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CHAPTER 1

INTRODUCTION AND DESIGN OF THE STUDY

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factory unit is in Mangalore.

The company deals with fertilizers like Urea, Diammonium phosphate, granulated fertilizers,

liquid fertilizers, soil conditioners, Muriate of potash, soil micronutrients, specialty fertilizers, food

grade Ammonium bicarbonate, industrial chemicals like Sulphuric acid and Sulphonated

granulated fertilizers. The marketing offices of MCF are located in Andhra Pradesh, Karnataka,

Kerala, Maharastra and Tamil Nadu.

The analysis of financial statements is a process of evaluating the relationship between component

parts of financial statements to obtain a better understanding of the firms position and

performance. A study on analysis of financial statements aims at analyzing the financial

statements of the company and understanding the financial position of the company.

1.2 SCOPE AND SIGNIFICANCE OF THE STUDY

The focus of financial analysis is on key figures in the financial statements and the significant

relationship that exist between them. The analysis of financial statements is a process of evaluating

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

of the firms position and performance. The statements analyzed here include balance sheet, profit

and loss statement and cash flow statement. Different group of people use and analyze financial

statements. These users include: A.Internal Users such as owners, managers, employees and other

parties who are directly connected with a company, B. External Users such as potential investors,

banks, government agencies and other parties who are outside the business but need financial

information about the business for numbers of reasons. Ratio analysis is a widely-used tool of

financial analysis. It can be used to compare the risk and return relationships of firms of different

sizes. It determines and interprets the liquidity, solvency, profitability, etc. of a business enterprise.

The analysis of financial statements is a process of evaluating the relationship between component

parts of financial statements to obtain a better understanding of the firms position and

performance. The study focuses on the financial performance of Mangalore Chemicals and

Fertilizers Limited with respect to its long-term profitability and growth. The study mainly utilizes

secondary data collected from the published reports of the organization for the period 2007-2011.

The analysis will include ratio analysis to determine the companys payback ability, profitability

based on records maintained by the organization for the above period.

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1.3 STATEMENT OF PROBLEM

Fertilizers are organic, or inorganic, natural or artificial substances that offer fundamental

ingredients to the plants for their growth and development. According to industry experts, there are

sixteen essential elements for plant growth of which seven are required in larger amounts, and the

Indian fertilizer industry seems quite capable to cater to their requirements. In India agriculture

contributes about 25% to the countrys GDP. In this regard Indian fertilizer industry has great

scope in and outside the country.

Mangalore Chemicals & Fertilizers Limited, with a turnover Rs. 2,523.83 crores (201011), is the

only manufacturer of chemical fertilizers in the state of Karnataka, India and it has been operating

in the fertilizer industry for 38 years. The company deals with fertilizers like Urea, Diammonium

phosphate, granulated fertilizers, liquid fertilizers, soil conditioners, Muriate of potash, soil

micronutrients, specialty fertilizers, food grade Ammonium bicarbonate, industrial chemicals like

Sulphuric acid and Sulphonated granulated fertilizers. To maintain efficient operations and to

sustain the long term profitability, it becomes essential for the company to analyze the various

components of financial performance. This study becomes significant in the above scenario.

1.4 OBJECTIVES OF THE STUDY

To gain an in-depth understanding of the origin, structure, operations and functional

departments of MCF Ltd.

To analyse the financial statements of the organization namely balance sheet, profit and

loss account and cash flow statements.

To evaluate the different aspects of financial performance like long term profitability,

solvency as well as short-term performance using techniques like ratio analysis and trend

analysis.

To provide suggestions to the company in order to maintain efficient and consistent

financial performance.

1.5 RESEARCH METHODOLOGY

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The study makes use of primary and secondary data.

1. Primary data was collected through discussion with senior officials and departmental heads

of the organization.

2. Secondary data: secondary data was collected from published sources like financial

statements, company annual reports, newsletters, periodicals, journals, books, and websites.

1.5.1 TOOLS OF DATA ANALYSIS

The data collected was tabulated and presented. Financial performance was evaluated on

the basis of the following analyses:-

1. Ratio analysis:

Current ratio, quick ratio, fixed asset turnover ratio, current asset turnover ratio, working

capital turnover ratio, debt-equity ratio, gross profit ratio, net profit ratio, operating profit

ratio, return on capital employed, return on assets, return on equity, dividend payout ratio,

inventory turnover ratio were determined.

1.6 LIMITATION OF STUDY

The study cannot replace the managerial judgement in decision making.

The study is only limited to the available limitation.

1.7 CHAPTER SCHEME

The project report has been presented in the following format:

Chapter one gives the introduction and design of the study. It consists of a brief

introduction of the study, objectives of the study, research methodology and tools of

analysis.

Chapter two gives the review of literature.

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Chapter three presents the profile of the Indian Fertilizer industry in general and M/s. MCF

in particular.

Chapter four presents the analysis of data and interpretations made from the same.

Chapter five comprises of findings from the data, and suggestions and conclusions arrived

at based on the data.

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CHAPTER 2

REVIEW OF LITERATURE AND THEORIES

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A financial ratio is a number that expresses the value of one financial variable relative to another.

It is the numeric result gained by dividing one financial number by another. Calculated this way,

financial ratio allows an analyst to assess not only the absolute value of a relationship but also to

quantify the degree of change within the relationship (Lawder, 1989).

From a management perspective, the rationale for use of financial ratio analysis is that by

expressing several figures as ratio, information will be revealed that is missed when the individual

members are observed (Thomas & Evanson, 1987). Managers can then use this information to

improve their operations.

The two most important and most commonly available sources of financial variables that can be

used in calculating ratios are the balance sheet and the income statement. These particular

statements appear to be the most universally accepted. And because almost all of business firms

develop such statements, the use of ratio analysis is to be found throughout a variety of industries.

A new trend in this regard, however, has been the development of different ratios depending on the

data provided by the statement of cash flows. However, the newly developed ratios are not as

commonly used as those which are based on the balance sheet and income statement. Rating

agencies and financial publishing firms collect data on large publicly traded

companies and make this information available for various interested entities. Users of such

financial data and ratios may include companies evaluating the creditworthiness of their debtors,

investors considering the merit of alternative investment, and banks and other lenders when

granting loans. Also, auditors can use ratios when conducting analytical reviews of their clients

(Gardiner, 1995).

