Financial Analysis Of

NIRMA Ltd. A Project Report Presented to

Dr. Ashwin Modi

Project Guide, S.K.School of Business Management, Hemchandrachrya North Gujarat University.

On December 1, 2010

In partial fulfillment of requirements for the Managerial Accounting-1 course in the Master of Business Administration Programmed.

By:- BIREN DAVE - 10 JAYESH PARMAR - 33 JAY PARMAR – 34

BHAVIK NAYAK - 25

Financial statement

analysis/NIRMA LTD Man A/C /Batch 2010-

PREFACE

As a student of MBA it is important to study practical things

with theoretical knowledge of financial management.

The Financial Analysis of “NIRMA Ltd” based on the Annual

reports for three consecutive years from the year 2008-09 to 2009-10.

The basic objective behind making such analytical reports is to

have the knowledge of sales Oriented and corporate environment.

Moreover we can develop written communication and analytical skill.

The report contains information about financial condition of the

company. It also highlight future plan of the company. Also it contains

growth rate of company in various aspects and financial soundness of

company. As it was our first financial analysis, we learnt a lot.

.

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

By:- BIREN DAVE JAYESH PARMAR JAY PARMAR BHAVIK NAYAK

ACKNOWLEDGEMENT

Quality is never an Accident ……it is always the result of an

intelligent effect. There must be a will to produce a superior thing. All

we need in this world is hard work and confidence and the success is

sure. Success is not a one-man phenomenon but it is the result of

working together.

First and for most, we would like to express my deepest

gratitude towards Dr. Ashvin Modi Sir, Faculty of S.K.S.B.M,

Patan. For his consent and support, we are profoundly grateful to

him, who has shared his precious time to help us and for giving us

valuable guidance to develop this report.

We would like to thank, who have helped us for providing

valuable Information for making project report.

Last but not the least; we are very thankful to all the staff

members and none teaching staff for their expert guidance and

continuous encouragement throughout, to see that maximum benefit

is taken out of this exercise.

At last, let us express our heartfelt gratitude to all those who

helped us directly or indirectly in completing this project, from

beginning.

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

EXECUTIVE SUMMARY

Our Financial Analysis project is on “NIRMA Ltd.”. Main objective of

this project is to know the financial strengths and weaknesses of

NIRMA Ltd. For that we had references the three consecutive years’

annual report from 2008 to 2010. In addition to these annual reports of

Nirma Ltd we had also used various Books and Web based

information to cover the current trends of the company and its

competitors, as well as the whole industry.

To analyze the firm, we have used various calculation based

ratios and also study some other statements like Trends analysis,

Cash flow statements, DU-Pont Charts etc.

We found that the Nirma Ltd is doing well in general. Most of

the graphs and Ratios are supporting us to say Nirma a good

company. Nirma is consistently going ahead. Nirma has done a good

job in the market of detergent and soaps, but still there is a space for

Nirma in various other products, and also the company has to

concentrate on spreading its business as well. Though the sales of a

company have decreased, the Net profit is increase slightly. But the

decrease in the sales is not a good sign for company.

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

CONT ENTS

NoSub No. Particulars.

Page No.

PrefaceAcknowledgementExecutive summary

1 1.1 Introduction of company 21.2 Group of Company 31.3 History of Company 41.4 Nature of Business 51.5 Product Profile 61.6 Basic Detail of Company 61.7 Board of Directors 81.8 Bankers and Auditors 91.9 Share holding pattern 9

2Balance sheet :Trend and vertical Analysis 11

3Trend Analysis of Profit and Loss Account : Trend and Vertical Analysis 18

4 Analysis of Ratios 274.1 Liquidity Ratios 284.2 Profitability Ratios 314.3 Assets Turnover Ratios 364.4 Financial Ratios 434.5 Valuation Ratios 48

5 Du Pond Chart 52

6Comparison with peers and Future development 55

7 Recommendations and Suggestions 63

Bibliography 64

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

LIST OF TABELS

No. Particular Page No.1 Listing on BSE 92 Shareholding Pattern 93 Balance Sheet 124 Trend Analysis of Balance Sheet 145 Vertical Analysis of Balance Sheet 176 P-L Statement 197 Trend Analysis of P-L statement 208 Vertical Analysis of P-L statement 229 SALES, EXPENDITURE, PBT AND PAT 2310 Total Assets and Liabilities 2411 SHARE CAPITAL, INVESTMENT,

RESERVES AND DEBT25

12 Current Ratio 2913 Quick Ratio 3014 Net Working Capital 3015 Gross Profit Ratio 3116 Operating Profit Ratio 3317 Net Profit Ratio 3318 ROI 3519 ROE 3620 TATO 3721 Net Fixed Turnover 3822 Inventory Turnover 3923 Average Age Of Inventory 4024 Debtor’s Turnover 4125 Average Age Of Debtor 4226 Equity Ratio 4427 Debt Ratio 4528 Debt –Equity Ratio 4629 Interest Coverage Ratio 4730 EPS 4831 DPS 4932 Dividend Yield 5033 P/E Ratio 51

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

LIST OF GRAPH

No. Particular Page No.1 Shareholding Pattern 102 Trend Analysis of Balance Sheet-1 153 Trend Analysis of Balance Sheet-2 154 Trend Analysis of P-L statement 215 Trend Analysis of P-L statement-2 216 SALES, EXPENDITURE, PBT AND PAT 237 Total Assets and Liabilities 248 SHARE CAPITAL, INVESTMENT,

RESERVES AND DEBT25

Financial statement analysis/NIRMA LTD Man A/C /Batch 2010-

Chapter: 1

Introduction of Company

1.1 Name of Company

1.2 Group of Company

1.3 History of Company

1.4 Nature of Business

1.5 Product Profile

1.6 Basic Detail of Company

1.7 Board of Directors

1.8 Bankers and Auditors

1.9 Share holding pattern

1

1.1 Name of the Company

Nirma is one of the few names - which are instantly recognized as a true

Indian brand, which took on mighty multinationals and rewrote the marketing rules

to win the heart of princess, i.e. the consumer. Nirma is one of the good reputed

companies in India. The people of Gujarat have a proud for this company because

it is also provide an Education

Nirma, the proverbial ‘Rags to Riches’ saga of Dr. Karsanbhai Patel, is a

classic example of the success of Indian entrepreneurship in the face of stiff

competition. Starting as a one-man operation in 1969, today, it has about 14,000

employee-bases and annual turnover is above Rs. 3350 cores.

India is a one of the largest consumer economy, with burgeoning middle class

pie. In such a widespread, diverse marketplace, Nirma aptly concentrated all its

efforts towards creating and building a strong consumer preference towards its

‘value-for-money’ products.

It was way back in ‘60s and ‘70s, where the domestic detergent market had only

premium segment, with very few players and was dominated by MNCs. It was

really an innovative, quality product – with indigenous process, packaging and

low-profiled marketing, which changed the habit of Indian housewives’ for washing

their clothes. In a short span, Nirma created an entirely new market segment in

domestic marketplace, which is, eventually the largest consumer pocket and

quickly emerged as dominating market player – a position it has never since

relinquished.

The performance of Nirma during the decade of 1980s has been labeled as

‘Marketing Miracle’ of an era. During this period, the brand surged well ahead its

nearest rival – Surf, which was well-established detergent product by Hindustan

Lever. It was a severing battering for MNC as it recorded a sharp drop in its

market share. Nirma literally captured the market share by offering value-based

marketing mix of four P’s, i.e. a perfect match of product, price, place and

promotion.

2

Now, the year 2008 sees Nirma’s annual sales touch 8, 00,000 tones, making

it one of the largest volume sales with a single brand name in the world. Looking

at the FMCG synergies, Nirma stepped into toilet soaps relatively late in 1990 but

this did not deter it to achieve a volume of 100000 per annum. This makes Nirma

the largest detergent and the second largest toilet soap brand in India with market

share of 38% and 20% respectively.

