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An analysis of working capital of Nova Petrochemical Ltd.
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I. CHAPTER
1.1 Introduction
Nova Petrochemicals Limited (NPL) was incorporated asa PublicLimited Company
on the 23rd December1993under the company act 1956, in the State ofGujarat. The
Company has been jointly promoted by two companies of the "Gupta" Group of
Surat and twocompaniesof the "Chiripal" Group of Ahmedabad. Both the groups
are engaged in the textiles business for the last two decades and have gained good
experience of manufacturing and selling varicose types of yarns.GSL Nova
Petrochemical is widely held company listed at Bombay Stock Exchange limited,
National Stock Exchange of India Ltd. and Ahmedabad Stock Exchange.Currently
company has facilities for production of Partially Oriented Filament Yarn (POY)
Fully Drawn Yarn (FDY).Textured Yarnsand Draw Twisted Yarns. The company is
also engaged in manufacturing Polyester Chips a backward integration of existing
operations. Polyesterchips in turn are produced from Poly Terephthalic Acid (PTA)
and Mono Ethylene Glycol (MEG). Polyester Chipsare the main raw materials for
production of filament and textured Yarns. Company requires lot of funds and that
work properly maintain the proper flow of fundsand maintain liquidity position of
company.
The manufacturing facilitiesand the registered Office of the company are located at
survey No. 396/403, Moraiya Village Sarkhej Bawala Highway, Dist.
Ahmedabad 382210.
The company had initially put up facilities to manufacture Partially Oriented Filament
Yarn (POY), Micro Filament Yarn, Textured Yarn and Draw Textured Yarn, With An
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installed capacity of 11977 TPA in two phases. The first phase with capacity to
manufactured 7497 TPA was completed in the year 1995-96 and the second phase
with capacity of 4480 TPA was implemented during the year 1996-97. The project
wasfunded by the term loan from state bankofIndia (Rs. 14.25 crores) and banksof
Baroda (Rs. 13.75crores) and the balance through Equity include a public issue the
company maiden public issue ofequity share ofRs, 10 eachforcashat a premium of
Rs. 20 per share, aggregating to Rs. 13.69 crores was completed on 13th February
1995 and public issue wasoversubscribed by three times.
During the year 2001, NPL implemented a backward integration project to
manufacture polyester chips, the basic raw materials for POY/PFY from PTA &
MEG. The lintier production of chips is being used for captive consumption. The
project set up withacapitaloutlay ofRs. 30.50 croreshas been funded by term loan
of Rs. 18.00 crores from UCO Bank, promoters equity RS. 6.00 crores and the
internal accruals Rs 6.50 crores.NPL by putting up this project could shave
substantially (around 6to 8 %) in the raw materials cost. Besides it also ensured
continuousand regularsupply ofraw materials withconsistent quality.
Lastly the company has put facilities to manufacture Fully Drawn Yarn (FDY). FDY
is similar to POY from the end use point of view. However the deference between
POY and FDY is that POY from Draw twisted or textured before it is Owen, but FDY
can be straight way taken to looms thus saving in additional cost for twisting or
texturing. The process of twisting or texturing is done on line in case of FDY. By
putting up the facilitiesfor FDY, the company would avail benefitsofvalue addition,
which is expected to be much more then the cost incurred on the facilities.
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NPL has put up a 7.5 MW solid fuel (lignite/coal/acrobats) based captive power
generation facility. The company is benefiting substantially from saving in cost of
power Thusover the year the company expended itscapacitiesofPOY and installed
facilities for Draw twisting & texturising of Yarn (both the value addition). The
expansions were funded pertly throughfresh debtsfrom Banks / Financial institutions
and partly through internalaccrualsand freshcontribution from the promoters by way
ofequity / unsecured loans.
Nova Petrochemicals derives its primary strength from its roots being firmly
entrenched in the soil. It was withan experience and exposure ofover 20 years in the
processing of fabrics, texturising, sizing, dyeing and exports of fabrics, that Nova
made itsforay into the manufacture ofPOLYESTER YARN - beginning, with POY
(Partially Oriented Yarn).Manufacture of Draw Twisted, Micro Filament and
Texturised yarn followed. The year was 1994.
Installed CapacityProduct Name Unit Install Capacity
Fully Drawn Yarn Metric Tonnes 18,912
Partially Oriented Yarn Metric Tonnes 39,220
Chips Polyester Metric Tonnes 52,800
Twisted Yarn Metric Tonnes 3,282
Texturised Yarn Metric Tonnes 3,011
Job Work(Other) - NA
Cloth - NA
Chips - NA
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1.2 Objective of the Study
Indian economy has witnessed a revolutionary change in present decade. Takeovers,
mergers, strategic alliances and PSU disinvestments have became buzzword in
present business environment as the privatization, globalization and liberalizationsof
the Indian economy gathered momentum. Since independence a wall in the name of
protection was built around the Indian economy, whichcontinued till 1991. However
the new economic policy, which was implemented by government ofIndia, changed
the whole scenario. The changing scenario of financial management in the present
economic conditions plays an important role for any kind of organization. The
condition of the economy ischanging every now and then. The daysof permit Raj,
protection, controls, monopolies regulations etc. of third & fourth five year plan are
gone. After the enunciation of open market economic policies during 1990-91 in
terms of liberalization of controls and globalization of market efforts, the study of
corporate finance in a global context has acquired significant importance . From
1990-91 onward India is witnessing avast change in financialsector (i.e.) relaxation
of interest rates, deregulation of prices, reduction of import dutiesliberalization of
foreign direct and portfolio investment, moves towardsa unified market determined
exchange rate, fully convertibility of rupees and trade accounts unimaginable
improvement in communication sector and tremendous development information
technology, tightening the grip of capital market etc. All these aimed at integrating
Indian economy with international economy. Thuscozy blanket ofprotectionism is no
more and the economy isopen up forforeign investment and MNCsare already in
Indian market in form of joint venture, collaboration etc. and the battle of royals
already exists in the Indian business environment. In other words law of jungle viaa
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survival of the fittest shall prevent in business environment for the years to come.
Such type of integration clearly shifted in favorofmore openness, increased internal
and externalcompetition and greater participation in international exchange ofgoods,
services, technology and capital. Thus the present day business is prevailing with
highly competitive environment where new and brave competitorsare grappling with
a world ofopportunities.
Hence with the changing scenario of present day business environment efficient
utilization of funds and earning of sufficient profit must be the aim of the finance
manager for existence and survival of business. Proper utilization of funds and
earning of sufficient surpluses ultimately depends upon the highly planned smooth
and efficient working capital management and long term investment. This iswhy
working capital management is regarded as the life blood and controlling nerve center
forall type ofbusiness. The role ofworking capital ishighly significant as it affects
both liquidity and profitability aspect of business enterprises. Sufficient amount of
working capital in form ofcash/receivables must be available to met current duesand
obligations. Lackof most liquid current assets may lead to insolvency and as such
may affect the goodwill position of the firm. Any suchsituation ultimately results in
drastic reduction in salesand business may close down. On the otherhand keeping
sufficient liquid funds in form of cash or other liquid assets also hampers the
profitability. This is because acurrent asset does not earn any profit. Profit accrues in
fixed assetsonly earn profit. Thusonly reasonable amount offunds must be invested
in current assets so that both liquidity and profitability position may be maintained
optimally.
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In the present study working capital management in GSL Nova PetrochemicalsLtd.
has been analyses to draw some conclusion on the management of working capital,
utilization offunds, liquidity position and managing various individualcomponentsof
current assetsand current liabilities.
The modern theory offinancial management suggest that the financialfunction must
providesaconceptualand analyticalframeworkforfinancial decision making and the
functionsoffinance coversallaspectsstarting from acquisition offunds toallocation
offundsfor different uses in optimum manner. Thus theobjective ofmodern financial
management to provide aframe worksforoptimum financial decision making. There
are three important financing decisions involved to achieve this objective (i.e.)
investment decisions, financing mix decision and dividend decision. Investment
decision is the most crucial financing function on the part of finance manager as
earning of sufficient surpluses mainly depends upon nature ofinvestment. Thus
procurement of funds at minimum cost and judicious utilization of the funds so
procured in termsofinvestment in fixed assets & working capitalare the basicaim of
financial management toachieve the objective ofwealth maximization. On the whole
the nature ofinvestment broadly falls into two broad groups.
(a) Investment in long term assets which shall yield return overa future period mainly
known ascapital budgeting.
(b) Investment in short term current assets which can be converted into cash usually
within a year termed as working capital management.