Given that both the balance sheet and the income statement provide numerous

amount of information, it is possible to develop an endless number of ratios. Ratios relate items of

the income statement to each other, items of the balance sheet to each other, and items of one

statement to items of the other statement. However, the various items in the financial statements

are usually highly correlated with each other and hence financial ratios are highly correlated with

one another (Horrigan, 1966; Zeller & Stanko, 1997).

As a result, the tendency among analysts is to classify and reduce a large number of ratios to a

small subset. More detailed analysis will be carried out if significant changes in key ratios are

witnessed. There is no total agreement over a standard set of ratios, but a thorough review of the

theoretical and empirical literature identified five major categories of the financial ratios. Up to the

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authors knowledge, this set of ratios is considered comprehensive and, therefore, were adopted in

the study. Each category is identified by specific ratios.

Measurement of financial performance by ratio analysis helps identify organizational strengths and

weaknesses by detecting financial anomalies and focusing attention on issues of organisational

importance. Given that the mission of a nonprofit organization is the reason its existence, it is

appropriate to focus on financial resources in their relationship to mission. Turk et al (1995)

suggested that the key to analysis and measurement of the financial and operational control and

impact is related to the central question: What is the organizations mission? Their model reflects

the interrelationship between a series of questions about the mission and the financial resourcing

and control of the organization. They suggest that such a framework provides an appropriate

analysis for past performance which will help an organization chart its future direction.

Orlitzky et al. (2003) performed a meta-analysis of 52 studies in search for the relationship

between corporate social performance and corporate financial performance. The results confirm

that socially responsible investing pays off. The relationship is strongest for the social dimension

within corporate social performance. Diltz (1995) and Sauer (1997) concluded that there were no

statistically significant performance differences between socially responsible investments and

traditional investments. Diltz examined the alphas and abnormal returns for 28 socially screened

equity portfolios in order to obtain this conclusion. There was no adjustment for style factors.

Sauer investigated the Domini Social Index performance by risk-adjusted performances and came

to the same conclusion.

Bauer et al. (2002) investigated the performance of international ethical mutual funds, corrected for

investment style. The results show no significant difference in risk-adjusted returns between

ethical and conventional funds for the period 1990-2001.

Kneader et al. (2001) investigated the financial performance of 40 international ethical funds and

40 international non-ethical funds against their benchmark. The results show no statistical

difference between their performances. They found that ethical funds have lower risk in

comparison to their non-ethical counterparts. The cross-sectional analysis indicates that the risk-

adjusted returns are not significantly related to the size, age or ethical status of the fund.

Derwall et al. (2003) include the Innovest eco-efficiency scores for US companies, meaning that

they only look at the environmental factor. After controlling for risk and investment style, they

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As such, these methods may not be of use to managers or educators as techniques for better managing

businesses (Pricer and Johnson, 1996).

While these new techniques appear complex on the surface, when the models are examined in detail,

the variables contained in them are very basic and easy to understand and apply. Also, while many

writers agree that objective measures should be used in place of subjective measures for financial

performance prediction (Hyndman, 1994), others argue that the only way to assess future financial

performance is through the inclusion of subjective measures (Malhorta and McLeod, 1994).

However, all of the techniques suffer from sample data that does not meet the requirement of

approaching normal distribution or for data accuracy (Kim, 1997; Pricer and Johnson, 1996;

Fernandez-Castro, 1994).

When the systems for predicting future financial performance of firms are viewed closely, it is

common to find individual variables to be easy to understand and apply. When this is done the

apparent weaknesses in the system are detected. For example, one system (Shaw and Gentry, 1988)

presents an 80 variable model that includes financial leverage as one measure. Under this model, low

risk firms have low financial leverage ratios and high-risk firms have high financial leverage ratios.

While this follows common accounting belief, this simplistic use of a variable does nothing to lead to

an accurate prediction of firm performance or better management practices. For many of these systems,

if the numerator and denominator are negative the ratio calculation is positive. This means

that a firm that has negative owner's equity and a loss will have a positive return on equity calculation.

This type of error, while common in many studies and systems designed to analyze or predict

financial performance, are due to errors in the sample data being used without needed adjustments.

It should be noted that these systems are not accurate in predicting financial performance of firms or

for even predicting single ratios for the future (Pricer and Johnson, 1996), but they are increasingly

being used by analysts to understand and to forecast firm performance. The problem encountered is the

unfounded belief that raw financial data ratio calculations will lead to valid measures for predicting

firm performance. This area of research and theory is generally

recognized as having started with liquidity research beginning with Beaver (1966). Beaver tested the

ability of 30 standard accounting ratios, four of them cash flow based, to predict the failure of a

business as early as five years in advance. These ratios were tested on a sample of 79 failed firms.

Beaver concluded that ratios, especially those that measure cash flow coverage of debt, could predict

the failure of a business as early as five years in advance. This study, and a number of others that

follow, does not discuss whether the sample data meets needed assumptions for normality or if errors

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were removed from the data before analysis. Altman (1981) attempted to improve conventional ratio

analysis by using multivariate analysis on a sample of manufacturing firms, 105 bankrupt firms and

2,058 nonbankrupt firms. Ohlso (1980) concluded from his research that firm size was directly

related to firm financial performance with smaller firms more likely to fail than larger ones.

Zavgren (1985), using a sample of 45 bankrupt and 45 nonbankrupt firms, identified seven variables

that were used to predict the future financial performance of businesses. Deakin (1972) advanced the

research of Beaver and Altman by including the fourteen important ratios identified by Beaver with

the multivariate methodology of Altman. Using a sample of 32 failed and 32 nonfailed firms, Deakin

found that cash flow coverage to total debt was important for predicting bankruptcy. Blum (1974)

also used a failed versus nonfailed model in his research for predicting bankruptcy of a firm.