In 2000, Nirma had a 15% share in the toilet soap segment and more than 30%

share in the detergent market. Aided by growth in volumes and commissioning of

backward integration projects, Nirma's turnover for the year ended March 2000

increased by 17% over the previous fiscal, to Rs. 12.17 bn.

It has been persistent effort of Nirma to make consumer products available to

masses at an affordable price. Hence, it takes utmost care to provide finest

products at the most affordable prices. To leverage this effort, Nirma has gone for

massive backward integration along with expansion and modernization of the

manufacturing facilities.

The main objective behind modernization plan is of up gradation with

resource-savvy technology to optimize capabilities. Nirma’s six production

facilities, located at different places, are well equipped with state-of-art

technologies. To ensure regular supply of major raw materials, Nirma had opted

for backward integration strategies. These strategic moves allowed Nirma to

manage effective and efficient supply-chain.

1.2 Group of Company

Subsidiary Company of Nirma Ltd.:

As required under Section 212 of the Company Act, 1956, The Nirma

Ltd. has only one registered subsidiary company, ‘Nirma Consumer Care

Limited’, a wholly owned subsidiary company.

3

1.3 History of Company.

In scorching heat of 1969, a son of small-time farmer was trying to mix

Soda Ash and few other intermediaries, to make a detergent produce. He was a

qualified Science graduate and was working as junior chemist in Government

laboratory. As a moonlighting activity, he was making detergents in the 100 Sq.

Ft. back yard of his home, using bare hands and bucket. Once the mixture is

ready, he used to pack them in polythene bag and was selling door-to-door…

Gradually, the product became well accepted in the consumer community, and

the rest is known to one and all… This is a success saga of a first generation

entrepreneur, on his way to create history in the Indian marketplace - that was Dr.

Karsanbhai Patel.

In a short span, he captured the domestic market, with a quality product.

He swiftly crafted low-to-medium consumer pockets – a whole new consumer

segment for detergent category. He took on mighty multi-nationals and rewrote

the marketing rules. In true sense, he spearheaded the market revolution by

offering innovative, ‘value-for-money’ products, and changed the cloth-washing

habit of Indian housewives - the revolution called …“Nirma”.

The launch of Nirma detergent cake came 16 years after the introduction of

the detergent powder. Its success was almost a foregone conclusion. In 1990,

Nirma Super Detergent, a spray-dried blue detergent powder was launched. With

the launch of high-TFM content Nirma Beauty Soap, Nirma began to expand its

product portfolio. To counter the success of Nirma Beauty Soap, Hindustan Liver

Ltd. launched Breeze. In a flanking operation that would have done military

strategists proud, Nirma, launched another brand: Nima. Both the brands from the

Nirma stable have been successful in grabbing a huge chunk of all incremental

sales growth in the soap category in the past twelve years.

In 1994, Nirma Ltd. was listed on stock exchanges. Today Nirma is the

flagship company of the group with complete rights and ownership of the brand.

Its wholly owned subsidiary, Nirma Consumer Care Ltd, is the distribution arm.

4

From initial days, Nirma believed in value-for-money equation, in creating

and maintaining long-lasting relationships. It has always remained committed to

offer better products, at better value, for better living…

1.4 Nature of Business:

Nirma is a customer-focused company committed to consistently offer

better quality products and services that maximize value to the customer.

This customer-centric philosophy has been well emphasized at Nirma

through:

Continuously exploring & developing new products & processes.

Laying emphasis on cost effectiveness.

Maintaining effective Quality Management System.

Complying with safety, environment and social obligations.

Imparting training to all involved on a continuous basis.

Teamwork and active participation all around.

Demonstrating belongingness and exemplary behavior towards

organization, its goals and objectives.

Nirma Ltd. The Group's principal activity is to manufacture detergents and

toiletries. The Group operates in two segments namely, Soaps and Surfactants

and Other Businesses. The Soaps and Surfactants include detergents, toilet soap

and its ingredients. The Other businesses include single super phosphate,

vacuum salt. Iodized salt, tooth paste, liquid blue and incense sticks. The Group's

products are launched under two brand names Nirma and Nima.

5

1.5 Product Profile

The Nirma Ltd. is producing following products:

1.5.1 Soap

Nirma Bath Soap

Nirma Beauty Soap

Nirma Lime Fresh Soap

Nima Rose

1.5.2 Detergents

Nirma Washing Powder

Nirma Detergent Cake

Super Nirma Washing Powder

Super Nirma Detergent Cake

Nirma Popular Detergent Powder

Nirma Popular Detergent Cake

1.5.3 Scouring Product

Nirma Clean Dish Wash Bar

Nima Bartan Bar

1.6 Basic Details of Company.

Registered Office :

Nirma House,

Ashram Road,

Ahmedabad – 380009.

Ph: 079-27546565.

Website: www.nirma.co.in

6

Plant Locations :

1) Block No. 16/B,

Ahmedabad-Mehsana Highway,

P.O. Mandali.

Dist. Mehsana.

Gujarat.

Pin – 382732.

2) Village : Moraiya,

Post Chacharwadi, Vasana,

Near Modern Denim Bavala Road,

Taluka: Sanand,

Dist: Ahmedabad,

Gujarat.

Pin: 382213

3) Alindra Detergent Complex,

P.O. Alindra,

Taluka: Savli,

Dist: Baroda,

Gujarat.

Pin: 391775.

4) Bhavnagar Chemical Complex,

P.O. Kalatalav,

Dist: Bhavnagar,

Gujarat.

5) Wind Farm Project at Survey No. 691,

Village: Dhank,

Taluka: Upleta,

Dist: Rajkot,

Gujarat

6) Survey No. 358-369,

Village Sachana,

Taluka: Viramgam,

Dist: Ahmedabad.

7

1.7 Board of Directors.

Dr. K. K. Patel, Chairman

Shri Rakesh K. Patel, Vice Chairman

Shri Shrenikbhai K. Lalbhai

Shri Pankaj R. Patel

Shri Rajendra D. Shah

Shri A. P. Sarwan

Shri Chinubhai R. Shah

Shri Kaushikbhai N. Patel

Shri Kalpesh A. Patel, Executive Director

Shri Hiren K. Patel, Managing Director

1.7.1 Bankers & Auditors

Bankers of the Company :

State Bank of India

HDFC Bank Ltd.

Kalupur Co-operative Bank

ICICI Bank

Indian Overseas Bank

COMPANY SECRETARY

Shri Paresh Sheth

Auditors of the Company :

Hemansu Shah & Co.

Chartered Accountants,

8

Ahmedabad.

1.8 Listing on Stock Exchange

The Company’s equity shares are listed on stock exchanges at Mumbai at BSE and NSE.

Table 1 : Listing on Stock Exchange

Name of Stock Exchanges

Stock Code

Bombay Stock Exchange 500308National Stock Exchange NIRMA EQ

1.9 Comments on Share Holding Pattern

Description % of Share

Promoter and Promoter GroupIndian Promoters 77.17Individuals / Hindu Undivided Family 25.59Bodies Corporate 12.57Other 39.01Any Others (Specify) 39.01Total of Promoter and Promoter Group 77.17Institutions 1.48Mutual Funds / UTI 0.84Insurance Companies 0.02Foreign Institutional Investors 0.63Non-Institutions 21.34Bodies Corporate 2.55Individual shareholders up to Rs. 1 lakh 3.66Individual shareholders excess of Rs. 1 lakh 15.06Any Others (Specify) 0.07Non Resident Indians 0.06Total Public Shareholding 22.83

9

Tabel-2 Share holding Pattern

Fig -1 Pie chart

Comments:-

As we can see, Total promoter and Promoter group has total 77.17% of company’s share whereas public has only 22.83% share. So, company is totally controlled by its promoters it is good for the company.

