. The comprehensive calculations are given in Appendix.

In terms of FCF and OCF we can classify the NTL. As FCF is positive and OCF is negative in 2012, NTL is a divestiture firm.

Figure: FCF and OCF

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2009 2010 2011 2012

-200,000,000

-100,000,000

0

100,000,000

200,000,000

300,000,000

400,000,000

FCFOCF

Analysis of Sustainable Growth

The path for survival for a business may be found in the business's sustainable growth rate. In basic terms, the growth of a business is often limited by the amount of equity in the business. The more equity the business has, the more potential the business has for growth. However, if a business grows too fast, then there might not be enough equity to sustain the growth.

If a business grows too slow, then it may begin to become stagnate. It is important for a company to find an optimal growth rate which can be sustained through the ever changing economic, political, consumer and competitive landscape. The sustainable growth rate helps a company project its future equity, based on the earnings that can be achieved from the current equity and the percentage of those earnings reinvested in equity. Since this information can keep a company on track, it is very important that the company knows how to calculate their sustainable growth rate.

Particulars 2008 2009 2010 2011 2012ROE 23.70% 19.68% 11.38% -2.47% -0.81%Dividend Payout ratio 0.732683 0.63907 0.737357 -2.79703 -0.39686SGR 6.34% 7.10% 2.99% -9.39% -1.13%

NTL’S sustainable growth rate shows a declining trend in last 5 years. This declining trend in sustainable growth rate is due to mainly low level of sales and profit margin. NTL’s level of sales is decreasing from 2008 due to less demand of products which is caused by stoppage of gas transmission line etc.

NTL’s actual growth of ROE and SGR both has positive correlation and both are declining in the last five years. SGR is very different form actual growth as large changes in profitability and long

term financing.

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Operating & Financial Leverage

Degree of operating leverageThe degree of operating leverage measures a company’s earnings volatility at a given level of sales. Companies with a high operating leverage have a higher degree of operating leverage, and vice versa. Degree of operating leverage is not a constant: it has a negative relationship with the level of sales.

Particulars 2008 2009 2010 2011 2012% ∆ EBIT …. -0.08845 -0.43416 -1.00703 51.70984% ∆ SALES …. -0.06125 -0.39871 -0.36061 -0.22702% change in EBIT/% change in sales

1.443967 1.088903 2.7926 -227.781

NTL’s DOL was at a normal increasing trend up to year 2011 but after that it was significantly abnormal in 2012 and the degree becomes negative. The degree increases as the level of sales decreases over time. NTL’’s earnings was very volatile in the past business years.

Degree of financial leverageThe degree of financial leverage calculates the proportional change in net income that is caused by a change in the capital structure of a business to either increase or decrease the amount of debt for which the company is liable. When a company has a high degree of financial leverage, the volatility of its stock price will likely increase the reflect the volatility of its earnings. When a company has a high level of stock price volatility, it must record a higher expense associated with any stock options it has granted. This constitutes an additional cost of taking on more debt.

Particulars 2008 2009 2010 2011 2012% ∆ EPS …. -0.32693 -0.54736 -1.20056 -0.64804% ∆ EBIT …. -0.08845 -0.43416 -1.00703 51.70984% change in EPS/ %change in EBIT 3.696423 1.260727 1.192178 -0.01253

NTL’s DFL shows a decline trend over the last five years. This indicates that EPS was not very volatile. NTL’s debt undertaking was very low and literally has no cost of debt. As a govt. controlled firms it gets the interest free loan from govt.

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Comments on Disclosures Practices

Disclosures quality of the firms was good except in some cases and complies with accounting rules and guidelines by BAS. They have shown detailed derivations of the accounts title of the major financial statements. They presented the financial statements in accordance with BAS.

The accounts of the company have been prepared as a going concern following consistency with the last accounts. The accounts have been prepared under GAAP on Historical cost convention. While preparing the statements, attention has been given for the requirements of the companies act 1994, SEC ruels,1987 and other relevant laws where applicable and the accounting standards as adopted by the ICAB.

Some new accounting policy adoption like fixed asset revaluations are not explained in details. Firm does not give any reasons of this revaluation of fixed assets. Some assets items are not explained in notes and no calculations are given in notes.

For valuation of closing stocks NTL follows actual average cost for raw materials, cost of average quantity for store and spares, materials used and proportionate production expenses for work –in-process, finished goods are valued at cost or market price which is lower following conservatism. Depreciations on fixed assets are charged on reducing balance method.