All of these authors, Beaver (1966), Altman (1981), Ohlso (1980), Zavgren (1985), Deakin (1972)

and Blum (1974) can be faulted for using samples that have not been checked for normal distribution

or for the removal of errors. In addition, many have inappropriately used mixed or heterogeneous

samples in their research. In addition, a close look at the measures causes additional concern. For

example, Altman's Z Score uses ratios to predict bankruptcy of a firm but substitutes book value for

market value of equity for privately held firms. This variable is given weight in the Z Score

calculation and there is no evidence to suggest that book value of equity is in any way equated with

the market equity value of a firm (Shah and Murtaza, 2000). Following the preceding studies, many

additional research projects were undertaken in an attempt to validate the use of financial ratios for

predicting financial performance of a firm. Some of the betterknown studies include Altman,

Haldeman and Narayanan (1977), Norton and Smith (1979), and Mensah (1983). These studies, like

their predecessors, fail to demonstrate that normality of distribution or those necessary sample

assumptions have been met prior to analysis. Even in research that addresses the distribution problem,

sample data is transformed without an explanation as to specifically how and why this has been done

(Pinches, Mingo and Caruthers, 1973). During the 1980s, the research emphasis in the area of ratio

analysis turned to cash flow indicators following the study of Largay and Stickney (1980) of the failure

of W. T. Grant. This largely single case study found that liquidity ratios and measures of cash flows

from operations were the best predictors of the future success of a business. However, the conclusions

of this study were questioned by the findings of Casey and Bartzca (1984 and 1985). Using a sample of

30 bankrupt firms, with another thirty firms held out for validation, Casey and Bartzca found that

standard accounting ratios were better for predicting firm failure than cash flow measures.

Unfortunately, the sample assumptions were not tested and this study did not take into consideration

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firm size when reaching conclusions. In another study, Gentry (1985) used a sample of 33 bankrupt and

33 nonbankrupt firms to determine if cash flow measures could be used to predict firm financial

performance. This study was expanded two years later (Gentry, Newbold, and Whitford, 1987) by

testing the ability of both accrual and cash flow measures to predict business financial performance

with debatable results. Like many of the other studies cited, the studies also fail to provide evidence

that the sample was tested for errors or if it met needed assumptions for approximating a normal

distribution. Aziz, Emmanuel and Lawson (1988) combined accrual and cash flow variables in an

attempt to predict firm financial performance. However, the results of their validation holdout group

and failure to meet needed sample assumptions casts question on their conclusions.

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CHAPTER 3

INDUSTRY AND COMPANY PROFILE

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PROFILE OF INDIAN FERTILIZER INDUSTRY

Agriculture the backbone of Indian Economy still holds its relative importance for more than a

billion peoples. The Government of India from time to time has taken considerable steps for the

upliftment of Agriculture Sector.

Like every developing economy, the economy of India is also agro-based. Agriculture accounts for

nearly 1/4th of India's GDP and more importantly, about 2/3rd of the country's population is

dependent on agriculture and allied activities for their livelihood. As per statistics nearly 175 lakhs

MT of fertilizer nutrients are required every year in this country. The demand of fertilizers was so

high that India had to import almost 30% of its requirement from other countries. Therefore, to

achieve the economic growth, agriculture base of the country must be strengthened. To attain this

objective, agriculture practices have to be improved from their traditional pattern to a higher

technological track involving better irrigation and use of better quality seeds, fertilizers,

insecticides & pesticides. Therefore, chemical fertilizers are key player in this process and fertilizer

industries plays quite a major role in increasing food production in the country and also helps to

modernize the outlook of the common farmers and make them innovative and respective to the

new technology change.

The development trajectory of the agricultural industry derives its main stimulus from the growth

in production of fertilizers in India. The fertilizer industry earlier witnessed the preponderance of

the public sector units who still retain their status as the major players in Indian fertilizer market.

Coupled with the private enterprisers manufacturing fertilizers, India has emerged as the third

largest producer of the agro-input. The country has also emerged as one of the largest consumers of

fertilizers along with China and the United States of America.

Growth of Fertilizer Industry

One of the most significant achievement of the post Independence period of our Country has been

the ability to achieve self-sufficiency in food grain production. This achievement is due to the

rapid growth and improvement of Fertilizer industry. The Fertilizer industry is growing at the rate

of 4% for the last 10 years and has been contributing a significant part of G.D.P.

The growth and importance of Fertilizer industry in India can be divided in to three distinct phases,

these are given below.

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1. Pro Green Revolution Period:

This period is described in 1952-1953 era where increased growth of food grains took place

however this increased production in food grains took place due to increased irrigation methods. In

this phase the land under agriculture was made more, during this period about 80% of the country's

population was involved in Agriculture either directly or indirectly. During this period the

fertilizer's which were manufactured were Super Phosphate & Ammonium Sulphate. Irrigation was

thought to be heart of Agriculture.

2. Green Revolution Period:

During this phase Government stated the programmed aimed at making our country self sufficient

in Food Products. This was the period between the years 1959-1960. This plan laid the emphasis

on production of High Yielding Varieties. To make this plan a success there was a high need tomake soil fertile by providing it with nutrients like Phosphorus, Nitrogen and Potassium.

During this phase Fertilizer industry tried to play a vital role, became one of the most important,

and inherits part of our economy.

3. The Post Green Revolution Period:

The world's population along with Indian population has kept on growing at an alarming rate; the

fertilizer companies all over India are trying to expand their scale of operations in order to increase

the production rate. The demand for fertilizers per year is increasing. The current demand of

fertilizers in India is 18 million tones.

- According to Fertilizer Association of India.

Fertilizer Industry Scenario in India

In India, First of all in 1906, A Single Super Phosphate (SSP) manufacturing unit was set up at

Ranipat near Chennai (Madras) with annual capacity of 6000 tones per annum.

1. Public Sector

The Fertilizer And Chemicals Travancore Ltd. (FACT)

Hindustan Fertilizer Corporation Ltd. (HFC)

Madras Fertilizer Ltd. (MFL)

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Hindustan Copper Ltd. (HCL)

Naively Lignite Corporation Ltd. (NLC)

Pyrites, Phosphates And Chemicals Ltd. (PPCL)

Pradeep Phosphates Ltd. (PPL)

Rashtriya Chemicals And Fertilizers Ltd. (RCFL)

National Fertilizer Ltd. (NFL)

2. Co-operative Sector

There are only two fertilizer manufacturing societies in Co-operative sector.

Indian Farmers Fertilizers Co-Operative Ltd. (IFFCO)

Krishak Bharati Co-Operative Ltd. (KRIBHCO)

3. Private Sector

There are 17 companies in private sector, which are producing fertilizer.

Gujarat Narmada Valley Fertilizer Co. Ltd. (GNFC)

Hindustan Lever Ltd. (HLL)

Hari Fertilizer

ICI India Ltd.

Indo Gulf Fertilizers & Chemicals Corporation Ltd.

Mangalore Chemicals & Fertilizers Ltd. (MCFL)

Southern Petro Chemicals Industries Corporations Ltd.

Nagarjuna Fertilizer & Chemical Ltd. (NFCL)

Shri Ram Fertilizer & Chemicals Ltd.