In present study attention is given on the role of working capital management for
achieving the overall financial objective and corporate goal. Working capital
management isan important and integral part offinancial management asshort term
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survival isa pre-requisite to long term sources. Further the role of working capital
management cannot be over emphasized on account oftrade offbetween profitability
and risk. Liquidity and profitability are twocontradictory and conflictingobjectives
which must be achieved to be ensured by the modern finance manager. The key
strategiesand consideration is ensuring trade-offbetween profitability and liquidity of
working capital management. On the whole basic ingredients of working capital
management are overviewsofworking capital management asa whole and efficient
management of individual current assets. Further working capital has considerable
impact on profitability. Though there is a considerable on the context ofacademic
debate about the impact ofworking capitalon the profitability ofafirm one schoolof
thought argues that only fixed capital playsavital role in profit generating process.
The otherschoolof toughargues that unless there isa minimum levelof investment
in working capital which providesa promising vehicle for increasingoutput and sales,
profitability cannot be maintained. Thus working capital acts as an explanatory
variable in the profit function of acompany. In this sense a firms profitability is
determined in part by way its working capital managed. An efficient management of
working capital can do much to ensure the success of an enterprise while its
inefficient management can lead tolossofprofit.
Furthercapital resourcesare scarce & limited by virtue of its nature. Being limited in
nature it arrests the pace ofdevelopment. An effective utilization ofcapital resources
is the vital aspect of our development policy and urgent to accelerate the pace of
development. Unfortunately in our country, industries do not make best use of
financial resources. The earlier emphasis is based only on long term financial decision
making. However it is seen that inefficient management of short term financial
decision making (i.e.) working capital management hascaused many business tofail
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and in many cases has arrest their growth. Lack of an efficient and effective
utilization of working capital either does not permit a business enterprise to earn
plausible rate of return on capital employed on compel it tosustain continual losses.
The need for skilled working capital management thus becomes greater in recent
years. In view ofthe above the present study devoted to working capital management
may be quite rewarding one.
Furthersample unit taken intoconsideration in the present study isa petrochemical
company. In general the company hasalways given enoughattention to the problems
ofworking capital planning. The assured availability ofeven current finance through
budgetary support makes them lax. Not only there working capital policy in
determinate planned levels of individual current assets is not always subjected to
rigorous exercises.
The present study also points out that a very important reason for slow
progressofthe organization is inefficiency in working capital management. Moreover
the study also indicates the factors responsible for slow progress of hydro power
development in India and some measures for solution to those problems &
constraints. It is worthy to mention here that the vast petrochemicals resources in our
country are yet to be tapped.
In the context ofthe above discussion the objectivesofthe present study are
mentioned below specifically.
1. Tohave some clear ideaabout variousaspectsof working capital management (i.e.)
concept of working capital, role and importance of working capital, concept of
working capital cycle, working capital forecasting, dimensionsof working capital
management, determinant ofworking capital etc.
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2. Tohave some concept about variousaspectsofcash management (i.e.) objective of
cash management, motives for holding cash, determining optimum cash balance,
techniquesofcash management , cashturnover ratio etc.
3. To have some idea about different aspects of receivable management and credit
policy.
4. To have some concept on aspect of inventory management(e.g.) various type of
inventory, determining optimum inventory, technique of inventory management, such
as ABC,VCD,FSN analysis , inventory turnover ratio & opportunities on inventory
management.
5. Toanalysis the working capital position ofsample unit.
6. Toknow the efficiency of working capital management throughanalysisofvarious
working capital ratio, trend analysis, growthofnet working capital etc.
7. Toanalyses the impact ofworking capitalon liquidity and profitability.
8. To analysis the various factors responsible for slow progress of polyester yarn
industry in India. And the solution ofthese problem.
9. Tostudy the constraintsofthe sample unit and remedies toovercome them.
10.Tostudy the future prospectsofsample unit and polyester yarn industry as well.
11.Toassess / commentson the overall working capital management ofthe sample unit.
The scope ofthe study restricted to twelve yearson the present case.
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1.3 Research Methodology
Research methodology isa way tosystematically solve the research problem. Itmay
be understood asa science ofstudying now research is donesystematically. In that
various steps, those are generally adopted by a researcher in studying his problem
along with the logic behind them.
It is important for research to know not only the research method but also know
methodology. The procedures by which researchers goabout their workofdescribing,
explaining and predicting phenomenon are called methodology.Methods comprise
the procedures used for generating, collecting and evaluating data. All this means that
it is necessary for the researcher to design his methodology for his problem as the
same may differfrom problem to problem.
Data collection is important step in any project and success of any project willbe
largely depend upon now muchaccurate you will be able tocollect and how much
time, money and effort will be required to collect that necessary data, this is also
important step.
Data collection plays an important role in research work. Without proper data
available foranalysis you cannot do the research workaccurately. The report is the
result of a survey which was undertaken in GSL NOVA PETROCHEMICALS
LIMITED. The objective ofthe project has been fulfilled by getting response from the
Employee's associated to these segments through a secondary data in finance
department. The responses available through the balance sheet and personal
Knowledge are used to evaluate the working capitalofthe company.
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The Research problem
The problem formulation is the first step to a successful research process. In the
summer training times the problem ofanalyzing the Working Capital management of
GSL Nova as a Proper evaluations of the company and to find out the different
analysis of company. The key strategies and consideration is ensuring trade-off
between profitability and liquidity ofworking capital management.
The Research Hypothesis
The researchhypothesis isan important step of research process. It providesa proper
and authentic base for resist ofbiasness. A formulation ofhypothesis becomescritical
process. The research hypothesis is ensuring trade-off between profitability and
liquidity ofworking capitalofGSL Nova petrochemicals Ltd.
The Research Design
The research design used in the project is Descriptive Research. The investigation is
carried upon the expansion project inNOVA Ahmadabad. The reason forchoosing
this design is to get responsesfrom the companys Balance sheet.
Methods of data collection
There are two typesofdatacollection methodsavailable.
1. Primary datacollection
2. Secondary datacollection
1) Primary data
The primary data is that data which iscollected freshorfirst hand, and forfirst time
which is original in nature. Primary data can collect through personal interview,
questionnaire etc. tosupport the secondary data.
2) Secondary data collection method
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The secondary dataare those whichhave already collected and stored.Secondary data
easily get those secondary datafrom records, journals, annualreportsofthe company
etc. It willsave the time, money and efforts tocollect the data. Secondary dataalso
made available through trade magazines, balancesheets, books etc.
This project is based on primary datacollected through personal interview ofhead of
account department, head ofSQC department and otherconcerned staffmemberof
finance department. But primary data collection had limitations such as matter
confidential information thus project is based on secondary information collected
through five years annual report of the company, supported by various books and
internet sides. The datacollection wasaimed at study ofworking capital management
ofthe company
The datahas been taken from Primary and secondary sources
Primary datasource
Finance & Accounting departments
Personalconsultation
Secondary datasource
Secondary data wascollected from following sources
Balance sheets
Websites
Books
Project is based on
1. Annual report ofNPL 2005-06
2. Annual report ofNPL 2006-07
3. Annual report ofNPL2007-084. Annual report ofNPL 2008-09
5. Annual report ofNPL 2009-10
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The Area of Work
The field work isconducted in the GSL NOVA PETROCHEMICALS LIMITED in
finance department. Where, we are studying about working capital management and
its evaluation.
Instruments Used
The analytical tools used are mostly graphical in nature which include.
Bar Charts
Line chart
Column chart
Table showing percentage
The Analytical Tools Used
Ratios Analysis
Important Balance Sheet Ratios measure liquidity and solvency (a business'sability to
pay its bills as they come due) and leverage (the extent to which the business is
dependent on creditors' funding). They include the following ratios:
Liquidity Ratios
These ratios indicate the ease of turning assets into cash. They include the Current
Ratio, QuickRatio, and Working Capital.
Current Ratios
The Current Ratio is one of the best known measures of financial strength. It is
figured asshown below:
Total Current Assets
Current Ratio = ____________________Total Current Liabilities
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The main question this ratioaddresses is: "Does your businesshave enoughcurrent
assets to meet the payment schedule ofitscurrent debts witha margin ofsafety for
possible losses in current assets, suchas inventory shrinkage orcollectable accounts?"
A generally acceptable current ratio is 2 to 1. But whetheror not aspecific ratio issatisfactory dependson the nature ofthe businessand the characteristicsofitscurrent
assetsand liabilities. The minimum acceptable current ratio isobviously 1:1, but that
relationship is usually playing it tooclose forcomfort.
Ifyou decide your business'scurrent ratio is toolow, you may be able to raise it by:
y Paying some debts.
y Increasing yourcurrent assetsfrom loansorother borrowings witha maturity ofmore
than one year.
y Converting non-current assets intocurrent assets.
y Increasing yourcurrent assetsfrom new equity contributions.
y Putting profits back into the business.
Quick Ratios
The Quick Ratio is sometimes called the "acid-test" ratio and is one of the best
measuresofliquidity. It isfigured asshown below:
Cash + Government Securities + Receivables
QuickRatio = _________________________________________
Total Current Liabilities
The Quick Ratio is a much more exacting measure than the Current Ratio. By
excluding inventories, it concentrates on the really liquid assets, with value that is
fairly certain. It helps answer the question: "If all sales revenues should disappear,
could my business meet its current obligations with the readily convertible `quick'
fundson hand?"