10

77.17

0

22.83

Total ofPromoter andPromoter Group

Total PublicShareholding

Chapter: 2

BALANCE SHEET

2.1 BALANCE SHEET

2.2 TREND ANALYSIS

2.3 VERTICAL ANALYSIS

11

BALANCE SHEET AS AT 31ST MARCH, 2013

  Schedule As at As at As at  31.03.2013 31.03.2012 31.03.2011I SOURCES OF FUNDS  Shareholders’ Funds  Share capital 1 79.57 79.57 82.36

  Reserves and surplus 2 2,675.89 2,521.47 2502.62

  2,755.46 2,601.04 2584.98

  Loan Funds  Secured loans 3 751.97 1,048.12 182.54

  Unsecured loans 4 235.31 85.67 261.4

  987.28 1,133.79 443.94

  3,742.74 3,734.83 3028.92

II APPLICATION OF FUNDS

  Fixed Assets 5  Gross block 4,298.43 4,048.53 3,738.92

  Less : Depreciation 2,382.32 2,129.59 1,826.96

  Net block 1,916.11 1,918.94 1,911.96

  Add : Capital work-in-progress

279.24 243.08 259.61

  2,195.35 2,162.02 2,171.57

  Investments 6 535.73 539.77 45.85

  Current Assets, Loans & Advances

  Inventories 7 592.15 600.27 635.16

  Sundry debtors 8 269.28 250.49 216.37

  Cash and bank balances 9 92.29 213.59 72.65

  Loans and advances 10 759.39 599.59 500.86

  1,713.11 1,663.94 1,425.04

  Less :   Current liabilities 249.07 189.93 195.46

  Provisions 149.47 135.28 129.68

  12 398.54 325.21 325.14

  Net Current Assets 1,314.57 1,338.73 1,099.9

  Deferred tax liabilities (Net) 302.91 305.69 288.4

  1,011.66 1,033.04 811.5

  19 3,742.74 3,734.83 3,028.92

TABLE – 3 BALANCE SHEET

12

Introduction:

Trend Analysis involves calculations of percentage changes in financial

statement items for a number of successive years.

It is an extension of horizontal analysis of several years.

Trend analysis is carried out by first assigning a value of hundred to the

financial items in a past financial year used as a base year and then expressing

financial statement in the following years as a percentage of the base year value.

Here we are taking 2005-2006 as a base year.

13

2.1 Trend Analysis

Year Mar-2010 Mar-2009 Mar-2008 Mar-2007 Mar-2006

Share capital 795.7 795.7 823.6 823.6 821.896.824045 96.824045 100.21903 100.21903 100

Reserves and Sur-plus

26758.9 25214.7 25026.2 23474.2 19658.1

136.1215 128.26621 127.30732 119.41235 100

Total Debt 9872.8 11337.9 4439.4 3248.5 3480.9283.6278 325.71749 127.53598 93.323566 100

Net Block 19161.1 19189.4 19119.6 20448.1 17501.3109.48387 109.64557 109.24674 116.83761 100

Net Current Assets 9,537.2 10,643.5 8,241.8 7,821.7 8,008.3119.09144 132.90586 102.91572 97.669917 100

Total Assets 37427.4 37348.3 30289.2 27546.3 23960.8156.20263 155.87251 126.41147 114.96402 100

Total Current Liabili-ties

2490.7 1899.3 1954.6 21460 917.7

271.40678 206.96306 212.98899 2338.4548 100

Investments 5357.3 5397.7 458.5 67 74.97152.6035 7206.5421 612.14953 89.452603 100

TABLE-4 TREND ANALYSIS OF BALANCE SHEET

COMMENT:

Investment has increased 71 times that is good for the company.

14

Reserves have increased 1.3 times and Total Assets has increased 1.5 times with marginal decrease of 4% in share capital that is good for the company.

Total debt was increasing at higher rate compared to net block but it decreased last time so it is good for the company.

Liabilities have been increased 2.7 times that is not good for the company.

FIG-2 TREND ANALYSIS OF BALANCE SHEET-1

FIG-3 TREND ANALYSIS OF BALANCE SHEET-2

15

2.2 Vertical Analysis

TOTAL LIABILITIES1 SOURCES OF FUNDS MAR-2010 MAR-2009 MAR-2008

Shareholders’ FundsShare capital 2.12 2.13 2.71Reserves and surplus 71.49 67.5 82.6

Loan FundsSecured loans 20.09 28.06 6.02Unsecured loans 6.28 2.29 8.63TOTAL 100 100 100

DEBT-EQUITY RATIO= Total equity / Total debt

COMMENT:Equity Debt ratio should be 2:1 ideally. But, Household product industry’s ratio is 0.8:1. So to match the industry standard company should raise the debt. Here, it is not good for the company.

16

MAR-2010 MAR-2009 MAR-20080.36:1 0.44 0.17

TOTAL ASSETS MAR-2010 MAR-2009 MAR-20082 APPLICATION OF FUNDS

Fixed AssetsGross block 114.84 108.39 123.44Less : Depreciation 63.65 57.01 60.31Net block 51.19 51.37 63.12Add : Capital work-in-progress

7.46 6.5 8.57

Investments 14.31 14.45 1.51

Current Assets, Loans & AdvancesInventories 15.82 16.07 20.96Sundry debtors 7.19 6.7 7.14Cash and bank balances 2.46 5.71 2.39Loans and advances 20.28 16.05 16.53TOTAL 45.77 44.55 47.04Current Liabilities and ProvisionsLess : Current liabilities 6.65 5.085 6.45Provisions 3.99 3.62 4.28

Net Current Assets 35.12 35.84 36.31Deferred tax liabilities (Net) 8.09 8.18 9.52

100 100 100

TABLE-5 VERTICAL ANALYSIS OF BALANCE SHEET

17

Chapter: 3

PROFIT AND LOSS STATEMENT

3.1 PROFIT AND LOSS STATEMENT

3.2 TREND ANALYSIS

3.3 VERTICAL ANALYSIS

18

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010  Rs. in

carores 

  Schedule 2013 2012 2011INCOME  Sales 3329.18 3354.06 2650.78Less : Excise duty 211.23 323.89 318.57Sales Net 3117.95 3030.17 2332.21Other income 13 19.17 8.78 13.65Increase / (Decrease) in stock 14 6.8 31.08 25.96  3,143.92 3,070.03 2371.82EXPENDITURE  Consumption of raw materials 15 1,254.02 1,398.89 1084.06Purchase of goods traded in 36.87 22.7 1.15Payments to and provision for employees 16 113.45 99. 81.65Manufacturing, administrative and selling expenses 17 1,134.99 1,049.46 814.7Interest and charges 18 31.72 47.41 7.92  2,571.05 2,617.46 1989.48Profit before Exceptional items, Depreciation and Tax

572.87 452.57 382.34

Less : Provision for depreciation 287.56 244.38 226.65Profit before Exceptional items and Tax 285.31 208.19 70.89Less : Impairment of asset (See Note No.11) Nil 60. 226.58Less : Fixed assets written off 3.94 Nil NilLess : Exchange loss on revaluation on long 5.05 29.86 Nil term monetary items (See Note No.12) 226.58Profit before Tax 276.32 118.33 26Less : Provision for taxation      - Current tax 50. 13.6 0.4- Fringe benefit tax Nil .4 29.55- Deferred tax (2.78) 17.29 229.73Add : Excess depreciation provided in earlier years written back

8.84 Nil 12.18

Less : Provision of taxation of earlier years written back

Nil (6.39) 217.55

Net Profit 237.94 93.43 71.13Add : Balance in profit and loss account brought forward

30.06 114. 288.68

Profit available for Appropriation 268. 207.43 NilLess : Transferred to capital redemption reserve Nil 2.79 100: Transferred to general reserve 100. 100. 0.17: Final dividend on preference shares Nil .1 63.66: Proposed dividend on equity shares 71.61 63.66 10.85: Tax on dividend 11.91 10.82 114Balance carried to Balance Sheet 84.48 30.06  Earnings per equity share  (See Note No.16) 13.66Basic 14.95 5.86 13.66Diluted 14.95 5.86  Notes forming part of accounts 19      

19

TABLE-6 PROFIT AND LOSS STATEMENT

3.1 TREND ANALYSIS

YEAR Mar-2010 Mar-2009 Mar-2008 Mar-2007 Mar-2006

Net Sales 31179.5 30301.7 23322.1 22460.4 19188162.49479 157.92005 121.54524 117.05441 100

Total Expendi-ture 25710.5 26174.6 19894.8 19538.9 14493.6

177.39209 180.59419 137.2661 134.81054 100

PBT 2763.2 1183.3 2265.8 1783.9 3440.280.320912 34.396256 65.86245 51.854543 100

PAT 2379.4 934.3 2175.5 2197.9 2413.898.574861 38.706604 90.1276 91.055597 100

Operating profit 31439.2 30700.3 23718.2 23397.9 19498161.2432 157.45358 121.64427 120.00154 100

TABLE-7 TREND ANALYSIS OF PROFIT AND LOSS STATEMENT

COMMENTS

Net sales and operating profit has increased 1.7 times that is good for the company.