Tuticorian Alkali Chemicals & Fertilizer Ltd.

Zuari Agro Chemicals Ltd.

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Bindali Agro Chemicals Ltd.

Chambal Fertilizer & Petrochemical Corporations Ltd. (DEPCL)

E.D.I. PASSY (I) LTD.

Gujarat State Fertilizer Company (GSFC)

The fertilizer sector in India holds a major share among the energy intensive industries of the

country. The industry has shown unparalleled growth in the past few years. Although growing in

an accelerating rate, the industry is faced with a number of challenges, inter alia, the lack of major

plant resources such as nitrogen, phosphate and potassium. Notwithstanding these specificities,

India produces both nitrogenous and phosphatic fertilizers in the domestic market. Urea and

ammonium are the two popularly manufactured nitrogenous fertilizers in India. The various

companies dedicated to the manufacture of fertilizers also produce straight phosphatic fertilizers

such as single super phosphate and complex fertilizers such as di-ammonium phosphate or DAP.

The lack of indigenous reserves of potash in India has stunted the production of potassic fertilizers

in the country.

The Indian fertilizer industry has a capacity of 56 lakh MT of phosphatic nutrient and 121 lakh MT

of nitrogen. While the private sector has a huge installed capacity for phosphatic fertilizers,

capacity utilization of nitrogenous fertilizers is higher in the public sector.

Fertilizer in the agricultural process is an important area of concern. Fertilizer industry in India has

succeeded in meeting the demand of all chemical fertilizers in the recent years. The Fertilizer

Industry in India started its first manufacturing unit of Single Super Phosphate (SSP) in Ranipet

near Chennai with a capacity of 6000 MT a year.

India's green revolution in late sixties gave a positive boost to the sector. The sector experienced a

faster growth rate and presently India is the third largest fertilizer producer in the world.

According to Given Statistics, total capacity of the industry as on 30.01.2003 has reached a level of

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121.10 lakh MT of nitrogen (inclusive of an installed capacity of 208.42 lakh MT of urea after

reassessment of capacity) and 53.60 lakh MT of phosphatic nutrient.

Presently there are 57 large fertilizers plants in the country producing urea, DAP, Complex

fertilizer, Ammonium Sulphate (AS) and Calcium Ammonium Nitrate (CAN).

The government has established nine public sector undertakings in the Indian fertilizer market and

one cooperative society, known as the Krishak Bharati Cooperative Limited (KRIBHCO) that

functions under the supervision of the Department of Fertilizers in India. There are 63 large units

dedicated to the production of fertilizers. Among these, 9 units produce ammonium sulphate while

38 units produce urea. There are 79 small and medium scale units producing single

superphosphate.

Along with the public sector units, there has been a euphoric growth in the production of fertilizers

in the private sector as well. Some of the companies dedicated to the production of fertilizers

include Khaitan Chemicals and Fertilizers Limited, Managalore Chemicals, Nagarjuna Fertilizers,

Zauri Chambal, BEC Fertilizers and Gujarat State Fertilizers &Chemicals Limited.

The fertilizer industry in India shows an upward rising trend that would challenge the broader

market in future years. With an outstanding investment of Rs. 20, 677 Crore in the September,

2007 quarter, the sector will witness burgeoning production that will reach new heights in the

coming years. Most of the companies are expecting an approval for their huge capital expenditure

plans from the Department of Fertilizers in India. The flourishing industry will fill in the gap

between demand and supply of fertilizers in India.

The table below shows the estimated sales of specialty fertilizers:

Table 3.1: Estimated Sale of Specialty Fertilizers (000 tonnes)

Product 2006-07 2007-08 2008-09 2009-10 2010-11

Neem coated urea * 603.51 NA 917.79 1183.96

Water solublefertilizers

14.69 28.71 29.31 36.83 47.27

Customizedfertilizers

NA NA 19.69 24.75 49.81

Bentonite sulphur 0.10 4.71 26.27 104.42 98.50

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*= Based on the reports received from 5 companies.NA: Not Available

Source: Report of the working group on fertilizer industry, 2012.

The Union Budget 2012-13 has been a positive one for the Indian Fertilizer Sector. While there

still continues to be no clarity on the urea de-regulation front, it was comforting to see certain

measures undertaken by the govt. to spur growth in the sector. It is commendable to note that the

growth for the fertilizer sector would not only come by way of direct infusion but the impetus

given on agricultural reforms would also indirectly impact the sector for good.

With a view to encourage investment in the sector and consequently fuel growth, a proposal was

included in the budget by the finance minister which aimed to fully exempt fertilizer plants which

import equipments for initial setup or expansions from customs duty of 5 per cent for a period of 3

years i.e. up to 31st March 2015. There is also a proposal to reduce basic customs duty on water

soluble fertilizers and liquid fertilizers, other than urea, from 7.5 per cent to 5 per cent and from 5

per cent to 2.5 per cent. There had also been a proposal to provide investment linked capex

incurred by fertilizer companies at an enhanced rate of 150 per cent as against 100 per cent.

It was also proposed to lower the rate of tax on interest payments arising out of external

commercial borrowings from 20 per cent at present to 5 per cent for a period of 3 years in order to

provide low cost of funds to the fertilizer sector along with some other distressed sectors.

The Finance Minister has clearly shown his intention to encourage the use of potassium and

phosphate fertilizers like single supper phosphate (SSP) through a wider extension network as this

fertilizer which is completely manufactured domestically will help reduce dependence on imports.

This development is a positive one for Liberty Phosphate as the company is one of the largest

manufacturers in the country.

The agricultural reforms that FM has proposed to move will also lead to an indirect demand

upswing for fertilizers. Ranging from the enormous Rs 202 billion allocated towards farm outlay in

FY13 to the interest rate subvention provided to farmers who pay loans on time to raising the farm

credit limit and finally the boost to Green revolution, all these will positively impact the fertilizer

sector in times ahead.

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In view to speed up the mechanism to set up a route to directly transfer subsidies to end users the

Finance Minister has announced the set up of a mobile based Fertilizer Management System

(FMS). This system would help provide end-to-end information on the movement of fertilizers and

subsidies, from the manufacturer to the retail level. With plans to roll out this system on a nation-

wide basis in CY2012 the direct transfer of subsidy to the retailer, and eventually to the farmer will

be implemented in subsequent phases. According to the Finance Minister, this step will benefit 12

crore farmer families, while reducing expenditure on subsidies by curtailing misuse of fertilizers.