An acid-test of 1:1 is considered satisfactory unless the majority of your "quick
assets" are in accounts receivable, and the pattern ofaccounts receivable collection
lags behind the schedule for paying current liabilities.
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Working Capital
Working Capital is more a measure ofcashflow than a ratio. The result ofthis
calculation must be a positive number. It iscalculated asshown below:
Working Capital = Total Current Assets - Total Current Liabilities
Bankers lookat Net Working Capitalover time to determine acompany'sability to
weather financial crises. Loans are often tied to minimum working capital
requirements.
A generalobservation about these three Liquidity Ratios is that the higher they are the
better, especially if you are relying to any significant extent on creditor money to
finance assets.
Leverage Ratio
This Debt/Worth or Leverage Ratio indicates the extent to which the business is
reliant on debt financing (creditor money versusowner's equity):
Total Liabilities
Debt/Worth Ratio = _______________
Net Worth
Generally, the higher this ratio, the more risky acreditor will perceive its exposure in
your business, making it correspondingly harder toobtain credit.
Income Statement Ratio Analysis
The following important State ofIncome Ratios measure profitability:
Gross Margin Ratio
This ratio is the percentage ofsales dollarsleft aftersubtracting the cost ofgoodssold
from net sales. It measures the percentage ofsales dollars remaining (afterobtaining
or manufacturing the goods sold) available to pay the overhead expenses of the
company.
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Comparison of your business ratios to those of similar businesses will reveal the
relative strengths or weaknesses in your business. The Gross Margin Ratio is
calculated asfollows:
Gross ProfitGross Margin Ratio = _______________
Net Sales
(Gross Profit = Net Sales - Cost ofGoods Sold)
Net Profit Margin Ratio
This ratio is the percentage ofsales dollars left after subtracting the Cost of Goods
sold and all expenses, except income taxes. It providesa good opportunity tocompare
your company's "return on sales" with the performance of othercompanies in your
industry. It iscalculated before income tax because tax ratesand tax liabilitiesvary
from company tocompany fora wide variety of reasons, making comparisonsafter
taxes much more difficult. The Net Profit Margin Ratio iscalculated asfollows:
Net Profit Before Tax
Net Profit Margin Ratio = _____________________Net Sales
Management Ratios
Other important ratios, often referred toas Management Ratios, are also derived from
Balance Sheet and Statement ofIncome information.
Inventory Turnover Ratio
This ratio revealshow well inventory is being managed. It is important because the
more times inventory can be turned in a given operating cycle, the greater the profit.
The Inventory Turnover Ratio iscalculated asfollows:
Net Sales
Inventory Turnover Ratio = ___________________________
Average Inventory at Cost
Accounts Receivable Turnover Ratio
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This ratio indicateshow wellaccounts receivable are being collected. If receivables
are not collected reasonably in accordance with their terms, management should
rethink itscollection policy. Ifreceivablesare excessively slow in being converted to
cash, liquidity could be severely impaired. The Accounts Receivable Turnover Ratioiscalculated asfollows:
Net Credit Sales/Year
__________________ = Daily Credit Sales365 Days/Year
Accounts Receivable
Accounts Receivable Turnover (in days) = _________________________
Daily Credit Sales
Return on Assets Ratio
This measureshow efficiently profitsare being generated from the assets employed in
the business when compared with the ratiosoffirms in asimilar business. A low ratio
in comparison with industry averages indicatesan inefficient use of businessassets.
The Return on Assets Ratio iscalculated asfollows:
Net Profit Before Tax
Return on Assets = ________________________Total Assets
Return on Investment (ROI) Ratio.
The ROI is perhaps the most important ratioofall. It is the percentage of return on
funds invested in the business by its owners. In short, this ratio tells theowner
whetheror not all the effort put into the businesshas been worthwhile. If the ROI is
less than the rate of return on an alternative, risk-free investment such as a bank
savingsaccount, the owner may be wiser tosell the company, put the money insucha
savings instrument, and avoid the daily strugglesofsmall business management. The
ROI iscalculated asfollows:
Net Profit before TaxReturn on Investment = ____________________
Net Worth
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These Liquidity, Leverage, Profitability, and Management Ratiosallow the business
owner to identify trends in a business and to compare its progress with the
performance of others through data published by various sources. The owner may
thus determine the business's relative strengthsand weaknesses.
SCOPE & LIMITATIONS OF THE STUDY
Scope of study
The scope of the study is identified afterand during the study isconducted.
The study of working capital is based on tools like trend Analysis, Ratio Analysis,
working capital leverage, operating cycle etc. Further the study is based on last5
years Annual ReportsofNova Petrochemicals Ltd. And even factorslike competitors
analysis, industry analysis were not considered while preparing this project.
Limitations of the study
Following limitations were encountered while preparing this project:
1) Limited data:-
This project has completed with annual reports; it just constitutesone part ofdata
collection i.e. secondary. There were limitations for primary datacollection because
ofconfidentiality.
2) Limited period:-
This project is based on five yearannual reports. Conclusionsand recommendations
are based on suchlimited data. The trend oflast five year may or may not reflect the
real working capital position ofthe company
3) Limited area:-
Also it was difficult tocollect the data regarding the competitorsand theirfinancial
information. Industry figures were also difficult to get
It is not possible to remove the limitation ofany investigators. So this project alsohas
certain limitation that is:
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1) Information was gathered through the rating ofthe subject, thus biasness is possible.
2) As the sample size was small it is possible that it may not represent the precise
picture.
3) Employeesofthe organization may hide the fact.
4) The management did not agree to disclose all the confidential data.
5) Numberofrespondents isvery less, soclearconclusion cant be drawn.
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II. CHAPTER
Industry Overview
A simplified industry value chain is depicted in the Diagrambelow:
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Industry Outlook
Partially oriented yarn/ Polyester filament yarn
Demand to accelerate, mainly supported by domestic market
The demand growth for PFY will be mainly supported by the domestic market. The
demand (domesticand derived) for PFY is expected to grow at a CAGRof7.3 percent
from 2008-09 to 2011-12, higher than previous five years CAGR of 4.8 percent
(2003-04 to 2008-09), mainly driven
by: Price competitivenessascompared tospun yarn Overall growth in domestic market.
The delta between cotton yarn and PFY has increased from Rs 10 perkg in 2004-05 to Rs
31 perkg in 2008-09. We expect this gap tofurther widen to Rs 39 perkg in 2009-10 and
2010-11. These widening gaps between PFY and cotton yarn prices will enhance the
competitiveness of PFY, leading to higher growth of the same.The domestic textile (readymade garmentsand home textile) market is expected to grow
at a CAGRof6-7 percent in the next 3 years (2008-09 to 2011-12). Within the domestic
market, growth will be led by rural markets.
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The growth in rural markets can be primarily attributed to rising rural incomes, and
preference for cheaper fabric (100 per cent non cotton fabric). This will support the
demand for PFY.
Utilization rates to improve from FY11 on the back of growing demand
Utilization ratesofPFY producers declined from 72 percent in 2007-08 to 63 percent in
2008-09, as total demand for PFY dropped by 5.5 percent y-o-y in 2008-09, due to the
sharp fall in export demand. In 2009-10, capacity additions by Alok Industries, Bhilosha
and Sumeet are expected to go on stream, which will exert downward pressure on
utilisation rates, causing them tofall to60 percent in 2009-10. However, post-FY10, with
growing demand and not muchcapacity additions expected utilization ratesare expected
toshow improvement.
PFY prices to fall spreads to contract
In 2008-09, PFY pricesaveraged at Rs 76.5. The PFY are expected prices toaverage at
Rs 66.5 per kg in 2009-10, on account of lower raw material cost. Prices are then
expected to recover marginally to Rs 68.5 perkg in 2010-11.
However, spreads of PFY are expected to contract as compared with Rs 16.5 per kg
(average from 2003-04 to2008-09) to Rs 14-15 per kg for 2009-11 on account ofover
capacity situation in the PFY industry.
Polyester chips
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Polyesterchipsare used by small POY/PFY manufacturers, as the continuous processing
plant for manufacture of POY is very capital intensive. There are many small POY
players, in and around Silvassaand Vapi, who buy PET chipsand extrude yarn from it to
sell to the polyestercluster in and around Surat.
India Polyester Demands
Secondary polyester yarn manufacturers increasing capacity, texturisersintegrating
backwards.
New applications increasing PET demand
Slow down in spun yarn exports, Southern Indiaspinners plagued by powershortages
-1%
8%
28%
6%
-0.05
0
0.05
0.1
0.15
0.2
0.25
0.3
POF PFY PET Total
Demand growth FY-O9
POF
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Company Overview
GSLNova Petrochemicals Profile
Nova Petrochemicals derives its
primary strength from its roots being
firmly entrenched in soil.