Total expenditure has increased 1.7 times with decrease of 2% in PAT it is not good for the company.

20

FIG-4 TREND ANALYSIS OF P-L STATEMENT-1

FIG-5 TREND ANALYSIS OF P-L STATEMENT-2

21

3.2 VERTICAL ANALYSIS 0F P-L STATEMENT

TABLE-8 VERTICAL ANALYSIS OF PROFIT AND LOSS STATEMENT

22

Mar-10 Mar-09 Mar-08INCOMESalesLess : Excise duty Sales Net 100 100 100Other income 0.61 0.29 0.59Increase / (Decrease) in stock 0.21 1.02 1.11TOTAL INCOME 100.83 101.31 101.69EXPENDITUREConsumption of raw materials 40.21 46.16 46.48Purchase of goods traded in 1.18 0.75 0.05Payments to and provision for employees 3.61 3.26 3.5Manufacturing, administrative and selling expenses 36.4 34.63 34.93Interest and charges 1.017 1.56 0.33TOTAL EXPENDITURE 82.45 86.38 85.3Profit before Exceptional items, Depreciation and Tax

18.37 14.93 16.39

Less : Provision for depreciation 9.22 8.06 9.71Add : Provision of expenses earlier years written back

3.03

Profit before Exceptional items and Tax 9.15 9.71Less : Impairment of asset (See Note No.11)Less : Fixed assets written off 0.12Less : Exchange loss on revaluation on long 0.16 0.98term monetary items (See Note No.12)Profit before Tax 8.86 3.9 9.71Less : Provision for taxation- Current tax 0.44 1.11- Fringe benefit tax 1.6 0.013 0.017- Deferred tax 0.08 0.58 1.26Profit for the year 7.34 2.87 9.32Add : Excess depreciation provided in earlier years written back

0.28 0.21

Less : Provision of taxation of earlier years written backNet Profit 7.63 3.08 9.85Add : Balance in profit and loss account brought for-ward

0.96 3.76 0.52

Profit available for Appropriation 8.59 6.84 12.37

COMMENT: Highest profit is in the year 2006 and lowest is in 2009 .Less profit in 2008-2009 is due to following reasons.

Other income is only 0.2% instead of 0.5% Employee costs are 3.6% which was 3.5% last year and Additional

purchase of goods is 0.74%. Interest and charges are 1.56% Exchange losses are 0.99% and depreciation is 0.2%. Provisions of 3% is not added which was there in 2008.

3.3 P-L and BALANCE SHEET

YEAR Mar-2006Mar-2007

Mar-2008

Mar-2009Mar-2010

Net Sales 19188 22442.8 23322.1 30301.7 31179.5Total Expen-diture

14493.6 19538.9 19894.8 26174.6 25710.5

PAT 2413.8 2197.9 2175.5 934.3 2379.4PBT 3440.2 1783.9 2265.8 1183.3 2763.2

TABLE-9 SALES, EXPENDITURE, PBT AND PAT

FIG-4 SALES, EXPENDITURE, PBT AND PAT

23

Analysis

Total expenditure has increased but Net sales has also increased it is good for the company.

PBT and PAT both decreased and then increased it is good for thecompany.

PBT is less in 2010 compared to 2006 but PAT is almost same that is good for the company.

YEAR

Mar-2006

Mar-2007

Mar-2008

Mar-2009Mar-2010

Net Current As-sets

9518.6 9928.4 10999 13387.3 13145.7

Total Current Lia-bilities

1689.5 3398.3 3251.4 3252.1 3985.4

Net Block 17501.3 20448.1 19119.6 19189.4 19161.1Total Assets 23960.8 27546.3 30289.2 37348.3 37427.4

TABLE-10 TOTAL ASSESTS AND LIABILITIES

FIG-5 TOTAL ASSESTS AND LIABILITIES

Analysis Total Assets are increasing with Increase in liabilities. But increase in liabilities is much lower than increase in assets. Also, Net block has been increasing. It is good for the company.

24

YEAR Mar-2006 Mar-2007 Mar-2008 Mar-2009 Mar-2010

Share capital 821.8 823.6 823.6 795.7 795.7Reserves and Sur-plus

19658.1 23474.2 25026.2 25214.7 26758.9

Total Debt 3480.9 3248.5 4439.4 11337.9 9872.8Investments 74.9 67 458.5 5397.7 5357.3

TABLE-11 SHARE CAPITAL, INVESTMENT, RESERVES AND DEBT

FIG-6 SHARE CAPITAL, INVESTMENT, RESERVES AND DEBT

Analysis Reserves and investment have increased with stable share capital.This is good for the company.

25

Chapter: 4

RATIO ANALYSIS

4.1 Liquidity Ratios

4.2 Profitability Ratios

4.3 Assets Turnover Ratio

4.4 Finance Structure Ratios

4.5 Valuation Ratio

26

INTRODUCTION:

Ratio Analysis is a widely – used tool of Financial Analysis. It

is defined as the systematic Use of Ratio to interpret the financial statement so

that the strength and weakness of a firm as well as its historical performance and

current financial condition can be determined. The Ratio refers to the numerical or

quantitative relationship between two variables\items. Ratio analysis presents the

financial statement into various functional areas which highlight various aspects of

the business like inequality, Profitability, assets turn over, financial structure etc.,

all these ratios are important to both categories of the suppliers of funds owners,

and outsiders. Whose interest is reflected in various valuations rations?

Thus, the integrated relationship of various functional ratios can be presented as under:

4.1 Liquidity Ratios

4.2 Profitability Ratios

4.3 Assets Turnover Ratio

4.4 Finance Structure Ratios

4.5 Valuation Ratio

27

4.1 Liquidity Ratios:

The importance of adequate Liquidity in the sense of the ability of a firm

to meet the current or short-term obligation when they become due for payment

can hardly be overstressed. In fact Liquidity is a perquisite for the very survival

of the firm. The Liquidity ratio measures the ability of the firm to meet its short

term obligation and reflect the short-term financial strength\solvency of a firm.

This ratio indicates the ability of the company to discharge the liabilities as and

when they mature.

1. Current Ratio

2. Quick Ratio

3. Net Working Capital

4.1.1 Current Ratio

Current ratio is the indication of the firm commitment to meet its short-term

liabilities. It is widely used indicator of a company’s ability to pay its debts in short-

term. The Current Ratio is the ratio of total current assets to total current liabilities

it can be calculated, by dividing current assets by current liabilities.

Current Ratio = Total Current Assets Total Current Liabilities

Where,

The current assets of the firm represent those assets which can be in the ordinary course of business, converted in to cash within a short period of time, normally not exceeding one year. The current liabilities defined as liabilities which are short maturing obligation.

Current Assets = Inventories + Debtors + Bill Receivables +

28

Marketable Securities + Bank & Cash Balance +

Prepaid Expenses.

Current liability = Creditors + Bill payables + Unpaid expenses +

Provision for tax + dividend Payable + Bank over

Draft.

TABLE-12 CURRENT RATIO

Analysis: Current Ratio should be 2:1. It is measure of company’s Liquidity i.e. how quickly company

can convert assets to cash. Here, it is more than 2 it is not good for the company. Company has higher capacity to convert its assets into cash

more than required.