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A PROFILE- MANGALORE CHEMICALS AND FERTILIZERS LTD.

Mangalore Chemicals and Fertilizers Limited (MCF), with a turnover of over Rs. 2,081.73 Crore

(FY 2009-2010), is the only manufacturer of chemical fertilizers in the state of Karnataka. Thefactory is strategically located at Panambur, 9 km north of Mangalore City, on the banks of the

Gurpur River, in front of the New Mangalore Port. The plant is well connected, both by rail and

road. The West Coast National Highway (NH-l7) from Kochi to Mumbai separates MCF from the

New Mangalore Port. The Company is a part of the UB Group with Group shareholding of

30.44%. Dr. Vijay Mallya is Chairman of the Board of Directors. The operations are managed by a

team of highly dedicated and experienced professionals. The New Mangalore Port is an all-weather

port capable of handling ships up to 30 feet draft. Naphtha, Fuel Oil, Ammonia and Phosphoric

Acid - the main raw material are obtained through the port. The plant site is well linked, both by

rail and road.

The Company has capacity to manufacture 2,17,800 MT Ammonia (intermediate product),

3,79,500 MT Urea, 2,55,500 MT Phosphatic Fertilizers (DAP & NP 20:20:00:13), 15,330 MT

Ammonium Bi-Carbonate (ABC) and 33,000 MT Sulphuric Acid (SAP) annually. . The design and

engineering of the Ammonia/Urea plants was done by Humphreys & Glasgow Limited, London, a

leading international firm in the fertilizer field and their associates, Humphreys & Glasgow

Consultants Pvt. Ltd., Bombay. (The firm is now merged with Jacobs Engineering, USA). The

Phosphatic plant is designed and engineered by Toyo Engineering Corporation, Japan. PDIL and

Furnace Fabric the Indian firms were involved in the construction of ABC and SAP respectively.

The construction work started with the first pile driven on October 15, 1972 by the then Chief

Minister, Sri D. Devaraj.

1976 Ammonia & Urea production commenced

1982 60 tons per hour auxiliary boiler installed

Ammonium Bi-carbonate plant commissioned

1984 Purge gas recovery unit installed

1985 Captive power plant commissioned

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1986 Di-ammonium phosphate plant went on stream

1993 2.5 Million Gallons reservoir constructed

1999 Marketing of Granulated Fertilizers

2002 Installation of Pipe Reactor.

20:20:0 & 16:20:0 complexes produced

Marketing of micro nutrient - Zinc Sulphate

2003 SAP R/3, integrated software system, OPERATION MITE, implemented.

MCF receives ISO 14001 Certification

2005 Receives OHSAS certification

2006 Installation of 100 TPD Sulphuric Acid plant

2008 Installation of Imported Fertilizers Handling Unit

ORGANIZATION STRUCTURE

Figure 3.1

BOARD OF DIRECTORS

Chairman

Dr. Vijay Mallya

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U B Group Managing Director Independent Director

Director (Works)

Nominee Deepak Anand

K. Prabhakar Rao

S. R. Gupte

Shrikant G Ruparel Pratap Narayan N. Sunder Rajan

B. S. Patil

Figure 3.2

MANAGEMENT COMMITTEE STRUCTURE

Managing Director

Director Senior Vice President Senior Vice President Senior Vice President

(Works) (Finance) (HR & Legal & (Marketing)

Company Secretary

Figure 3.3

FINANCE DEPARTMENT STRUCTURE

Senior Vice President

(Finance)

General Manager Senior Manager (Finance)

Head Office

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Senior Manager Deputy

(Payroll) General Manager

Finance

Manager Finance

Deputy Manager

Finance

Executive Finance

Officer Finance

Figure 3.4

HR DEPARTMENT STRUCTURE


(HR & Legal &Company Secretary)

Deputy Senior General Assistant Senior

General Manager Manager Manager Company

Manager(HR) (Systems) (Legal) (HR) Secretary

Head Office

Deputy General Manager Manager Manager

Manager HR Training Recruitment

(Admin & Public

Relations)

Executive Officer Officer

HR HR HR

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Deputy Executive Officer

Manager Admin Admin

Figure 3.5

MARKETING DEPARTMENT STRUCTURE


Marketing

General General Deputy Manager

Manager General Manager

Marketing Sales Business

Coordination

Manager

R & D

Senior Manager

(Marketing

Information Executive

System) R & D

Deputy Deputy Deputy Deputy

General Manager General Manager General Manager General Manager

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Marketing Zone Marketing Zone Marketing Zone Marketing Zone

Hassan Coimbatore Hubli Raichur

Area Marketing Area Marketing Area Marketing Area MarketingManager Manager Manager Manager

Deputy Manager Deputy Manager Deputy Manager Deputy Manager

Marketing Marketing Marketing Marketing

Marketing Marketing Marketing Marketing

Executive Executive Executive Executive

Figure 3.6

PRODUCTION DEPARTMENT

General Manager

(Production)

Senior Manager Senior Manager Senior Manager

(DAP) (UREA) (AMMONIA)

Department Department Department

Manager Manager Manager

Engineers Engineers Engineers

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Operators Operators Operators

PRODUCTS

Mangala Urea

Product Description

Urea is a Synthetic organic compound containing 46% Nitrogen in Amide form.

Available in the form of white solid prills free flowing for easy application.

Being Hygroscopic, urea is packed in moisture proof High Density Poly Ethylene bags.

Details

Features & Benefits

Less acidifying than many other nitrogenous fertilizers. Hence most suited for high pH

soils.

High concentration of nutrients makes packing, storage and transport cost cheaper.

Packing

Packing - 50 kg HDPE Bag

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Mangala DAP

Product Description

DAP contains the second most important primary nutrient element, Phosphorous besides

Nitrogen,

Single most important source of nutrient Phosphorous.

Available in free flowing granular form.

For differentiation with other low analysis compound fertilizers, DAP granules are

coloured with black.

Granules are stronger, harder and of uniform size.

Details

Features & Benefits

It is completely soluble in Water

It has good storage properties.

Total water soluble P2O5 helps plants to utilise moisture better and makes roots grow

stronger and deeper even in acidic soils

Being non- hygroscopic, DAP can be conveniently stored well even in high rainfall areas

High concentration of nutrients makes packing, storage and transport costs per unit cost of

nutrient very low.

Nitrogen being present in an easily absorbed Ammoniacal form, loss due to leaching is

minimum.