It was with an experience and
exposure of over 20 years in the
processing of fabrics, texturising,
sizing, dyeing and exportsoffabrics, that Nova made itsforay into the manufacture of
POLYESTER YARN - beginning, with POY (Partially Oriented Yarn).Manufacture
ofDraw Twisted, Micro Filament and Textures yarn followed. The year was 1994.
Wealth of Experience
Withacombined experience of50 years in textile related trade, encompassing in its
fold many and varied visages, the Nova Management has both the feeland the fallof
an industry which is extremely varied and versatile, being the single largest in the
Indian context and the second largest in the world.
Dedicated Management Team
Nova Petrochemicals has
a young and devoted
management team, fullof
enthusiasm,
Who, with their
dedication, leadsfrom the front thus motivating theirteam of professionals
andenabling them to give in their best?
Quality - an ongoing "process"
Novahasn't looked backsince. Six years down the line hasseen Nova products take
off. Reasonsare many and varied, but the prime being - quality at nocompromise.
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Strange is it may sound, to the arithmetically inclined - of quality leading to a
stupendous financial. Little wonder
then that each and every bobbin
comes in for quality checks, for atNova, each and every strand carries
weight and is neverallowed to drift.
Right from the purchase of raw
materials to the final product, Quality checksare carried out at eachand every stage.
Besides, online quality monitoring; checks are also carried out at the stage of post
production
Quality at Nova is therefore, more than a mere seven-letter word. It is a part and
parcelof itsvery existence, and itslongest drawn process; quite simply, because it is
an ongoing one.
That the organisation has grown in a period ofseven years because of itsadhering to
stringent quality controlsonly endorsesNova's decision to move ahead with quality in
tandem.
growth, and, in less than
a decade, but, then that is
what makes Nova
Petrochemicals a
different ball game, Team
spirits with quality being
the leader.
Computer Savvy
Facilitiesat Nova premisesare allcomputerized; not for the reason ofhaving to be,
but for the reason of wanting to be. The Nova philosophy is crisp and clear:
uniformity has to be in conformity with quality; and vice versa; and for that
correlation is the basic ingredient. This is possible iffacilitiesare comprehensive and
parameterscomputerized. Perfection, therefore, comes naturally toNova.
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State of the art Machinery
Going for the best and the largest, Novahas in its fold Barmag A G machinery for
POY spinning imported from Germany and ICBT Texturising machinery from France
- therefore world class manufacturing facilitiesat its plant.
Research & Development
In its quest, for both - defect free products and knowledge enhancement, the
farsighted Nova management attaches great importance to the research and
development function at its plant.
In the year 1999, for the first time in the
world, Nova Petrochemicals Ltd. hasinstalled latest 10 end parallel spinning
lines from Barmag AG, Germany, to
manufacture microfilament yarn.
Packaging
Packaging at Nova is not a mere consignment to
be packed and dispatched. It isan entity that is
wrapped with sensibility, safeguards and surety keeping its world wide standard in
mind.
Strategic Location
Distanced at only 30 kmsfrom Ahmedabad; 250 kmsfrom Surat and 500 kmsfrom
Mumbai, the three flagship towns of textiles and yarn business in India, the Nova
Petrochemicals plant is well connected by road, rail
and airservicesfrom the three metros.
Environment Consciousness
Nova Petrochemicalsattaches great importance related
causes. Always the one to being on asound footing, at
NOVA environment related issues are always taken
care of.
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Customer-CareCustomershave alwaysoccupied a place of pride at Nova. Clientsspecificationsarealways met with and various permutations and combinations carried out to their
satisfaction. Not only that, the Nova techno-marketing team visits the customersandguides them as to their purchase, soas to enable them to deliver maximum benefit.
This is because the Nova management firmly believes in long term association rather
than short term transactions. Customerat Nova is therefore, more than a mere client.
He isa patron.
EXPORTS
Nova today exports its texturised yarn to Turkey, Spain,
Italy, Germany, Peru, Tanzania, Brazil, Israel, France,
Portugaland Middle East, and its POY exports to Egypt,
Turkey, Spain, Portugal and
Nepal. The credit should go
to its quality care and
research and development team for this phenomenal
growth in exports.
Future Plans
Nova does not intend resting on its laurels. In fact, its
future plan includes manufacture ofchipsand backward
integration. Nova in the years tocome sees itselfasa leading supplierofPOY and
texturied yarn meeting the demandsofthe discerning and Quality consciouscustomer.
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HISTORY OF NOVA PETROCHEMICAL
YEAR EVENTS 1993 - Nova Petrochemicals Limited (NPL) was incorporated
asa Public Limited Company on the 23rd December, in the State ofGujarat and
has been issued the Certificate of Commencement of Business by the Registrar of
Companies, Gujarat, Dadara & Nagar Haveli on 5th January, 1994.
- The Company has been jointly promoted by twocompaniesof the "Gupta" Group
and two companies of the "Chiripal" Group. Both the groups are engaged in the
textiles businessfor the last two decades.
- The Company proposes toset-up a Unit to manufacture Partially Oriented Polyester
Filament Yarn at Village-Moraiya, Taluka-Sanand, and Dist - Ahmedabad.
1998 - The Ahmadabad-based Nova Petrochemicals Limited, manufacturing partially
oriented polyesterfilament yarn, plans to nearly double its production capacity from
21,891 tonnes perannum to 42,238 tonsat acost ofRs. 54.50 crores.
- The Company hasalready arranged financial tie-up for its expansion project with
Industrial Development Bankof Indiafor Rs. 15 croresand with State BankofIndia
and BankofBarodafor Rs. 7.50 crores each. The remaining Rs. 24.50 crores would
be found from cashaccrualsand promoterscontributions.
1999 - Nova Petrochemicals Ltd (NPL) has proposed to raise the installed capacity of
its POY Draw Twisting & Texturising plant at its Sanand facility near here from
25,521 TPA to 41,471 TPA by March.
2000 - Nova Petrochemicals Ltd, the Ahmadabad-based polyester yarn manufacturing
company, has tied-up with MS Technologies Inc, US, to diversify into software
development.
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- The Company has entered intoan agreement with MS Technologies Inc. ofUS for
developing software on a job workbasis.
2002-Nova Petrochemicals Ltd has informed that Board ofDirectorsofthe Company
have resolved to cease the appointment of Mr. Jyotiprasad Chiripal as permanent
Chairman of the Board and the Company in view of Corporate Governance
guidelines, howeverhe willcontinue tobe Whole-time Directorofthe Company.
2004 -Delist from Madras StockExchange Ltd (MSE) with effect from December 02,
2004. 2007-Nova Petrochemicals Limited has informed that "There is a change in
Company Secretary and Compliance Officer, Mr. Kalpesh Desai, Company Secretary
isappointed as the new Compliance Officerof the Company w.e.f. August 25, 2007
in place ofShri Kalpesh Oza.
2010-GSL Nova Petrochemicals Ltd hasappointed Shri. Anil Shyamsunder Singhal
asan Additional Director' on the Board ofthe Company in a Board Meeting held on
April 30, 2010.
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PRODUCTION:
During the financial year 2009-10 the GSL Nova Petrochemicals Ltd Production
graphchanged in comparison tolast five year productions.
374.71343.7
278.18
488.29
395.8
0
100
200
300
400
500
600
2005 2006 2007 2008 2009
PRODUCTIONPRODUCTI
YEAR
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SALES Vs PROFIT
During the period 2009-2010, GSL NOVA PETROCHEMICALS LTD had a
Production turnoverof34770.52 lacswithaNet lossof1516.33lacs.
374.71350.58
300.46
500.87
392.31
-15.17 -17.78 -16.37
1.38
-16.86
-100
0
100
200
300
400
500
600
2005 2006 2007 2008 2009
SALES
PROFIT
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GSL NOVA SALES IN THE YEAR 2009-10
You can view the entire product mix with Product names, Sales quantity &
Value along with percentage contribution from each individual product.
Product Name Year Month Sales Quantity UOM Sales Value
(Rs in Cr.)
Product
Mix
Fully Drawn Yarn 2009 12 15486827 Kgs 144.15 39.11
Partially Oriented
Yarn2009 12 18002491 Kgs 128.94 34.98
Chips Polyester 2009 12 7851582 Kgs 42.86 11.62
Twisted Yarn 2009 12 2589960 Kgs 31.65 8.58
Texturised Yarn 2009 12 1350228 Kgs 12.08 3.27
Job Work(Other) 2009 12 0 7.95 2.15
Cloth 2009 12 177057 Metres 0.93 0.2
You can view the entire Raw material mix with Raw material names,
quantity & Value along with percentage contribution from each
individual raw material.