NTL’S management provides report to the shareholders about the business operations, reasons of undertakings any changes in the accounting policies, strategies for increasing sales, corporate social responsibility, percentage of each director holding of shares dividend etc each year. There is no individual report from chief executive officers of the firm.

Auditor’s report to shareholders is given and auditors give their audit opinion for financial statements prepared in accordance with BAS.

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Economic Characteristics and Strategies

Our operating industrial units are engaged to produce and provide quality products at lower cost and services leading to growth of the company. Imbibed with good governance practices, enthusiasm and technology we try to translate dreams into reality.

National Tubes Ltd. has been delivering significant contributions towards industrialization and development of the country through relentless and untiring efforts. We impart maximum attention to the quality of products and services recognizing the environment sensitive issues and global challenges.

Strategies

Proper and exact utilization and application of knowledge and facilities.

Ensure pragmatic and cost effective planning and production process.

Development of technical and management skill of personnel at all levels.

Conform to relevant international standards.

Application of Total Quality Management system.

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Valuation

Free Cash Flow Valuation

Particulars 2013 2014 2015 2016 2017 2018EBIT 15386620

.616155951.82

16963749.41 17811936.88 18702533.73

EBIT (1-tax rate) 11155299.94

11713065.07

12298718.32 12913654.24 13559336.95

Depreciation 250982825.5

246574580.8

242292054.9 226383111.5 221762222.6

Capital expenditure

109,115,827

106,888,576

104,706,786

102,569,531

100,475,902

Change in NWC 302,499,580

276,947,880

406,829,556

973,663,096

(997,614,339)

Free cash flow 68,754,372

88,228,342

(47,531,997)

(631,796,799)

1,333,411,800

1,360,080,036

Present value discount factor

0.933550 0.87151716 0.813605574 0.759542163

0.7090712

Present value of free cash flow

64,185,702

76,892,514

(38,672,297)

(479,876,307)

945,483,932

Terminal value 18843561205

Enterprise value

2,171,145,754

Cash

11,218,904

Interest-bearing debt

217,332,410

Equity value

1,965,032,248

Value per share

109.06

Assumptions made:

1. To normalize the affairs it was assumed that NTL’s other income will increase by 5% rate each year.

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3. In annual report of this company we found that the firm has no interest income.

4. To normalize the affairs it was assumed that NTL’s return on short-term investment will 15% each year.

6. Investment in subsidiaries will remain unchanged for upcoming years.

7. As per stated in the annual report, there will be a new business contract with petrobangla's gas transmission firm in place. So we assume the growth rate will be 5%.

8. Tax rate is 27.5%.

9. Capital expenditures will be financed by long-term loan.

10. Since there was no purchase of PPE, it was assumed that the existing long-term loan proportion to sales

11. The risk free rate is based on the 91 day T bill rate. The rate is 8.25 %.

12. Perpetual growth rate 2%.

13. Revaluation reserve will remain unchanged over the years.

14. To normalize the affair it was assumed that inventory will be 48% of sales

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Relative Valuation:

Particulars NTL AZIZ PIPES Particulars NTL AZIZ PIPES

P/E -16.58870269 44.87179487 EBITDA -28411393 4065160P/NAV 0.134361833 -0.416270219 EPS -2.519787 0.39

NAV 311.10025 -42.04P/Cash flow 67.13244003 10.11560694 ROE -0.0081 -0.00927P/EBITDA

(0.0000014712)

0.000004305 Op. Margin -0.113998 0.010476

P/Book Value

4.18 1.75 Book Value Per share

10 10

Debt to Equity

0.03877

0 (no interest bearing debt)

Cash flow per share

0.6226498 1.73

National Tubes Ltd and Aziz pipes ltd both are similar firm in terms of business model, products and maturity. If we analyze them in terms of traditional criteria like P/E, we see Aziz pipes are far better than NTL. In terms of EBITDA which is a better measure of performance Aziz pipes is significantly in a better position. In terms of NAV and ROE National tubes ltd is in a better position.

Aziz pipes are generating TK.1.73 cash per share which is better than NTL. Aziz pipes have no interest bearing debt whereas NTL D/E is 0.03877

Finally using above valuation criteria recorded on 31st December, 2012 Aziz pipes Ltd is relatively in a better position than National Tubes Ltd.

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Policy Implications and Conclusions

The Boston Matrix, also called the Boston Consulting Group (BCG) Matrix, is a simple, visual way to examine the likely financial performance of your product or business portfolio.