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Packing


Ammonium Bi Carbonate

Product Description

Food grade product with 99.8 % purity on dry weight basis.

White crystalline product.

Being very hygroscopic, it is packed in air tight, laminated HDPE bags.

Application

Ammonium Bicarbonate is used in:

- Ingredient for fire extinguishers

- Dyes and pigments

- De-greasing of textiles

- Blowing-agent for rubber foam products

- Cooling baths

- Ceramic industry and light weight brick production

- Catalyst manufacture

- Smelling salt mixed with oil of lavender

- Pharmaceutical industry

- Florescent powder

- As a fertilizer

- Chrome leather tanning :

Leather treated with ABC yields

- Fullness & tightness

- Smoother grain characteristics

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- Higher chromium uptake leading to pollution reduction in chrome tanning

- Better chromium distribution

- Better colour absorption

Packing

Packing - 25 kg HDPE packing

Mangala 20:20:00:13

Product Description

Contains 20% Nitrogen & 20% P2O5

Contains 13 % Sulphur, a Major Secondary plant nutrient.

Granules are uniform and light grey in colour

Details

Features & Benefits

It has good storage properties.

Least hygroscopic and does not readily absorb moisture from the air. It can be kept

indefinitely without quality deterioration

Due to high water solubility, has a greater mobility in the soil.

Being non- hygroscopic, can be conveniently stored well even in high rainfall areas

Packing


Sulphuric Acid

Product Description

Colorless, nonflammable liquid.

Sulphuric acid (H2SO4) monohydrate is very hygroscopic.

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Details

Features & Benefits

Sulphuric acid is the strong mineral acid.

It is soluble in water at all concentrations.

Sulfuric acid has many applications and is one of the exhaustively used chemicals in

chemical industry.

Application

Used as an intermediate for manufacturing of phosphatic fertilizer.

Used in lead-acid batteries.

ChemCF NL - Sulphonated Naphthalene Formaldehyde Liquid

Product Description

ChemCF NL is an aqueous solution of Sulphonated Naphthalene Formaldehyde, Sodium

salt polymer.

This is an excellent dispersing agent.

It is a powerful water reducing element in Concrete Admixtures.

Engineered & designed to offer wider tolerances in formations of admixture

manufacturing.

Compatible with most of the additives used in admixture formulations which helps in

producing versatile applications.

ChemCF NP - Sulphonated Naphthalene Formaldehyde Powder

Product Description

ChemCF NP is a Sulphonated Naphthalene Formaldehyde (SNF) poly - Condensate

product.

It is a powerful water reducing agent used for concrete and cement grouts.

This is an excellent dispersing agent.

Designed to offer wider tolerances in formulations for concrete admixture manufacturers.

It is compatible with most of the additives used in admixture formulations.

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It helps in producing concrete with various unique properties.

Solid (%): Minimum 93.0

Bulk Density (g/mL) : 0.60 0.80

Sulphate content (%) : Maximum 10

Packing

Packing Supplied in customized pack sizes of 25 kg and 40 kg HDPE bags

Mangala MOP

Product Description

Contains 60% Potash (K).

By far the most widely used K fertilizer.

Available in white and reddish crystalline form.

SpecialtyFertilizers

Specialty fertilizers are high analysis totally water soluble fertilizers. These are available in mono,

double and multi nutrient combinations. They are available in liquid and crystalline forms and can

be applied to plants through soil application (broadcasting), fertigation or foliar application to

maximize fertilizer use efficiency and crop productivity, minimize production cost and to improve

quality of crop and its produce.

Mangala Bio20

Product Description

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Mangala Bio 20 is a highly concentrated emulsion containing macro and chelated micro

elements suitable for foliar spray and fertigation.

It helps in better availability of essential nutrients to plants.

It contains an organic material derived from a single seaweed variety which has proven

beneficial effects on plants by stimulating metabolic activities in the plant system.

Mangala 3X

Product Description

Mangala 3X is a highly concentrated emulsion containing macro and chelated micro

elements suitable for foliar spray and fertigation.

It helps in supply of essential nutrients to plants.

Packing

50mL sachet, 250, 500, 1000 & 5000 mL HDPE containers

Mangala Calmax

Product Description

Mangala Calmax is a fully water soluble fluid emulsion product containing high level of

calcium and balanced range of micro nutrients.

Mangala Calmax is specifically formulated for use as a foliar fertilizer.

It can be applied to all fruit and vegetable crops to improve fruit firmness, storability,

colour, and skin finish.

Mangala Sulphomex

Product Description

Mangala Sulphomex is a clear solution containing water soluble sulphur and nitrogen.

Crops will respond immediately to application of Mangala Sulphomex.

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The nutrients will be rapidly absorbed and quickly utilized by the plant.

Fertigation Products

This comprehensive range of powder formulations is manufactured only from technicalgrade raw material and blended to exacting quality standards. These ranges of products may be

used in all fertigation systems to provide a balanced nutrient programme containing NPK,

magnesium and essential microelements. With suitable dilution, the stock solution can be used in

drip irrigation system or foliar spray. The products are fully water soluble.

Product Range

Mangala 18-18-18+2Mgo+TE

Product Description

18:18:18 has immediate beneficial effect on plant growth.

18:18:18 has better nutrient use efficiency, and maintaining soil fertility.

18:18:18 provides a balanced nutrition to crops.

Mangala 19-19-19Product Description

19:19:19 application stimulates with immediate effect plant growth and development.

19:19:19 has high nutrient use efficiency.

19:19:19 provides a balanced nutrient containing NPK

Oil Conditioners

In the changing agriculture scenario, where the fertile and productive land area is shrinking due to

unscientific and surfeit use of chemicals and fertilizers, there is an urgency to correct the soil

condition to suit for modern agriculture. Soil conditioners are termed as materials which when

added to the soil help in improving or maintaining its physical conditions with improved physical

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and chemical health of soil that resultantly improve biological health. In the Integrated Nutrient

Management approach, soil conditioners are integral part of the agronomic package.

For precise application, soil conditioners are formulated specifically to tackle different problematic

soils.

Product Range

Mangala Setright for Alkaline Soils

Product Description

Mangala Setright for Alkaline Soils brings down the pH of alkaline soils and neutralizes

the adverse properties. It improves physical and chemical health of the soil.

Mangala Setright for Acidic Soils

Product Description

Mangala Setright for Acidic Soils brings increases the pH of acidic soils and neutralizes the

toxicities.