Product Name Year/Month Sales Quantity UOM Sales Value
(Cr)
Product
Mix
Purified Terephthalic Acid (PTA) 0903 27,932,260 Kgs 106.57 47.32
Polyester Chips 0903 12,137,041 Kgs 67.86 30.13
Mono Ethylene Glycol (MEG) 0903 11,028,355 Kgs 40.97 18.19
Others 0903 0 NA 9.81 4.35
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GSL NOVA PETROCHEMICALS LTD.
The mission ofGSLNOVA PETROCHEMICL is to contribute positively to the
Economic Growthof INDIA through businessand industrial pursuits endeavoring to
achieve excellence in all spheres of such activity with effective and efficient
management.
To produce the highest quality products by utilizing the latest technology in
the industry.
Toconduct our business responsibly by fulfilling ourcustomers' expectations
with excellence.
To create a challenging, healthy, and safe working environment for our
employees.
To lead our industry in customer satisfaction, quality of production, and acommitment to excellence.
MMMIIISSSSSSIIIOOONNN /// VVVIIISSSIIIOOONNN
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Authorized Capital Rs.500 Lacs
Value of Assets Rs.1592 Lacs
Paid Up Capital Rs. 270 Lacs
Not available
Projects Under Construction Not available
Projects Awaiting Clearances Not available
Projects Under Survey and Investigation Stage Not available
Joint Venture Projects Not available
Projects on Turnkey Basis Not available
In 2009-2010 (Rs in cr.)
Production 347.70 crores
Capacity Index 64.1%
Sales Turnover 347.70 crores
Net Profit/loss (15.16 crores)
Performance Rating "slight loss"
In 2008-2009 (Rs in cr.)
Production
Net Profits
343.70 crores
-29.89 crores
Capacity Index 60.61%
Sales Turnover 343.70 crores
In 2007-2008 (Rs in cr.)
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Capital Structure
Period nstrument Authorized
Capital
Issued
Capital
- P A I D U P -
rom o (Rs. cr) (Rs. cr) Shares (no
s)
Face Value Capital
2008 2009 quity Share 50 27 27000000 10 27
2007 2008 quity Share 50 27 27000000 10 27
2006 2007 quity Share 50 27 27000000 10 27
2005 2006 quity Share 25 13.5 13500000 10 13.5
2004 2005 quity Share 25 13.5 13500000 10 13.5
2003 2004 quity Share 25 13.5 13500000 10 13.5
2002 2003 quity Share 25 13.5 13500000 10 13.5
2001 2002 quity Share 25 13.5 13500000 10 13.5
2000 2001 quity Share 25 10.1 10100000 10 10.1
1999 2000 quity Share 25 10.1 10100000 10 10.1
1996 1999 quity Share 20 9.5 9499780 10 9.5
1995 1996 quity Share 20 9.5 9499780 10 9.5
1994 1995 quity Share 20 0 80 10 0
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-200.00
300.00800.00
1,300.001,800.002,300.002,800.003,300.003,800.004,300.004,800.005,300.005,800.006,300.00
6,800.007,300.007,800.008,300.008,800.00
Market Cap. (Rs. cr
Sales Turnover
Net Profit
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GSL NOVA Shareholding Pattern (Promoters Holding /Non Promoters Holding)
Share Holding as on : 30 Jun 2010 31 Mar 2010 31 Dec 2009
Face Value 5.00 5.00 5.00
No. Of
Shares
%
Holding
No. Of
Shares
%
Holding
No. Of
Shares
%
Holding
PROMOTER'S HOLDING
Indian Promoters 12,012,880 44.49 12,012,880 44.49 8,491,880 31.45
Sub Total 12,012,880 44.49 12,012,880 44.49 8,491,880 31.45
NON PROMOTER'S HOLDING
Institutional Investors
Banks Fin. Inst. and
Insurance600 0.00 600 0.00 600 0.00
Sub Total 600 0.00 600 0.00 600 0.00
Other Investors
Private Corporate
Bodies8,545,804 31.65 8,727,452 32.32 10,297,622 38.14
NRI's/OCB's/Foreign
Others708,223 2.62 702,022 2.60 601,281 2.23
Others 148,448 0.55 114,414 0.42 287,969 1.07
Sub Total 9,402,475 34.82 9,543,888 35.35 11,186,872 41.43
General Public 5,584,045 20.68 5,442,632 20.16 7,320,648 27.11
GRAND TOTAL 27,000,000 100.00 27,000,000 100.00 27,000,000 100.00
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Board of Directors
S.No Name Designation
1 Mr. Shyam Gupta Chairman / Chair Person
2 Mr. R C Jain Director
3 Mr. Anil Shyamsunder Singhal Additional Director
4 Mr. Sandeep Goyal Director
5 Mr. Sunil Kumar Gupta Managing Director
Key Executives
S.No Name Designation
1 Mr. HarishN Motwani Co. Secretary & Compl. Officer
2 Mr. C. V. Khandelwal President
3 Mr. Rajendra M Mehta Vice President (Finance)
4 Mr. Mukesh Khandelwal Vice President (Technical)
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ORGANIGATION STRUCTURE
Board ofDirectors
Managing Directors
Vice President
(Poly-Condense)
Vice President (Works) General Manager (Fin)
General Manager/D.G.M.
Mechanic Electrical Power Plant Productio
C. S. ManagerA/C
StaffManager
Officers
Staff
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III. CHAPTER
INTRODUCTION
WORKING CAPITAL
Working capital, alsoknown as net working capitalorNWC, isafinancial metric which
representsoperating liquidity available to a business. Along with fixed assets such as
plant and equipment, working capital isconsidered a part ofoperating capital. An entity
hasa working capital deficiency, alsocalled a working capital deficit.
Working Capital = Current Assets Current Liabilities
A company can be endowed withassets and profitability but short of liquidity if its
assets cannot readily be converted into cash. Positive working capital is required to
ensure that a firm isable to continue its operationsand that it has sufficient funds to
satisfy both maturing short-term debt and upcoming operational expenses. The
management ofworking capital involves managing inventories,accounts receivable and
payable and cash.
Calculation
Current assets and current liabilities include three accounts which are of special
importance. These accounts represent the areasof the business where managershave the
most direct impact:
accounts receivable (current asset)
inventory (current assets),
accounts payable (current liabilities)
Accounts receivable
Accounts receivable (A/R) isone ofaseriesofaccounting transactions dealing with the
billing ofcustomers whoowe money toa person, company ororganization forgoodsand
services that have been provided to the customer. In most business entities this is
typically done by generating an invoice and mailing or electronically delivering it to the
customer, who in turn must pay it within an established timeframe called credit or
payment terms.
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Companiescan use theiraccounts receivable ascollateral when obtaining aloan (asset-
based lending) orsell them throughfactoring. Poolsor portfoliosofaccounts receivable
can be sold in the capital markets throughasecuritization.
Bookkeeping for Accounts Receivable
Companieshave two methodsavailable to themfor measuring the net value ofaccount
receivables, which iscomputed by subtracting the balance ofan allowance account from
the accounts receivable account.
The first method is the allowance method, which establishes a liability account,
allowance for doubtful accounts, or bad debt provision, that has the effect of reducing
the balance foraccounts receivable.
The second method, known as the direct write-offmethod, issimpler than the allowance
method in that it allows for one simple entry to reduce accounts receivable to its net
realizable value.
INVENTORY
Inventory isalist for goodsand materials, or those goodsand materials themselves, held
available in stock by a business. It isalso used foralist of the contentsofahouseholdand foralist for testamentary purposesof the possessionsofsomeone whohas died. In
accounting inventory isconsidered anasset.
Handlesall functions related to the tracking and management of material. This would
include the monitoring of material moved intoand out ofstockroom locationsand the
reconciling of the inventory balances. Also may include ABC analysis, lot tracking,
cycle counting support etc.
Management of the inventories, with the primary objective ofdetermining. Controlling
stock levels within the physical distribution function to balance the need for product
availability against the need for minimizing stockholding and handling costs.
Labels: Inventory Management, Procurement, Supply Chain, Supply Chain Management
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Business inventory
The reasonsforkeeping stock
There are three basic reasonsforkeeping an inventory:
1. Time - The time lags present in the supply chain, from supplier to userat every stage,
requires that you maintain certain amount ofinventory to use in this "lead time"
2. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand,
supply and movementsofgoods.
3. Economiesofscale - Idealcondition of"one unit at a time at a place where user needs it,
when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk
buying, movement and storing brings in economiesofscale, thus inventory.
All these stockreasonscan apply toany owneror product stage.
Bufferstock isheld in individual workstationsagainst the possibility that the upstream
workstation may be alittle delayed in long setup orchange-over time. Thisstock is then
used while that change-over is happening. This stock can be eliminated by tools like
SMED.