4.1.2 Quick Ratio (Liquid Ratio / Acid Test Ratio)

All Current Assets are not equally liquid. While cash is readily available to

make payments to suppliers .Debtors can be quickly converted into cash,

Inventories are two steps away from conversion into cash (sales and collection).

The quick ratio or acid test ratio is computed as a supplement to current ratio. The

ratio relates highly liquid current assets usually current assets less inventories, to

current liability.

Acid – Test Ratio = Quick Assets Quick Liabilities

Where,

Quick Assets = Current Assets – Inventories

29

Particulars Year  

2013-14 2012-13 2011-12

Total Current Assets 953.72 1064.35 924.18

Total Current Liabilities 249.07 189.93 195.46

Current Ratio 3.83 5.80 4.73

Quick Liabilities = Current Liabilities-bank overdraft.

TABLE-13 QUICK RATIO

Analysis:

o If Inventories are as less as possible that is good for the company. It can be measured by Quick Ratio.

o Quick Ratio has decreased from 2.44 to 1.35 that is very good for the company.

4.1.3 Net Working Capital: Net Working Capital (NWC) represents the excess of current assets over

current liabilities. Net Working Capital = Total Current Assets – Total Current Liability

TABLE-14 NET WORKING CAPITAL

Analysis:

Here Working Capital has been decreasing compared to the last years that

is not good for the company.

30

Particulars Year  

2010-09 2009-08 2008-07

Quick Assets 361.57 464.08 289.02

Quick Liabilities 249.07 189.93 195.46

Quick Ratio 1.35 2.44 1.48

Particulars Year  

2010-09 2009-08 2008-07

Total Current Assets 361.57 464.08 289.02

Total Current Liabilities 953.72 1065.34 924.18

Net Working Capital 704.65 874.42 728.72

4.2 Profitability Ratio:

Profitability is measure of earning ability of the business.

Profitability ratios are generally measured in percentage based on

the calculation of absolute profit figures. Profit is a positive difference

between sales and the expenses.

4.2.1 Gross Profit Ratios

4.2.2 Operating Profit Ratios

4.2.3 Net Profit Ratios

4.2.4 Rate of Return on Investment (ROI)

4.2.5 Rate of Return on Equity (ROE)

4.2.1 Gross Profit Ratio:

This Ratio expresses the relationship between gross profit and net sales. It

is a degree to which the sales price of good per unit may decline without resulting

in losses from operations to the firms. It also helps in ascertaining whether the

average percentage of mark-up and the goods in maintained. It can be calculated

as follows:

Gross Profit = Gross Profit *100

Total Sales

Where,

Gross Profit = Sales – COGS

COGS = Raw material Consumed + Labor Costs + Factory Overheads.

31

TABLE-15 GROSS PROFIT RATIO

Analysis:

If the ratio is high it indicates Gross Profit is high or the purchasing is

efficient alternating and vice versa.

Here the ratio is increasing from last years.

The highest value of the ratio is 54.96% And the lowest value is

49.97% .This is good for the company

4.2.2 Operating Ratio.

Operating Ratio is a ratio of Total Cost of Good Sold and

Total Operating Expenses which is divided by net sales. It is calculated as follows,

Operating Ratio = Sales- Operating Expenses * 100 Net Sales

Where,

Operating Expenses = Manufacturing Expenses + Administration &

Selling Expenses + Depreciation

32

Particulars Year  

2010-09 2009-08 2008-07

Gross Profit 1713.61 1509.58 1165.35

Total Sales 3117.95 3030.17 2332.21

Gross Profit Ratio 54.96% 49.82% 49.97%

Particulars Year  

2010-09 2009-08 2008-07

Operating Profit 569.63 430.26 350.65

Total Sales 3117.95 3030.17 2332.21

Operating Profit Ratio 18.27% 14.20% 15.04%

TABLE-16 OPERATING PROFIT RATIO

Analysis:

This ratio shows that percentage of Operating profit over Sales.

Here there is an increase in cost of operating Expenses but also increase

in sales as well as increasing in profit ratio. It is good for the company

4.2.3 Net Profit Ratio:

It is the indicator of the net margin earned on sale of Rs 100. It helps in

determining the efficiency with which affairs the business are being managed. It

can be calculated as follows.

Net Profit Ratio = Net Profit * 100 Net Sales

TABLE-17 NET PROFIT RATIO

Analysis:

It measure a collecting overall profitability of business and shows efficiency

otherwise a operating the expenses over a sell.

Value of the ratio is highest in year 2008-07 i.e. 9.85% because of

decrease in the value of Net Sale.

Here in the year 2008-09 the value is decrease to 3.06% because of less

Net profit.

In year 2009-10, Net Profit is increased to 7.63%.

It is not good for the company that ratio remains below 8%.

33

Particulars Year  

2010-09 2009-08 2008-07

Net Profit 237.94 93.43 229.73

Total Sales 3117.95 3030.17 2332.21

Net Profit Ratio 7.63% 3.09% 9.85%

4.2.4 Rate of Return on Investments:

Rate of Return on Investment is term as the profit of the firm

distributed

To its Investor.

Rate of Return on Total Assets = EBIT (Earning Before Tax and Interest) Total Assets

Where,

EBIT = Net Profit + Interest + Tax.

Total Assets = Net Fixed Assets + Investments + Net Working Capital.

Instead of Total Assets, Total Capital Employed is also shown as

denominator.

Total Capital employed = Owner’s Fund (Capital + Reserves – Miscellaneous

Expenses) + Long term Debt.

It should be noted that the amount of total assets and total capital

employed would be same.

TABLE-18 ROI

Analysis:

The ratio shows the total profit on total investments of the company.

This ratio is very important to the shareholder.

34

Particulars Year  

2010-09 2009-08 2008-07

EBIT 308.04 165.74 234.50

Total ASSETS 3742.74 3734.83 3028.92

ROI 8.2% 4.43% 7.74%

As per this table there is an Decrease then increase in the net profit before

interest and taxes but the main important point is company pays money to

its long term loan holders and company’s reserves are more so there is an

good point of the company and they have a retain earnings is more.

6.2.5 Rate of Return on Equity:

Return on Equity = Earnings Available to Equity Shareholder * 100Net Worth

Where,

Profit for the Equity = Net Profit – Preference Dividend

Net Worth = Equity Capital + Reserves – Misc. Expenses

TABLE-19 ROE

Analysis:

Through the above calculation we can say that the rate of return on equity

ratio decreased and then increased year to year it means shareholders

earnings will decline then incline. This Ratio must not be less then 8%.

The main cause to decrease the value of the ratio is the decrease in the

value of the net profit for equity. This is not good for the company.

35

Particulars Year  

2010-09 2009-08 2008-07

Profit for Equity 237.94 93.43 229.73

Net Worth 2755.46 2601.04 2584.98

ROE 8.64% 3.59% 8.89%

6.3 Assets Turnover Ratio.

Assets Turn over Ratios is basically productivity ratio which measures the

output produced from the given input deployed. This relationship is shown as

under:

An asset is “Input” which is deployed to generate production (or Sales).

The same set of assets when used intensively (i.e. use of machines for three shift

instead of a single shift), Produces more output or sales. If the assets turnover is

high, it shows efficient or productive use inputs, i.e. assets.

It should be noted that in the turn over ratios,” the numerator” is always

“sales” or its variant like total sales, credit sales, cost of goods sold etc, and

denominator is always, the assets like total assets, group of assets (fixed or

current) or individual assets like inventories or debtors.

6.3.1 Total Assets Turnover

6.3.2 Net Fixed Assets Turnover

6.3.3 (A) Inventory Turnover

(B) Average age of Inventories

6.3.4 (A) Debtors Turnover

(B) Average age of Debtors

6.3.1 Total Assets Turnover Ratio:

Total Assets Turnover Ratio is shows Turnover of the company is how much percentage of total investment. It is calculated as below,

Total Assets Turnover Ratio = Total Net Sales Total Assets

36

Where

Total asset = Net Fixed Assets, Investments and Net Working Capital (i.e. Current

assets less current liabilities)

TABLE-20 TATO

Analysis:

This is a measure of the efficiency how the assets are utilized it indicates

how many times assets can make sales.