It improves physical and chemical health of the soil.

Organic Products

The productivity of Indian soils has drastically come down. This has necessitated increasing the

productivity per unit area per unit time. This is becoming difficult as the soil health has

deteriorated alarmingly. One of the main reasons of this is the ever reducing soil organic matter

content. Improving the soil organic carbon content by application of suitable organic matter andmanures is the only option. For realising the benefit of application of organic matter, the product

should be well decomposed and of good quality. Moreover, if the product can offer more benefits

to the farmer than a mere organic manurial value, it is then the farmer realised more value for

money. Considering this, MCF Limited has offered high quality organic products.

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The certificates were awarded by DET NORSKE VERITAS (DNV), the Netherlands, a global

certifying agency

FAI Environmental Protection Award in NP/NPK Fertilizer Plants for the year 2009-2010.

Fertilizer Association of India (FAI) Awards 2011

Joint Runner up - Best Production Performance Award for a Nitrogenous Fertilizer Plant.

Winner - Environment Protection Award for a NP/ NPK Complex Fertilizer Plant Excluding

Captive Acids.

Runner up - Best Technical Innovation Award in Fertilizer Industry

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SWOT ANALYSIS

Strengths

The plant is well situated, i.e. it is well connected by the port railway and also the national

highway

Captive power plant advantage indigenous power generation in firm itself, thus providing

uninterrupted power supply.

Weakness

Smallest fertilizer plant. Gap between more experienced employees and less experienced are more.

Opportunities

Micronutrient and fertigation products are sold largely.

Threats

Uncertainty of weather and rain fall, i.e. the sale of products depend on the weather conditions

required for the growth of crops

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Chapter 4

Data Analysis and Interpretation

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Table 4.1

Current Ratio

Current ratio = Current Assets

Current Liabilities

Year 2007 2008 2009 2010 2011

CurrentAssets(in Rs.

Crores)

533.83 762.25 791.90 507.76 593.92

CurrentLiabilities(in

Rs. Crores)

265.46 334.09 341.68 365.31 311.40

Current Ratio 2.01 2.28 2.31 1.38 1.91

Source: Secondary data

Chart 4.1

Current Ratio


Interpretation:

The current ratio is mainly used to give an idea of the companys ability to pay back its

short- term liabilities (debt and payables) with its short-term assets (cash, inventory, receivables).

The higher the current ratio, the more capable the company is of paying its obligations.

Conventionally 2:1 is considered satisfactory. From the above table and graph it can be observed

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that in the years 2007, 2008 and 2009 the firm has managed to maintain a satisfactory level thus

showing a good payback ability whereas in the last two years it is somewhat lower than the

conventional one showing a lower payback ability. The firm should see to it that it maintains a

satisfactory level of current ratio by keeping a balance between liabilities and assets.

Table 4.2

Quick Ratio

Quick Ratio = Liquid Assets

Liquid Liabilities

2007 2008 2009 2010 2011

LiquidAssets(in Rs.

Crores)

391.87 591.57 620.33 345.89 418.64

LiquidLiabilities(in

Rs. Crores)

265.46 334.09 341.68 365.31 311.40

Quick Ratio 1.47 1.77 1.81 0.94 1.34


Chart 4.2

Quick Ratio


Interpretation:

The quick ratio is a rigorous measure of a firms ability to service short-term liabilities. The

usefulness of the ratio lies in the fact that it is widely accepted as the best available test of the

liquidity position of a firm. Generally an acid-test ratio of 1:1 is considered satisfactory as a firm

can easily meet all current claims. From the above table and graph it is seen that the in all the years

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except 2010 the firm has got a quick ratio of 1.47, 1.77, 1.81, and 1.34, more than the conventional

one showing that the firm has sufficient liquidity whereas the year 2010 exhibits a lower ratio of

0.94, which is lower than the standard thus showing lower liquidity of the firm.

Table 4.3

Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio = Net Sales

Fixed Assets

Year 2007 2008 2009 2010 2011

Net Sales(in Rs.Crores)

1371.05 1655.94 2469.62 2075.64 2520.11

Fixed Assets(in

Rs. Crores)

307.43 324.60 336.51 385.27 391.53

Fixed AssetsTurnover Ratio

4.46 5.10 7.34 5.39 6.43


Chart 4.3

Fixed Assets Turnover Ratio


Interpretation:

A High fixed asset turnover ratio indicates the capability of the firm to earn maximum sales

with the minimum investing in fixed assets. From the above table and graph it can be seen that the

year 2009 had the greatest fixed asset turnover ratio of 7.34, over the study period. This indicates

higher sales for year 2009. Fixed asset turnover ratio is the ratio of net sales upon fixed assets. In

2011, the ratio is 5.39, which is found to be comparable to the ratio 5.10 of 2009. This also may be

an indicator of good sales. However, in all other years in the study period, the Fixed Asset

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previous year, all other years have ratios of 2.57, 3.12, 4.09, 4.24 which show a consistent growth

which exhibits a growing financial state of the company. The company should maintain the pace

which would represent a greater conversion rate of current assets.

Table 4.5

Working Capital Turnover Ratio

Working Capital Turnover Ratio = Net SalesWorking Capital

Source: secondary dataChart 4.5

Working Capital Turnover Ratio


Interpretation:

The term working capital is a measure of both a company's efficiency and its short-term

financial health. In a general sense, the higher the working capital turnover, the better because it means

that the company is generating a lot of sales compared to the money it uses to fund the sales. The above

table and chart shows a fluctuating working capital turnover ratio. In the second year the ratio

decreased to 106.35, as compared to the first year where it was 211.25, and finally it again started

increasing. This indicates a positive trend in generation of sales. The ratio is in a sense comparison of

return as compared to expense incurred for sales and hence the years 2008 and 2010 presents less

return with ratios of 106.35 and 73.60, 2009 witnessed a hike to 148.46 as compared to the consecutive

years. Years 2007 and 2011 exhibits larger ratios of 211.25 and 192.81 as compared to other three

46

Year 2007 2008 2009 2010 2011

Net sales(in Rs. Crores) 1371.05 1655.94 2469.62 2075.64 2520.11

Working Capital(in Rs.Crores)

6.49 15.57 16.59 28.20 13.07

Working Capital

Turnover Ratio

211.25 106.35 148.86 73.60 192.81


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years which is an indicator of greater returns in those years. The company has to take care that they

exhibit high ratios by way of increased sales which would mean efficient management of working

capital.