Typology
1. Buffer/safety stock
2. Cycle stock (Used in batch processes, it is the available inventory excluding buffer
stock)
3. De-coupling (Bufferstockthat isheld by both the supplierand the user)
. Anticipation stock (building up extra stock for periodsof increased demand - e.g. ice
cream forsummer)
5. Pipeline stock (goods still in transit or in the process of distribution - have left the
factory but not arrived at the customer yet)
Inventory examples
Raw materials - materialsand componentsscheduled for use in making a product.
Work in process, WIP - materialsand components that have begun their transformation
tofinished goods.
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Finished goods - goods ready forsale tocustomers.
Goodsfor resale - returned goods that are salable.
Spare parts
For example:
Manufacturing
A canned food manufacturer's materials inventory includes the ingredients to form the
foods to be canned, empty cans and their lids (or coils of steel or aluminum for
constructing those components), labels, and anything else (solder, glue ...) that willform
part ofafinished can. The firm's work in process includes those materialsfrom the time
ofrelease to the workfloor until they become complete and ready forsale to wholesale
or retailcustomers.
Hence high level financial inventory has these two basic formulas which relate to the
accounting period:
1. Cost of Beginning Inventory at the start of the period + inventory purchases within
the period + cost of production within the period = cost of goods
2. Cost of goods cost of ending inventory at the end of the period = cost of goods sold
The benefit of these formulae is that the first absorbsalloverheads of production and
raw material costs in to a value of inventory for reporting. The second formula then
creates the new start point for the next period and givesa figure to be subtracted from
sales price to determine some form ofsales margin figure.
Manufacturing management is more interested in inventory turnover ratio or
average days to sell inventorysince it tells them something about relative inventory
levels.
Inventory turnover ratio (also known as inventory turns) = cost of goods sold /
Average Inventory = Cost of Goods Sold / ((Beginning Inventory + Ending
Inventory) / 2)
and its inverse
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By helping the organization to make better decisions, the accountantscan help the public
sector tochange in avery positive way that delivers increased value for the taxpayers
investment. It can also help to incentivize progress and to ensure that reforms are
sustainable and effective in the long term, by ensuring that success is appropriatelyrecognized in both the formaland informal reward systemsofthe organization.
FIFO VS LIFO ACCOUNTING
When a dealer buys goodsfrom inventory, the value of the inventory is reduced by the
cost ofgoodssold (COGS). This issimple where the COGS have not varied across those
held in stock; but where it has, then an agreed method must be derived to evaluate it.
Two popular methods which normally exist are:FIFO and LIFO accounting (first in -
first out, last in - first out). FIFO regards the first unit that arrived in inventory as the first
one sold. LIFO considers the last unit arriving in inventory as the first one sold.
STANDARD COST ACCOUNTING
Standard cost accounting uses ratios called efficiencies that compare the labourand
materialsactually used to produce a good with those that the same goods would have
required under "standard" conditions. As long assimilaractualand standard conditions
obtain, few problemsarise.
In adverse economic times, firms use the same efficiencies to downsize, right size, or
otherwise reduce theirlaborforce. Workerslaid offunder those circumstanceshave even
lesscontrolover excess inventory and cost efficiencies than their managers.
Theory of Constraints cost accounting
Eliyahu M. Goldratt developed the Theory of Constraints in part to address the cost-
accounting problems in what he calls the "cost world". He offers a substitute, called
throughput accounting, that uses throughput (money for goods sold to customers) in
place of output (goods produced that may sell or may boost inventory) and considers
laborasafixed rather than asavariable cost. He defines inventory simply as everything
the organization owns that it plans to sell, including buildings, machinery, and many
other things in addition to the categorieslisted here.
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NATIONAL ACCOUNTS
Inventories also play an important role in national accounts and the analysis of the
business cycle. Some short-term macroeconomic fluctuations are attributed to the
inventory cycle.
Distressed inventory
Also known as distressed or expired stock, distressed inventory is inventory whos
potential to be sold at a normalcost hasor willsoon pass. In certain industries it could
also mean that the stockisor willsoon be impossible tosell.
Inventory credit
Inventory credit refers to the use of stock, or inventory, ascollateral to raise finance.
Where banks may be reluctant toaccept traditionalcollateral, for example in developing
countries where land title may be lacking, inventory credit isa potentially important way
ofovercoming financing constraints.
ACCOUNTS PAYABLE
(CURRENT LIABILITY)
Accounts payable isafile oraccount that contains money that a person orcompany owes
tosuppliers, but has not paid yet (aform ofdebt). When you receive an invoice you add
it to the file, and then you remove it when you pay.
The IAPP has established a new definition ofaccounts payable:
Accounts payable is a strategic, value-added accounting function that performs the
primary non-payroll disbursement functions in an organization. As such, the AP
operation plays a critical role in the financial cycle of the organization. AP enables an
organization to accomplish its objectives by bringing a systematic, disciplined approach
to evaluate and improve the effectiveness of the entire payables process. In addition to
the traditionalAP activities whereby liabilities to third-party entities (suppliers, vendors,
taxing authorities, etc.) are recognized and paid based on the credit policies agreed to
between the company and its suppliers, today's AP departments have taken on much
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wider roles including fraud prevention, cost reduction, workflow system solutions, cash-
flow management, internal controls and vendor (supply chain) financing.
Heres what Accounts Payable Now & Tomorrow suggests:-
1) Set up a single e-mail address to be used exclusively for the receipt of invoices.
Whoever is responsible for either processing the invoices that come into thisaddressor
forwarding them for approval should have the password, as should their backup and
perhaps the department manager. The important thing is the e-mailaccount not belongs
to one person but several in case of absences etc.
2) Set up a dedicated fax number to be used foraccounts payable invoicesonly. Invoices
can be retrieved throughout the day and integrated into the normal accounts payable
workflow.
3) Set up an e-fax facility to receive faxed invoices intoan e-mailaccount. Thisshould
eliminate the problem of illegible invoices. .
4) Make sure your new e-mail address and fax number are included in all
correspondence withvendors, especially yourNew Vendor Welcome kit.
EXPENSE ADMINISTRATION
Expense administration is usually closely related to accounts payable, and sometimes
those functionsare performed by the same employee. The expense administratorverifies
employees' expense reports, confirming that receipts exist to support airline, ground
transportation, mealsand entertainment, telephone, hotel, and other expenses.
INTERNAL CONTROLS
A variety of checks against abuse are usually present to prevent embezzlement by
accounts payable personnel so that there is no way any one employee even the
controller can singlehandedly make a payment.
Some companies also separate the functions of adding new vendors and entering
vouchers. In addition, most companies require a second signature on cheques whose
amount exceedsaspecified threshold.
Accounts payable personnel must watch for fraudulent invoices. In the absence of a
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purchase ordersystem, the first line ofdefense is the approving manager.
AUDITS OF ACCOUNTS PAYABLE
Auditorsoften focuson the existence ofapproved invoices, expense reports, and other
supporting documentation tosupport checks that were cut. Auditors typically prepare an
ageing structure ofaccounts payable fora better understanding ofoutstanding debtsover
certain periods (30, 60, 90 days, etc). Such structures are helpful in the correct
presentation ofthe balance sheet asofyear end.
An increase in working capital indicates that the business has either increasedcurrent
assets (that is received cash, orothercurrent assets) orhas decreasedcurrent liabilities,
for example has paid offsome short-term creditors.
CASH BALANCE:
Current Assets - Current Liabilities excluding deferred tax assets/liabilities, excess
cash, surplus assets and/or deposit balances.
Itemsoften attract aone-for-one purchase price adjustment.
WORKING CAPITAL MANAGEMENT
Decisions relating to working capitaland short term financing are referred toasworking
capital management. These involve managing the relationship between a firm'sshort-
term assetsand itsshort-term liabilities. The goalofworking capital management is to
ensure that the firm isable tocontinue itsoperationsand that it hassufficient cashflow
tosatisfy both maturing short-term debt and upcoming operational expenses.
Decision criteria
By definition, working capital management entails short term decisions - generally,
relating to the next one year periods - which are "reversible". These decisions aretherefore not taken on the same basisas Capital Investment Decisions (NPV or related,
asabove) rather they will be based on cashflowsand / or profitability.
One measure ofcashflow is provided by thecashconversion cycle - the net numberof
daysfrom the outlay ofcash for raw material to receiving payment from the customer.
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tocash" through "factoring".
Working capital is directly affecting by other management issues, suchas product mix,
supply chain design and business model (for example agent vs. distributor).