As we mentioned earlier about types of products of NTL, they produce two types of steel pipes. The gi pipes are used for water supply and irrigation. Major Buyer of the Entire Quantity of API Pipes is Gas Transmission & Distribution Companies of Petrobangla- i.e. Titas Gas, Bakhrabad Gas, Jalalabad Gas and Pashchimanchal Gas Company. API Pipes are used for Transmission & Distribution of Natural Gas & Oil.

General purpose GI pipes are in Questions having low market position and high market growth. This unit requires high cash demand and generate low return because of their low market share. The firm should invest heavily for increasing market share or can divest it or can try to get any possible cash from it.

The API pipes are in Cash Cow having high relative market position and low market growth. These units will reach their optimum profitability and management have easy job. It does not require much investment and one day it will become stars which are the future foundation of the company.

Recommendations:

National tubes limited should reduce the dependence on imported raw materials. Every year NLT is buying raw materials from abroad. They should identify new domestic suppliers.

Creation of skilled people by the training in home and abroad.

Taking an important part for the development of steel and engineering sector.

Increase in sell by advertisement.

Ensuring the clearness to buy raw materials, products produced and sell.

Costing of the products in order to get least profit.

At present many low cost substitutes products are in market. So NTL have to diversify its production to take competitive position.

Its marketing activities are literally none. So it should increase its marketing activities like advertisements, sales promotion activities etc.

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APPENDIX:

01. Pro-forma statements02. WACC03. Working capital04. Du pont analysis05. Earnings quality estimation

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Pro-Forma Income Statement

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2012 2013 2014 2015 2016 2017Sales 255,793,496 268,583,171 282,012,329 296,112,946 310,918,593 326,464,523

Less: Cost of Goods Sold 293681698 222328253.1 233444665.7 245116899 257372743.9 270241381.1

Gross profit 21,702,587 46,254,918 48,567,664 50,996,047 53,545,849 56,223,142

Less: Operating Expenses 50,862,612 31,654,361 33,237,079 34,898,933 36,643,879 38,476,073

Operating Profit/ (Loss) (29,160,025) 14,600,557 15,330,585 16,097,114 16,901,970 17,747,069

Other Income 748632 786063.6 825366.78 866635.119 909966.875 955465.2187

Financial Expenses 15,707,781 10,687,849 7,675,695 7,777,771 7,890,701 8,014,910

Net profit/ (Loss) before Tax (44,119,174) 4,698,772 8,480,257 9,185,979 9,921,236 10,687,624

Income Tax provision 1,282,351 1,292,162 2,332,071 2,526,144 2,728,340 2,939,097

Net profit/ (Loss) after Tax (45,401,525) 3,406,610 6,148,186 6,659,834 7,192,896 7,748,527

Dividend 18,018,000 1,601,756 2,890,819 3,131,392 3,382,032 3,643,285

Transfer to Reserve (18,018,000) 1,804,854 3,257,367 3,528,443 3,810,864 4,105,243

Depreciation 2,464,140 250,982,825 246,574,581 242,292,055 226,383,111 221,762,223

Pro-Forma Balance Sheet

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2012 2013 2014 2015 2016 2017PROPERTY AND ASSETS

FIXED ASSETSPPE 5,345,720,557 5,236,604,730 5,129,716,154 5,025,009,368 4,922,439,837 4,821,963,935 PAKISTAN ASSETSADAMJEE JUTE MILLS CuRRENT ACCOUNTTotal Fixed Assets 5,345,720,557 5,236,604,730 5,129,716,154 5,025,009,368 4,922,439,837 4,821,963,935

CURRENT ASSETSStock of Goods 370,992,373 549068712 812621694 1202680107 1,779,966,558 2634350506Trade Debtors 23804311 28540376 34218562 41026439 49188762 58975001BSEC Current Accounts 1,049,099 1054358 1059643 1064955 1070293 1075658Inter Project current Account 8187255 8332621 8480569 8631143 8784391 8940359Current Account with Disinvested BSEC Mills 8847462 9025155 9206417 9391320 9579936 9772340Advances, Deposits & Pre-payments 6993393 7574555 8204013 8885780 9624202 10423989Advance Income tax payments 314,614,411 329344855 345812097 363102702 381257837 400320729Cash and Bank Balances 11,218,904 4,303,664,098 3,910,113,160 3,390,226,923 2,682,967,858 1,698,105,353 Total Current Assets 745,707,208 5,236,604,730 5,129,716,154 5,025,009,368 4,922,439,837 4,821,963,935

Total Property & Assets 6,091,427,765 10,473,209,460 10,259,432,309 10,050,018,736 9,844,879,673 9,643,927,870

Equity & LiabilitiesShareholder's Equity:

SHARE CAPITAL 180180000 180180000 180180000 180180000 180180000 180180000

CUMULATIVE PROFIT/General Reserve 127,712,826 129,517,680 132,775,046 136,303,489 140,114,353 144,219,596 Revaluation Reserve 5297511498 5297511499 5297511500 5297511501 5297511501 5297511501Total Equity 5,605,404,324 5,607,209,179 5,610,466,546 5,613,994,990 5,617,805,854 5,621,911,097

Non-Current Liabilities:LONG-TERM LOAN 65,228,876 63,897,437 62,593,174 61,315,534 60,063,973 58,837,959 DEFERRED LIABILITIES

Leave pay & Gratuity 1,272,012 1,115,090 977527 856935 751219 658545PAKISTAN LIABILITIESTotal Non-Current Liabilities . 66,500,888 65,012,527 63,570,702 62,172,469 60,815,193 59,496,504

Current Liabilities:Bank Loan 152103534 56674141 59507848 62483240 65607402 68887773Inter-Project Current Account 183,987 83,914 88,109 92,515 97,141 101,998 Deposits 3497032 2055305 2158071 2265974 2379273 2498236Liabilities For Goods Supplied 6881 23711 24896 26141 27448 28820Liabilities For Expenses 20692720 12661961 13295060 13959813 14657803 15390693Liabilities For Other Finance 13681822 8112214 8517825 8943716 9390902 9860447Advance Against Sales 7717321 4958303 5206218 5466529 5739855 6026848Unpaid Dividends 28,548,567 1348749 2434198 2636770 2847821 3067807Provision for Income Tax 175072689 132,518,654 139,144,587 146,101,816 153,406,907 161,077,252 Proposed Dividend 18,018,000 1,601,756 2,890,819 3,131,392 3,382,032 3,643,285 Worker's Profit Participation Fund 2236702 1692116 1280125 968444 732650Worker's Welfare Fund 559176 423029 320031 242111 183162Total Current Liabilities 419,522,553 222,834,586 235,382,776 246,708,062 258,747,139 271,498,972

Total Equity & Liabilities 6,091,427,765 5,895,056,291 5,909,420,024 5,922,875,521 5,937,368,186 5,952,906,573

WACC Calculation

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Risk-free rate 0.0825Market return 0.38003553Beta -0.013497104Cost of equity 0.078484132Cost of debt 0.063259677After tax cost of debt 0.045863266

Total market value of equity 753,152,400 Book value of debt 217332410Weight of equity 0.78 Weight of debt 0.22

WACC 0.071179

outstanding share 18018000last market price 41.8

Working Capital Calculation

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2012 2013 2014 2015 2016 2017Stock of Goods 370992373 549068712 812621694 1202680107 1,779,966,558 2634350506Trade Debtors 23804311 28540376 34218562 41026439 49,188,762 58975001BSEC Current Accounts 1049099 1054358 1059643 1064955 1,070,293 1075658Inter Project current Account 8187255 8332621 8480569 8631143 8,784,391 8940359Current Account with Disinvested BSEC Mills 8847462 9025155 9206417 9391320 9,579,936 9772340Advances, Deposits & Pre-payments 6993393 7574555 8204013 8885780 9,624,202 10423989Advance Income tax payments 314614411 329344855 345812097 363102702 381,257,837 400320729Non-cash current asset 734,488,304 932940631.8 1219602995 1634782445 2,682,967,858 1698105353

Inter-Project Current Account 183,987 83,914 88,109 92,515 97,141 101,998 Deposits 3497032 2,055,305 2,158,071 2,265,974 2,379,273 2,498,236 Liabilities For Goods Supplied 6881 23,711 24,896 26,141 27,448 28,820 Liabilities For Expenses 20692720 12,661,961 13,295,060 13,959,813 14,657,803 15,390,693 Liabilities For Other Finance 13681822 8,112,214 8,517,825 8,943,716 9,390,902 9,860,447 Advance Against Sales 7717321 4,958,303 5,206,218 5,466,529 5,739,855 6,026,848 Unpaid Dividends 28548567 1,348,749 2,434,198 2,636,770 2,847,821 3,067,807 Provision for Income Tax 175072689 132,518,654 139,144,587 146,101,816 153,406,907 161,077,252 Proposed Dividend 18,018,000 1,601,756 2,890,819 3,131,392 3,382,032 3,643,285 Worker's Profit Participation Fund 2236702 2,236,702 1,692,116 1,280,125 968,444 732,650 Worker's Welfare Fund 551976 559,176 423,029 320,031 242,111 183,162 Non- STD Current liabilities 270,207,697 166,160,445 175,874,928 184,224,821 258,747,139 271,498,972