The company turnover ratio has increased last year.

This is good for the company.

6.3.2 Net Fixed Assets Turnover Ratio:

Net Fixed Assets Turnover Ratio is shows Turnover of the company

is how much percentage of Net Fixed Assets. It is calculated as below,

Net fixed Turnover= Sales

Net fixed assets

37

Particulars Year  

2010-09 2009-08 2008-07

Sales 3117.95 3030.17 2332.21

Total Assets 3742.74 3734.83 3028.92

Total Assets Turn Over 0.83 0.81 0.77

TABLE-21 NET FIXED ASSET TURNOVER

Analysis:

A net fixed asset turnover is indicates that the company’s sales over the

total fixed assets.

The net fixed asset is high at 1.63 in the year 2010-09.

Assets are almost same but sales and hence ratio has increased that is

good for the company.

6.3.4 (A) Inventory Turnover Ratios:

This Ratio indicates the number of times inventory is replaced

during the year. It measures the relationship between the costs of goods

sold and inventory level. The ratio can be calculated in that way,

Inventory Turnover Ratios = Cost of Goods Sold Average Inventory

38

Particulars Year  

2010-09 2009-08 2008-07

Sales 3117.95 3030.17 2332.21

Fixed Assets 1916.11 1918.94 1911.96

Net Fixed Assets Turn Over 1.63 1.58 1.22

TABLE-22 INVENTORY TURN OVER RATIO

Analysis:

The Inventory Turnover Ratio indicates the turnover of the stock in the

company.

The high turnover ratio is high profit of the company and the vice versa.

The ratio is increases for the two consecutive years from 3.07 to 4.30

times. This is good for the company.

6.3.4 (B) Average Age of Inventories

An Average Age of Inventory is shows that after

how much period of time its inventory is replaced and it is calculated as

follow,

Average Age of Inventories = No. of Days (360) Inventory Turnover Ratio

39

Particulars Year  

2010-09 2009-08 2008-07

COGS 2545.08 2577.60 1949.87

Average Inventories 592.15 600.27 635.16

Inventory Turn Over 4.30 4.29 3.07

TABLE-23 AGE OF INVENTORY

Analysis:

This ratio indicates the waiting period of the investments in inventories and

is measured in days, week or months.

If ratio is less, good for the company and vice versa.

No. days has been decreasing that is good for the company. But it is

almost same in 2010=09 compared to last year that is not good for the

company.

6.3.5 (A) Debtor’s Turnover Ratio:

Debtor’s Turn over

Where,

Average Debtors = (Beginning debtors + closing debtors)/2

40

Particulars Year  

2010-09 2009-08 2008-07

No. of Days 360 360 360

Inventory Turn Over 4.30 4.29 3.07

Days 83.75 83.83 117.27

Particulars Year  

2010-09 2009-08 2008-07

Credit Sales 3117.95 3030.17 2332.21

Average Debtor 269.28 250.49 216.37

Debtor’s Turn over 11.58 12.09 10.77

TABLE-24 DEBTOR’S TURNOVER

Analysis:

This ratio measures the efficiency of a company credit and the collection

policy. This ratio shows the number of times each year a company’s

debtor’s turn into cash.

Here the ratio increased and then decreased to 11.58.It less so it is not

good for the company.

6.3.5 (B) Average Age of Debtors:

Average Age of Debtor

TABLE-25 AVERAGE DAY’S OF DEBTOR

Analysis:

High average age of debtors is not good because it indicates poor

collections procedure and idle fund blocking in debtors.

The average age of debtors is compared with the credit period allowed to

the customers.

41

Particulars Year  

2010-09 2009-08 2008-07

No. of Days 360 360 360

Debtor’s Turn over 11.58 12.09 10.77

Days 31 30 33

Here, we can see that the Average age has decreased and then increased

last year.

This is not good for the company. It should be less or equal to Average

days in 2008-07.

4.4 Finance Structure Ratios

Finance structure ratio indicates the relative mix or blending of owner’s

fund and outsider’s debt funds in the total capital employed in the business. It

should be noted that equity funds are the prime fund, which increases

progressively through reinvestment of profits, while outside debt funds are

supplementary funds and are added at the discretion of the management.

Management prefers to choose debt only when it helps in enhancing the earning

of equity. The debt funds are used to generate ROI greater than interest costs on

debts, the equity earning is enhanced, but if the interest costs are higher than

ROI, it adversely affects the earning of owner. This ratio is popularly described as

debt equity ratio. Higher debt ratio is (I) good if ROI is greater than interest on

debts and it is (II) bad if ROI is less than interest on debts. Thus, use of debts is

considered as a “Double- Edge” weapon. Some popular finance structure ratios

are as under:

4.4.1 Equity Ratios

4.4.2 Debt Ratios

4.4.3 Debt-Equity Ratios

4.4.4 Interest Coverage Ratios

4.4.5 Debt Service Coverage Ratios

42

6.4.1 Equity Ratios

Where,

Net Worth = Equity Capital + Reserves – Misc. Expenses.

Total Capital Employed = Net Worth + Long Term Debts.

TABLE-26 EQUITY RATIO

Analysis:

This ratio suggests the proportion of the Net Worth to total capital

employed. Net Worth is share plus reserves and surplus. The higher the

ratio the higher the net worth in total capital employed and vice versa.

The ratio decreases year by year because of the capital the total capital

employed increased.

It was the highest value is 0.85 in the year 2008-07.

It is decreased by 0.74 in the year 2010-09.This is not good for company.

43

Particulars Year  

2010-09 2009-08 2008-07

Net Worth 2755.46 2601.04 2584.98

Total Capital Employed 3742.74 3734.83 3028.92

Equity Ratio 0.74 0.70 0.85

6.4.2 Debt Ratios:

Debt Ratios = Long Term Debt Total Capital Employed

TABLE-27 DEBT RATIO

Analysis:

This ratio suggests the proportion of long-term debt to Total Capital

Employed. Long-term debt is a debt, which is of more than five years

and includes interest thereon. The higher the long-term the higher the

total capital employed and vice-versa.

The ratio has increased and then decreased. This is good for the

company.

6.4.3 Debt Equity Ratio:

When debt funds are used to generate ROI greater than interest cost on

debt, the equity earning is enhanced, but if the interest cost is higher than the

ROI, adversely affect the earning owners. This ratio is popularly described as

Debt-Equity Ratio. Higher debt – equity ratio is (1) good if ROI is greater than

interest on debt. Thus, use of debt (or leverage) is considered as a “Double Aged”

weapon.

44

Particulars Year  

2010-09 2009-08 2008-07

Long Term Debt 987.28 1133.79 443.94

Total capital Employed 3742.74 3734.83 3028.92

Debt Ratio 0.26 0.30 0.15

TABLE-28 DEBT-EQUITY RATIO

Analysis:

Debt Equity Ratio is debt to Equity. Debt means long term fund having maturity of five years or more including interest thereon.

Equity is paid up share capital plus free reserves. The higher the debt fund used in capital structure, the greater is the financial risk. This is also known as leverage ratio.

we can see that the value is increasing and decreasing. It should be 2:1 but industry ratio is 0.8:1. Still it is higher than company’s

ratio. So, company should raise the debt.

6.4.4 Interest Coverage Ratios:

This Ratio indicates the use of interest becoming debt funds in

generating higher operating profits or EBIT. Higher is the Ratio better is the

utilization of the debt funds. Higher interest coverage ratio enhances the equity

earning (i.e. EBIT – interest) is passed over to the equity finance of the

capitalization. It can be concluded as follow:

45

Particulars Year  

2010-09 2009-08 2008-07

Total Long Term Debt 987.28 1133.79 443.94

Net Worth 2755.46 2601.04 2584.98

Debt-Equity Ratio 0.36 0.44 0.17

TABLE-29 INTEREST COVERAGE RATIO

Analysis:

A high ratio implies adequate safety for payment of interest.

It decreased but in the year 2010-09 the ratio increased.