Accounting Policies ofGSLNOVA Petrochemicals Ltd.a. BasisofAccounting
The accounts are prepared on historical cost convention on an accrual basis and
materially comply with the mandatory accounting standards issued by the Institute of
Chartered AccountantsofIndia.
b. Fixed Assets
Fixed Assetsare stated at cost, net ofConvert, lessaccumulated depreciation. Allcosts,
including financialcosts tillcommencement ofcommercial production.
c. Depredation
Depreciation on Fixed Assets other than Plant and Machinery has been provided on
"Straight Line Method" at the rates provided in Schedule XIV to the Companies Act,
1956. Depreciation on Plant and Machinery has been provided on "Written down Value
Method" at the rates provided in Schedule XIV to the Companies Act, 1956.
d. Inventories
Inventoriesat year-end are valued at the lowerofcost and net realizable value. The basis
ofdetermining the cost forvariouscategoriesofinventories isasfollows:
(i) In case ofRaw Materials, Stores, Spares, Fueland Packing Materialson FIFO basis.
(ii) In case ofFinished Goodsand Work-in-Progresson FIFO basis.
e. Sales
Salesare accounted foron dispatchofgoods to the customersand are inclusive ofExcise
Duty and Sales Tax but net ofsales returnsand trade discounts.
f. Investments
Long Term Investmentsare stated at itscost.
g. Borrowing Cost
Borrowing Costs that are attributable to the acquisition or construction of qualifying
assetsare capitalized as part of the cost of suchassets. All other borrowing costsare
charged to revenue.
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h. Taxation
) Provision forcurrent tax is made and retained in the accountson the basisof estimated
tax liability as per the applicable provisionsofthe Income Tax Act, 1961.
i) Deferred Tax resulting from timing differences between bookand tax profit isaccounted
for under the liability method, at the current ratesof tax, to the extent that the timing
differencesare expected tocrystallize.
Provisions, Contingent Liabilitiesand Contingent Assets
Provisions involving substantial degree of estimation in measurement are recognized
when there isa present obligation asa result ofpast eventsand it is probable that there
will be an outflow of resources. Contingent liabilities are not recognized but are
disclosed in the notes to accounts. Contingent Assets are neither recognized nor
disclosed in the financialstatement.
j. Employee Benefits
(i) The employee and Company make monthly fixed Contribution to Government of
India Employees Provident fund equal to a specified percentage of the covered
employees salary, Provision for the same is made in the year in which service are
rendered by the employees.
(ii) The Liability for Gratuity to employee, which isa defined benefit plan, is determined
on the basis of actuarial Valuation based on Projected Unit Credit method. Actuarial
gain/Loss in respect ofthe same ischarged to the profit and lossaccount.
(iii) Leave encashment benefit to eligible employee has been ascertained on actuarial
basisand provided for. Actuarial gain/loss in respect ofthesame ischarged to the profit
and lossaccount.
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IV. CHAPTERFindings
Balance Sheet of GSL NovaPetrochemicals ------------------- in Rs. Cr. -------------------
Mar '05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Sources OfFunds
Total Share Capital 13.50 13.50 27.00 27.00 27.00
Equity Share
Capital13.50 13.50 27.00 27.00 27.00
Share Application
Money 0.00 0.00 0.00 0.00 0.00
Preference Share
Capital0.00 0.00 0.00 0.00 0.00
Reserves 50.27 44.79 13.36 -16.53 -31.70
Revaluation
Reserves0.00 0.00 0.00 0.00 0.00
Net worth 63.77 58.29 40.36 10.47 -4.70
Secured Loans 144.63 129.90 107.95 111.88 112.40
Unsecured Loans 21.21 19.31 27.92 50.55 51.31
Total Debt 165.84 149.21 135.87 162.43 163.71
Total Liabilities 229.61 207.50 176.23 172.90 159.01
Mar 05 Mar '06 Mar '07 Mar '08 Mar '09
12 mths 12 mths 12 mths 12 mths 12 mths
Application OfFunds
Gross Block 358.79 359.89 361.29 365.15 366.42
Less: Accum.Depreciation
155.54 180.29 201.75 220.89 237.70
Net Block 203.25 179.60 159.54 144.26 128.72
Capital Workin
Progress3.33 3.04 3.05 1.01 1.09
Investments 0.27 0.27 0.07 0.02 0.03
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Inventories 33.95 26.76 23.30 32.17 26.23
Sundry Debtors 27.34 38.92 34.30 50.14 44.20
Cashand Bank
Balance
1.21 2.13 0.25 1.88 1.55
Total Current Assets 62.50 67.81 57.85 84.19 71.98
Loansand
Advances47.15 43.20 24.88 29.88 21.47
Fixed Deposits 4.29 3.81 3.89 2.18 1.93
Total CA, Loans &
Advances113.94 114.82 86.62 116.25 95.38
Differed Credit 0.00 0.00 0.00 0.00 0.00
Current Liabilities 90.39 89.35 72.05 87.55 64.95
Provisions 0.80 0.86 1.00 1.10 1.25
Total CL &
Provisions91.19 90.21 73.05 88.65 66.20
Net Current Assets 22.75 24.61 13.57 27.60 29.18
Miscellaneous
Expenses0.00 0.00 0.00 0.00 0.00
Total Assets 229.60 207.52 176.23 172.89 159.02
Contingent
Liabilities19.39 35.33 68.56 43.28 64.50
BookValue (Rs) 47.24 43.17 14.95 3.88 -1.74
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Income statement ofGSL Nova Petrochemicals Ltd. for the last 5 years.
(Rs. in cr)
Mar '
09
Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Operating Income 347.71 343.70 278.18 488.29 395.80
ExpensesMaterial Consumed 257.16 271.06 203.95 389.03 317.89
ManufacturingExpenses
36.49 29.03 29.46 29.31 26.66
Personnel Expenses 5.59 5.17 6.46 8.23 7.46
Selling Expenses 26.65 27.47 20.27 17.65 15.48
Administrate Expenses 3.00 4.42 3.99 3.36 5.91
Expenses Capitalized 0.00 0.00 0.00 0.00 0.00
Cost Of Sales 328.89 337.14 264.14 447.58 373.40
Operating Profit 18.82 6.56 14.04 40.70 22.40
Other Recurring
Income
0.97 0.99 1.19 1.26 1.29
Adjusted PBDIT 19.79 7.55 15.24 41.96 23.68
Financial Expenses 17.09 17.05 19.23 19.73 20.07
Depreciation 16.87 19.27 21.51 24.75 28.25
Other Write offs 0.00 0.00 0.00 0.00 0.00Adjusted PBT -14.16 -28.77 -25.50 -2.52 -24.64
Tax Charges 0.27 0.48 -9.58 1.78 -8.42
Adjusted PAT -14.43 -29.25 -15.93 -4.30 -16.22
Non Recurring Items -0.73 -0.53 -0.61 -0.93 -1.24
Other Non Cash
adjustments
0.00 -0.11 -1.40 -0.26 0.60
Reported Net Profit -15.16 -29.89 -16.53 -5.23 -16.86
Earnings Before
Appropriation
-59.99 -44.83 -14.94 2.99 8.48
Equity Dividend 0.00 0.00 0.00 0.00 0.00
Preference Dividend 0.00 0.00 0.00 0.00 0.00
Dividend Tax 0.00 0.00 0.00 0.00 0.00
Retained Earnings -59.99 -44.83 -14.94 2.99 8.48
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Working Capital Statement oflast 5yrs. (Rs. in cr.)