Working capital 464,280,607 766,780,187 1,043,728,067 1,450,557,623 2,424,220,719 1,426,606,380 Change in WC 302,499,580 276,947,880 406,829,556 973,663,096 (997,614,339)

Du Pont Analysis and Sensitivity

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2010 2011 2012O.Profit margin 0.126777944 -0.05898231 -0.113998305total asset turnover 0.577303262 0.36001165 0.041992371interest burden 1.070176118 0.460435588 1.513001926after tax retentionrate 0.725000012 1.194670236 1.029065617financial leverage 2.004535385 2.116802657 1.086706224

ROE 0.11383 -0.02472 -0.00810

ROE Sensitivity2010 2011 2012

O.Profit margin 0.126777944 -0.05898231 -0.113998305total asset turnover 0.577303262 0.577303262 0.577303262interest burden 1.070176118 1.070176118 1.070176118after tax retentionrate 0.725000012 0.725000012 0.725000012financial leverage 2.004535385 2.004535385 2.004535385

ROE 0.113829469 -0.052958147 -0.10235508∆ ROE …….. -1.465241099 0.932754165AVG -0.266243467SD 1.198997632C.V -450%

O.Profit margin 0.126777944 0.126777944 0.126777944total asset turnover 0.577303262 0.36001165 0.041992371interest burden 1.070176118 1.070176118 1.070176118after tax retentionrate 0.725000012 0.725000012 0.725000012financial leverage 2.004535385 2.004535385 2.004535385

ROE 0.113829469 0.070985109 0.008279824∆ ROE …… -0.376390758 -0.883358299AVG -0.629874528SD 0.253483771C.V -0.402435341

O.Profit margin 0.126777944 0.126777944 0.126777944total asset turnover 0.577303262 0.577303262 0.577303262interest burden 1.070176118 0.460435588 1.513001926after tax retentionrate 0.725000012 0.725000012 0.725000012financial leverage 2.004535385 2.004535385 2.004535385

ROE 0.113829469 0.048974311 0.160930713∆ ROE … -0.569757183 2.286022991AVG 0.858132904SD 1.427890087C.V 1.663949816

O.Profit margin 0.126777944 0.126777944 0.126777944total asset turnover 0.577303262 0.577303262 0.577303262interest burden 1.070176118 1.070176118 1.070176118after tax retentionrate 0.725000012 1.194670236 1.029065617financial leverage 2.004535385 2.004535385 2.004535385

ROE 0.113829469 0.187570588 0.161569643∆ ROE ….. 0.647820989 -0.138619524AVG 0.254600732SD 0.393220257C.V 1.544458466

O.Profit margin 0.126777944 0.126777944 0.126777944total asset turnover 0.577303262 0.577303262 0.577303262interest burden 1.070176118 1.070176118 1.070176118after tax retentionrate 0.725000012 0.725000012 0.725000012financial leverage 2.004535385 2.116802657 1.086706224

ROE 0.113829469 0.120204674 0.061709658∆ ROE ….. 0.05600663 -0.486628468AVG -0.215310919SD 0.271317549C.V -1.260119786

Earnings Quality Estimation

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2,008 2009 2010 2,011 2012Operating Assets

Total assets 993179798 878557659 896492666 919183483 6091427765cash & short term investments 11,832,729 81,629,574 54,303,132 8,827,188 11218904Operating Assets 981,347,069 796,928,085 842,189,534 910,356,295 6,080,208,861

Operating LiabilitiesTotal Liabilites 600192897 444448867 449260518 514981468 486023441long term debt 77262876 74228876 70228876 67228876 65228876bank loan 192316352 82952885 152,103,534 Operating Liabilities 330613669 370219991 379031642 364799707 268691031

Net oprating Assets 650,733,400 426,708,094 463,157,892 545,556,588 5,811,517,830

Balanced Sheet Based Aggregate Accruals ……. (224,025,306) 36,449,798 82,398,696 5,265,961,242 Balanced Sheet Based Aggregate Accruals Ratio -42% 8% 16% 166%

Aggreate AccrualsNet income 93150741 85436648 50908198 -10736370 -45401525CFO -138899969 96873741 6614590 -96319743 -145711818CFI -3880521 -1946406 -211252 -1942112 0

Cash flow based Aggreate Accruals 235931231 -9490687 44504860 87525485 100310293Cash flow based Aggreate Accruals ratio …… -1.76% 10.00% 17.35% 3.16%