It is clearly indicates by the above calculation that interest expenses

decreases and also PBIT increase and so it implies that the debt of the

company decreases.

Thus in general we can conclude that the growth of the company is very

good.

46

Particulars Year  

2010-09 2009-08 2008-07

EBIT 308.04 165.74 234.50

Interest 31.72 47.41 7.92

Interest Coverage Ratio 9.71 3.50 29.60

4.6 Valuation Ratios:

Valuation ratios are the result of the management of the above four

categories of the functional ratios. Valuation ratios are generally presented on a

per share basis and thus are more useful to the equity investor. The per share

valuation are popularly presented as:

4.6.1 Earning Per Share (EPS)

4.6.2 Dividend Pay-out Ratios (DPS)

4.6.3 Dividend Yield

4.6.4 P/E Ratio

4.5.1 Earning Per Share:

If the company has issued preference share capital then net profit for

equity share = Net Profit - Preference Dividend. In absence of the preference

share capital net profit is taken in the numerator of the below formula.

TABLE-31 EPS

Analysis:

47

Particulars Year  

2010-09 2009-08 2008-07

Net Profit 229.01 87.04 217.5

No. of Equity Share

EPS 14.95 5.86 13.66

o It decreased in the year 2009-08 to 5.86 this is because of the net

profit decreased to 87.04

o This provides company’s future prices. It is increases gradually and

peaks in year 2010-09 at value 14.95. This is good for the company.

4.5.2 Dividend Pay Out Ratio:

This Ratio indicates the split of EPS between cash dividend and re-

investment of profit. If the company has profitable projects, then it will prefer to

keep D/P Ratio lower, it will re- invest higher proportion of the profit in the

business.

TABLE-32 DIVIDEND PAYOUT RATIO

Analysis

This ratio indicates the splits of EPS between cash dividend and reinvest at

profit.

48

Particulars Year  

2010-09 2009-08 2008-07

Dividend per Share 4 4.50 4

Earnings Per Share 14.95 5.86 13.66

Dividend payout Ratio. 0.26 0.76 0.29

If the company has profitable project then it will keep D/P ratio lower it will

reinvest higher proportion of project in business.

Here the company’s ratio is first increased but decreased in 2010-09

continuously. That means company is reinvesting their money.

So it is good for the long term investor but not good for the short term

investor. Company may provide higher profits after long-term. It is good to

invest for long term.

4.5.3 Dividend Yield Ratio:

The dividend yield represents the current cash return to shareholders. It is

computed by dividing the Dividend per Share by the current market price per

share. The investors also earn a return from a capital gain in shares.

TABLE-33 DIVIDEND YIELD RATIO

Analysis:

The lowest ratio is 2% in the year 2009-10 and it is high in the year in the

2009-08 and the value is 2.67%.

49

Particulars Year  

2010-09 2009-08 2008-07

Dividend per Share 4 4.50 4

Average market price 222 168 133

Dividend yield Ratio. 2% 2.67% 3.07%

Higher ratio is good for the short term investor and lower ratio is good for

the long term investor. It is good in 2010-09 for long term investor.

4.5.4 P/E Ratios:

This ratio is a popular measure extensively used in investment

analysis. It is computed by dividing a Current Market Price of a share by the

annual Earning per Share. Many view the P/E Ratio as an indicator of a firm’s

growth prospects. It is used as a device to detect mix-priced stocks. A high Price

Earnings Ratio indicates the stock market’s confidence in the company’s future

earning growth.

TABLE-34 P/E RATIO

Analysis:

This provides company’s future price earning.

From the given chart we can see that the lowest value was achieved in the

year 2005-06.It is

With P/E ratio we can determine the price of its share in future as below.

Target price=EPS * Industry’s P/E ratio.

50

Particulars Year  

2010-09 2009-08 2008-07

Current Market Price of Share 222 168 133

Earnings Per Share 14.95 5.86 13.66

P/E Ratio 14.84 28.66 9.73

Here EPS is 14.84 and Industry’s P/E ratio is 15.7.

So Target price = 14.84 * 15.7 = 232.98

That means price will be 233 from 222 in future.

Chapter: 5

DU-PONT ANALYSIS

5.1 DU-PONT Chart:

51

52

ROI (in %)2010:8.23%2009:4.44%2008:7.74%

Profit Margin (%)

2010:9.872009:5.462008:10.05

Total Assets Turnover

2010:0.832009:0.812008:0.77

Analysis:

The DU-Pont chart indicates the rate of return on investments in

percentage.

53

EBIT2010:308.042009:165.742008:234.50

Total Sales2010:537.912009:382.852008:342.73

Sales + Non-operating Expenses

2010:1713.612009:1509.582008:1165.35

Operating Expenses

2010:1175.72009:1126.732008:822.62

Investments2010:1713.112009:1663.942008:1425.04

Net Working Capital

2010:704.642009:874.422008:728.72

Net Fixed Assets2010:1916.112009:1918.942008:1911.96

Total Fixed Assets2010:4298.432009:4048.532008:3738.92

Accumulated Depreciation

2010:2382.322009:2129.592008:1826.96

Total Current Assets

2010:953.722009:1064.352008:924.18

Current Liability + Provision

2010:398.542009:325.212008:325.14

The chart shows the allocation of financial performance of the company.

In the chart profit margin percentage and total assets turnover in times

is given. ROI is the multiplication of the profit margin and total assets

turnover.

We can say from the chart that profit margin decreased and then

increased. But in the last year it increased.

The reason behind the increment of profit margin is that the EBIT of the

company increases year-by-year. And the denominator, total sales also

increase but very minor differences.

The reason behind the increment in the total Assets Turnover ratio is

that the increment of Net Working Capital and Investment both are

increase simultaneously every year.

CHA-6

Comparison with peers and Future development

54

6.1 Industry Analysis:

6.1.1 Market Share

Nirma currently enjoys 20 per cent market share in the toilet soap industry under

its umbrella brands `Nirma' and `Nirma'.

55

6.1.2 Market Size

The First Detergent War was fought in the 80’s when a small manufacturer in

Gujarat aggressively marketed a detergent powder called ‘Nirma’nationally at one-

fifth the price of existing detergent brands. The launch changed the profile of the

Indian detergent industry.

India's consuming class

Table IEstimated households by

annual income

Table IIStructure of the Indian consumer market (1995-96)

Annual income (in Rupees) at

1994-95 prices

No. of househol

ds (in million)

Annual income

(in Rupees) at 1994-

95 prices

Classification Number of households (in

million)Urba

nRural Tota

l

<25,000 80.7 <16,000 Destitute 5.3 27.7 33.0

25,001-50,000 50.4 16,001-22,000

Aspirants 7.1 36.9 44.0

50,001-77,000 19.7 22,001-45,000

Climbers 16.8 37.3 54.1

77,001-106,000

8.2 45,001-215,000

Consumers 16.6 15.9 32.5

>106,000 5.8 >215,000 The rich 0.8 0.4 1.2

Total no. of households: 164.9 million

Total no. of households 46.6 118.2 164.8

Source: National Council of Applied Economic Research (NCAER). The above presentation has been slightly modified by IndiaOneStop.Com

Data on income distribution of households is insufficient in determining

market size for different consumer products in India. This is because of the

lack of homogeneity of the consuming class and the varying prices of a

single product in different parts of India. For example, vegetables generally

cost more in Mumbai than in Calcutta, hence vegetable-purchasing power

for identical income groups would be different in the two places even

though they are the two biggest cities in India with comparable populations.

In other words, purchasing power is location-specific, not income specific.

56

Consumption habits of households are therefore better determinants of

consumer market size than income distribution. Of course, other factors are

also to be considered and they are detailed below.

While determining market size for a consumer product, the structure of the

consuming class as seen in Table II above, can be both revealing as well

as misleading depending on the kind of product. For example, any specific

consuming class would be fit to be a market for consumer products like tea

or soap, but a product such as vacuum cleaners would find market largely

only in the "consumers" and "rich" segments of the market as defined in

Table II above. Furthermore, even this may not be correct, because a taste

for a vacuum cleaner is not necessarily a function of purchasing power but

of culture and/or taste as well.