Mar ' 09 Mar ' 08 Mar ' 07 Mar ' 06 Mar ' 05
Sales 347.71 350.58 300.46 500.87 392.31
Other Income 0.97 0.80 0.00 0.00 5.16
Stock Adjustment 11.76 -6.81 6.57 11.62 4.26
Raw Material 228.82 269.42 192.73 368.44 294.44
Power And Fuel 0.00 0.00 0.00 0.00 0.00
Employee Expenses 5.59 5.82 6.44 7.89 7.46
Excise 0.00 0.00 21.91 0.00 0.00
Admin And Selling Expenses 0.00 0.00 0.00 0.00 0.00
Research And Development
Expenses
0.00 0.00 0.00 0.00 0.00
Expenses Capitalized 0.00 0.00 0.00 0.00 0.00
Other Expenses 83.57 69.55 58.81 67.74 68.99
Provisions Made 0.00 0.00 0.00 0.00 0.00
Operating Profit 17.97 12.60 14.00 45.18 17.16
Interest 17.09 12.42 18.89 18.74 20.07
Gross Profit 1.85 0.98 -4.89 26.44 2.25
Depreciation 16.87 18.68 21.49 25.04 28.25
Taxation 0.15 0.08 -10.01 0.02 -9.14
Net Profit / Loss -15.17 -17.78 -16.37 1.38 -16.86
Extra Ordinary Item 0.00 0.00 0.00 0.00 0.00
Prior Year Adjustments 0.00 0.00 0.00 0.00 0.00
Equity Capital 27.00 27.00 27.00 13.50 13.50
Equity Dividend Rate 0.00 0.00 0.00 0.00 0.00
Agg.OfNon-Prom. Shares (in
Lacs)
87.77 87.44 93.35 36.22 36.22
Agg.OfNon Promote Holding (%) 32.50 32.38 34.57 26.84 26.84
OPM (%) 5.16 3.59 4.65 9.02 4.37
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Cash Flow ofGSLNova
Petrochemicals------------------- in Rs. Cr. ---------------
Mar
'05
Mar
'06
Mar
'07
Mar
'08
Mar
'09
12 mths 12 mths 12 mths 12 mths 12 mths
Net Profit Before Tax -16.86 -5.49 -17.93 -29.89 -15.16
Net Cash From Operating Activities 66.19 38.02 30.97 -5.38 7.97
Net Cash (used in)/from
Investing Activities
-11.69 -0.94 -0.05 -2.47 -1.19
Net Cash (used in)/from Financing
Activities
-54.68 -36.66 -32.72 7.77 -7.35
Net (decrease)/increase In Cashand
Cash Equivalents
-0.18 0.43 -1.80 -0.08 -0.57
Opening Cash & Cash Equivalents 5.68 5.51 5.93 4.14 4.06
Closing Cash & Cash Equivalents 5.51 5.93 4.14 4.06 3.48
GPM (%) 0.53 0.27 -1.62 5.27 0.56
NPM (%) -4.35 -5.06 -5.44 0.27 -4.24
EPS (in Rs.) -2.81 -3.29 -3.03 0.51 -6.24
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Accountsfor the year ended 31st March 2009. (OPERATIONAL & FINANCIALS )
The highlightsare as under:- (Rs. in Lacs)
Particulars 2008-09 2007-08
Net Sales 34770.52 34372.13
Profit before Interest, Depreciation & Tax 1893.67 652.88
Less: Interest & Financial Charges 1708.95 1705.21
Depreciation 1686.55 3395.50 1926.79 3632.00
Profit / (Loss) before Tax (1501.83) (2979.12)
Less: Provision for Tax 14.50 10.00
Add : Provision for Deferred Tax Nil Nil
Profit After Taxation/(Loss) (1516.33) (2989.12)
Add: Balance Brought from Previous Year (4482.85) (1493.73)
Profit Available for Appropriations (5999.18) (4482.85)
Less:
Appropriations
(a) Dividend Nil Nil
(b) General Reserve Nil Nil
Balance Carried to Balance Sheet (5999.18) (4482.85)
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Data analysis
The operational and financial results of the company
Performance:
Despite the downturn in the economy and continuing recession, your company has
achieved Net SalesofRs. 347.70 croresascompared to previous yearsNet SalesofRs.
343.72 crores. The Profit before Interest, Depreciation and Tax (PBDIT) was up by 190
% from Rs 6.53 crores in FY 2007-08 to Rs 18.94 crores in the FY 2008-09. The net loss
during the year under review placed lowerat Rs.15.16 croresascompared to net lossof
Rs. 29.89 crores in the previous year. The major reasonsfor improvement attributed to
decrease in the price of raw material, fuel etc. from a peak in July-August, 2008 and
bettersales realization in last two quartersofthe year under review.
Reference to Boards for Industrial and Financial Reconstruction (BIFR) Under
SICA
In view ofaccumulated losses exceeding entire net worthofthe Company ason 31.03.09
and pursuant tocompliance ofSection 15 of
Sick Industrial Companies (Special Provision) Act,1985 the Company shall make a
reference to Board for Industrial And Financial Reconstruction (BIFR) for the purpose of
enabling the BIFR to take suitable measures for rehabilitation of the Company after
adoption ofaccounts for the year ended 31.03.2009 by the shareholdersat the ensuing
Annual General Meeting.
ReconstructionsofBanks Duse Under CDR Mechanism:
Yourcompany had requested the banksand Corporate Debt Restructuring Cell (CDR)
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for extension ofPeriod ofReliefunder the CDR Mechanism
Approval for other concessions. The CDR-Empowered Group has approved the
reworked proposalfor restructuring on 25th March, 2009. The approval wasconveyed to
all the banks by CDR Cellvide theirletter dated 31.03.09. As per CDR directives, all the
banksare supposed tosanction and implement the same within 45 daysfrom the receipt
ofthe letter by them. Revised financial restructuring package consist ofre-schedulement
ofterm loans installments including extension ofmoratorium, furtherfunding ofinterest,
increasing cover period ofbookdebts up to 90 days etc.
Dividend :
Due toloss incurred by the Company during the year 2008-09, your directors regret their
inability to recommend any dividend on the Equity Share Capital.
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YEARLY RESULTS OF NOVA PETROCHEMICALS ..In Rs Cr
Mar '06 Mar '07 Mar '08 Mar '09 Mar '10
Sales Turnover 500.87 278.55 350.58 347.71 293.40
Other Income -- -- 0.80 0.97 0.84
Total Income 500.87 278.55 351.38 348.68 294.24
Total Expenses 455.69 264.55 337.98 329.74 276.88
Operating Profit 45.18 14.00 12.60 17.97 16.52
Profit On Sale OfAssets -- -- -- -- --
Profit On Sale Of
Investments
-- -- -- -- --
Gain/Loss On Foreign
Exchange
-- -- -- -- --
VRS Adjustment -- -- -- -- --
Other Extraordinary
Income/Expenses
-- -- -- -- --
Total Extraordinary
Income/Expenses
-- -- -- -- 2.30
Tax On Extraordinary Items -- -- -- -- --
Net Extra Ordinary
Income/Expenses
-- -- -- -- --
Gross Profit 45.18 14.00 13.40 18.94 17.36
Interest 18.74 18.89 12.42 17.09 13.14
PBDT 26.44 -4.89 0.98 1.85 6.52
Depreciation 25.04 21.49 18.68 16.87 11.35
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Depreciation On
Revaluation OfAssets
-- -- -- -- --
PBT 1.40 -26.38 -17.70 -15.02 -4.83
Tax 0.02 -10.01 0.08 0.15 --
Net Profit 1.38 -16.37 -17.78 -15.17 -4.83
Prior Years
Income/Expenses
-- -- -- -- --
Depreciation for Previous
Years Written Back/
Provided
-- -- -- -- --
Dividend -- -- -- -- --
Dividend Tax -- -- -- -- --
Dividend (%) -- -- -- -- --
Earnings Per Share 1.02 -- -- -- --
BookValue -- -- -- -- --
Equity 13.50 27.00 27.00 27.00 13.50
Reserves 51.65 14.90 -4.42 -31.70 --
Face Value 10.00 10.00 10.00 10.00 5.00
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Reported Return On Net Worth (%) 0.00 -285.61 -40.96 -8.97 -26.43
Return On long Term Funds (%) 2.33 -8.42 -4.36 10.14 -2.45
LEVERAGE RATIOS
Long Term Debt / Equity 0.00 12.29 2.56 1.91 1.92
Total Debt/Equity 0.00 15.52 3.37 2.56 2.60
Ownersfund as % oftotal Source -2.95 6.05 22.90 28.08 27.77
Fixed Assets Turnover Ratio 0.94 0.94 0.76 1.36 1.10
LIQUIDITY RATIOS
Current Ratio 1.44 1.31 1.19 1.27 1.25
Current Ratio (Inc. ST Loans) 0.71 0.74 0.62 0.69 0.63
QuickRatio 1.04 0.94 0.86 0.82 0.67
Inventory Turnover Ratio 20.48 15.42 21.71 30.61 18.37
PAYOUT RATIOS
Dividend payout Ratio (Net Profit) 0.00 0.00 0.00 0.00 0.00
Dividend payout Ratio (Cash Profit) 0.00 0.00 0.00 0.00 0.00
Earning Retention Ratio 0.00 0.00 0.00 0.00 0.00
Cash Earnings Retention Ratio 100.00 0.00 100.00 100.00 100.00
COVERAGE RATIOS
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Adjusted Cash Flow Time Total Debt 67.19 0.00 24.33 7.29 13.78
Financial Charges Coverage Ratio 1.16 0.44 0.79 2.13 1.18
Fin. Charges Cov.Ratio (Post Tax) 1.10 0.37 1.26 1.99 1.57
COMPONENT RATIOS
Material Cost Component(% earnings) 70.57 81.73 71.98 78.46 79.23
Selling Cost Component 7.66 7.99 7.28 3.61 3.91
Exportsas percent ofTotal Sales 0.00 0.00 0.00 0.77 1.39
Import Comp. in Raw Mat. Consumed 5.96 2.28 7.04 4.12 11.28
Long term assets / Total Assets 0.57 0.55 0.65 0.61 0.64
Bonus Component In Equity Capital (%) 50.00 50.00 50.00 0.00 0.00
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PERFORMANCE HIGHLIGHTS
Despite the downturn in the economy and continuing recession, your company has
achieved Net SalesofRs. 347.70 croresascompared toprevious yearsNet SalesofRs.
343.72 crores. The Profit before Interest, Depreciation and Tax (PBDIT) was up by 190
% from Rs 6.53 crores in FY 2007-08 to Rs 18.94 crores in the FY 2008-09. The
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