The prime market for consumer products in India is aware of the cost-

benefit or value for money, aspect. Their convent of value incorporates

socio-cultural benefits in addition to product utility. For example, many

households in the "consumers" class and the "rich" class (as defined Table

II) may have two television sets, but both the sets may not be top-of-the-

line. Thus, while they may be demand for an additional TV set in many

households in the two mentioned classes, it must not be mistaken as

demand for the higher priced TV models. The prime consumer market in

India therefore is not a market for absolute premium products, but for

something between the "high end popular brands" to the "premium brands.

77777 6.2 Market Growth

The Rise of Nirma In 1969 Karsanbhai Patel’s life typified that of millions of

other Indians. He worked as a chemist in a factory in Ahmedabad in the western

state of Gujarat. Earning a meager salary on which he was desperately struggling

to make ends meet. At the same time Karsanbhai recognized that there was a

vacuum in the rural Indian market for an affordable detergent. There were low

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quality soap bars that did not wash very well and were very time-intensive or there

were up-market detergent brands that washed very well but were too expensive.

Karsanbhai recognized the need for an affordable detergent and concluded that a

good product would create its own market. On the basis of this rather simplistic

but accurate belief, Karsanbhai started conducting experiments in his kitchen. His

efforts finally yielded a pale whitish yellow powder that he named “Nirma”, after

his then one-year-old daughter Niranjana.

In no time he began producing small quantities of washing powder and

selling them to his neighbors. He packaged his product in small pouches with

neither colorful decorations nor designs. Every morning Patel got onto his bicycle

and went from door-to-door selling his washing powder. Soon wholesalers and

distributors from different neighborhoods, towns, cities and states of India started

arriving at Karsanbhai’s doorstep to buy and redistribute Nirma. Karsanbhai took

on no responsibility for delivery or distribution; but his product was soon available

at every corner of India. Once Nirma arrived on the rural market things changed

for India’s poor -- they had an option.

By 1977 Nirma was the second largest volume seller in the country. Despite

this, no other company took Nirma seriously. The marketing gurus of the world

believed that Nirma was a regional product that was seeing temporary success

and that its bubble would soon burst. They predicted that at such a low sale price,

the margins Karsanbhai was making per unit would not sustain his business for

long. Moreover, Nirma is a superior company with a superior

Brand, and there was a strong belief that the only clients worthwhile pursuing

were the Indian middle class and elite. Since Nirma was not in premier market

segment, many other companies did not consider them a threat. The general

belief was that rural Indians were poor and the rural sector was too disorganized

to bother with.

6.3 COMPETITOR:

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There is increased Competition not only from existing national players, and

stronger regional players, but also from a larger number of multinational

companies eyeing the Indian market as imports become more competitive in an

era of lower protection. In the past, a speedily growing and highly profitable

businesses (such as personal product and toilet soaps) subsidized higher

marketing investments in other segments. Today, the core soap and detergent

categories are de-growing and margins are under pressure. In personal products

the company has just managed to push up growth to double digits levels aided by

the power branding strategy. There too margins remain flat. The beverages

business continues to be impacted by an adverse commodity cycle. The foods

business is not mature enough - and would need further investments for a few

more years.

One of the starkest differences between other competitors and Nirma was the

price while the contents of the product may differ such a low cost detergent.

Aware that soda ash, the main raw material for of product, was abundant in

Gujarat, Karsanbhai set up shop in the vicinity. To keep a lean organization

Karsanbahi outsourced all the administrative functions. He contracted tasks like

selling, accounting, technical production capabilities and distribution. All this gave

him the flexibility to negotiate price during slow periods.

COMPETITORS

Shampoo:

Head & Shoulder

Pantene

Rejoice

Clinic All Clear

Sun silk

Clinic Plus

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Detergent:

Ariel

Tide

Surf Excel

Surf Excel Blue

Rim Supreme

Rim Shakti

Wheel Active

Wheel Green

Salt:

Tata Salt

Annapurna salt

6.4 STRATEGY & MARKET SHARE

Nirma Ltd’s fiscal 2010 annual report shows the collateral damage it suffered from the tussle between the multinationals, Hindustan Unilever Ltd (HUL) and Procter and Gamble Home Products Ltd (P&G), for the prized Indian detergent market. P&G's present strategy appears to mirror Nirma's original game plan, of using a low price detergent to gain market   share . P&G is happy with the initial results; its management said in a conference call held after its June quarter results that Tide shipments in India doubled, helped by the launch of Tide Naturals.

The Indian detergent market has been in lather for some time now. It all started in fiscal 2009, when detergent companies hiked prices too sharply, in response to higher raw material prices.

When inputs became cheaper, they held on in the hope of better margins, but lo-cal players moved in for the kill with cheaper products. Nirma's per unit realization on detergents rose by 34%, while HUL's rose by 30%, but their volumes took a hit. P&G, too, jumped into the fray as part of its effort to grow share in emerging   mar - kets.

Thus, fiscal 2010 became the year of corrections. HUL dropped prices on its mass market detergents, and realizations went up by just 2.7% over the previous year, but volumes fell by 3%. Despite price cuts, HUL's premium detergent brands aided better realizations. The June quarter saw a better performance as HUL's strategy is showing initial results.

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Nirma's realizations fell by 9% in fiscal 2010, and its detergent volumes, too, fell by 11%. Its revenue from selling detergents fell by a sharp 20% as a result. While detergents contribute to nearly half of its stand-alone revenue, around 15% comes from soaps. This category, too, witnessed price cuts by HUL.

Nirma had not hiked soap prices by much in fiscal 2009 and chose to hold on to prices in fiscal 2010. That explains why its sales did not suffer, with volumes rising by 1.6% and value sales rising by 2%.

Nirma finds itself under strain in the two main categories of soaps and detergents. And the competitive intensity is not expected to reduce any soon.

Nirma's annual report gives few clues on how it intends to tackle the situation. In-stead, the company says it expects the soap and detergent market growth to moderate or even decline. It predicts that volume growth will be marginal due to high penetration. But the big players seem to think otherwise.

Nirma's focus appears to have shifted to its other businesses. It is now a signifi-cant player in the chemicals market, an offshoot of its former backward integration strategy. After acquiring an intravenous fluids business, it is setting up a formula-tions plant too. A cement plant is being planned, with a 2 million ton capacity

Comments on Latest Update:

At present Nirma ltd. is going through delisting phase.

The chairman has decided to buy back its share at 235 Rs/-.

This delisting is done for expansion plan.

The promoters of company are expected to come up with open offer to acquire

balance 3.63 core equity shares. Nirma’s promoter has to shell out 853.66 crore

to buy them out.

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This is done to attain “flexibility to carry out its operation” and facilitates its foray

into new capital intensive business.

Now Nirma is diversifying like Nirma cement, Nirma Power, Nirma pharma, Nirma

processed minerals and many else.

Chapter: 8

Recommendations and Suggestions

By analyzing the annual report of the company we can conclude that,

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From the Liquidity Ratio we can recommend that the Liquidity of

the company is Very Good.

The Current ratio increases every year. The Current Assets

should be at least twice the Current Liabilities for a comfortable

liquid position. But here it more than 2 to 3 times, which very

good.

By the profitability ratio we can conclude that the profit of the

company decreased and then increased but it is slightly

increment.

But the Operating profit of the company is decreasing, so

company should try to reduce its Operating Cost by controlling

the expenses of Raw material consumption as well as the

selling, Distribution, and Administration and other expenses.

Here we can see that interest to be paid has been cut very well,

which is good for the company in the future.

Here from the analysis we can say that the company is not going

to spread its business because not considerable increase in the

investment has been found

Bibliography

Annual Reports of NIRMA LTD for period of 2005-06 TO 2009-10

WWW.NIRMA.CO.IN

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Managerial accounting and financial book by R. Narayanswamy

Times of India – News paper

WWW.BSEINDIA.COM

ACEANALYSER SOFTWARE

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