Table 4.6

Debt-Equity Ratio

Debt-Equity Ratio = Long-term debt

Shareholders equity

Year 2007 2008 2009 2010 2011

Long-term debt(in Rs.

Crores)

575.85 752.81 785.99 527.77 674.04

Shareholdersequity(in Rs. Crores)

347.42 372.8 389.2 429.61 485.1

Debt-equity ratio 1.66 2.02 2.02 1.23 1.39Source: secondary data

Chart 4.6

Debt-Equity Ratio


Interpretation:

The debt-equity ratio is an important tool of financial analysis to appraise the financial

structure of a firm. The ratio reflects the relative contribution of creditors and owners of business

in its financing. A high ratio shows a large share of financing by the creditors of the firm; a low

ratio implies a smaller claim of creditors. Year 2007 shows a ratio of 1.66, and the years 2010 and

2011 shows a ratio 1.23 and 1.39 respectively. The years 2008 and 2009 had a ratio of 2.02 each.

As a whole the values are not too high. The ratio being an indicator of creditors contribution in the

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financing of the company, the years 2007, 2010, 2011 can be told to have been less risky for

creditors as compared with other two years. The company has to maintain a low level of debt-

equity ratio constantly so that creditors have a sense of security.

Table 4.7

Gross Profit Ratio

Gross Profit Ratio = Gross Profit X 100Net sales

Year 2007 2008 2009 2010 2011

Gross Profit(in Rs.

Crores)

41.97 58.34 43.26 84.53 112.04

Net Sales(in Rs.

Crores)

1371.05 1655.94 2469.62 2075.64 2520.11

Gross Profit Ratio 3.06 3.52 1.75 4.07 4.44Source: secondary data

Chart 4.7

Gross Profit Ratio


Interpretation:

This ratio indicates the relation between production cost and sales and the efficiency withwhich goods are produced or purchased. A high ratio of gross profit to sales is a sign of good

management as it implies that the cost of production of the firm is relatively low. From the above

table and chart it can be observed that the year 2009 has got the lowest gross profit ratio of 1.75 as

compared to other years and this could be an indicator of high production cost as compared to

other years. Except for the year 2009 the ratio shows an increasing trend with 2007, 2008, 2010,

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2011 having ratios of 3.06, 3.52, 4.07 and 4.44 respectively, which indicates increased efficiency

of production and lower production costs which has lead the company to earn more profits. The

company has to maintain the trend so as to keep its production cost low creating more profits.

Table 4.8

Net Profit Ratio

Net Profit Ratio = Net Profit after Tax X 100

Net Sales

Year 2007 2008 2009 2010 2011

Net Profit(in

Rs. Crores)

27.46 40.46 28.17 56.49 77.54

Net Sales(in

Rs. Crores)

1371.05 1655.94 2469.62 2075.64 2520.11

Net Profit

Ratio

2.00 2.44 1.14 2.72 3.08


Chart 4.8

Net Profit Ratio


Interpretation:

From the above table and chart it is seen that the ratios show an increasing trend where the

ratio of 2009 being at 1.14 alone forms an exception. 2009 was the year when recession took place.

This could be a reason for a low net profit ratio during that particular year. Considering all other

years the ratio is seen to increase showing an increasing profitability of the firm which is an

indicator of increasing financial health of the company. The company should concentrate on

maintaining the same level.

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Table 4.9Operating Net Profit Ratio

Operating Net Profit Ratio = Operating Net Profit X 100Net Sales

Year 2007 2008 2009 2010 2011

Net Sales(in

Rs. Crores)

1371.05 1655.94 2469.62 2075.64 2520.11

Operating Net

Profit(in Rs.

Crores)

68.06 93.18 190.62 95.69 148.20

Operating NetProfit Ratio

4.96 5.63 7.72 4.61 5.88


Chart 4.9

Operating Net Profit Ratio


Interpretation:

The ratio is indicative of the managements ability to leave a margin of reasonable

compensation to the owners for providing their capital at risk. From the above chart and table it

can be seen that operating net profit ratio is highest in the year 2009 being at 7.72, as compared

with other years. The other years also are seen to exhibit ratios which are not too low with values

4.96, 5.63, 4.61, and 5.88 for the years 2007, 2008, 2010 and 2011 respectively. Thus it can be

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concluded that owners had been provided with not bad a compensation for risking their capital.

The company needs to sustain high net profit ratio as the owners are to be provided good returns

on their investments.

Table 4.10Return on asset

Return on Assets = net profit after tax X 100Asset

Year 2007 2008 2009 2010 2011

NPAT(in Rs.Crores)

74.03 115.58 112.24 132.92 178.68

Assets(in Rs.

Crores)

694.4 871.36 904.54 646.32 792.59

ROA 10.66 13.26 12.41 20.56 22.54Source: Secondary data

Chart 4.10

Return on asset


Interpretation:

The ROA measures the profitability of the total funds/investments of a firm. Hence, thehigher the ratio, more the profitability. The above table and graph shows that after the year 2009 the

ratios had been increasing. The year 2007 had a lower ratio as compared to other years, in 2008 it

increased, 2009 again witnessed a decrease and there after it continuously increased. This shows that

the profitability of the firm is in a stage of growth. Thus it could be concluded that the firms business

performance is in a path of continuous growth.

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Table 4.11Return on capital employed

Return on Capital Employed = EBIT X 100Capital Employed

Year 2007 2008 2009 2010 2011

EBIT(in Rs.

Crores)

27.46 40.46 28.17 56.49 77.54

Capital

employed(in Rs.

Crores)

575.85 752.81 785.99 527.77 674.04

ROCE 4.76 5.37 3.58 10.70 11.50

Source: secondary data

Chart 4.11

Return on capital employed


Interpretation:A measure of the return that a company is realizing from its capital employed. The ratio can also be

seen as representing the efficiency with which capital is being utilized to generate revenue. It is

commonly used as a measure for comparing the performance between businesses and for assessing

whether a business generates enough returns to pay for its cost of capital. The higher the ratio, the

better will be the profitability of the company. The above table and chart clearly shows that the years

2007, 2008 and 2009 had lower ratios of 4.76, 5.37 and 3.58 respectively as compared to 2010 and

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2011 having ratios 10.70 and 11.50 respectively. After the year 2009 the return on capital

employed is seen to have a steep increase. This shows that the return the company is realizing from

its capital employed has been increasing through all the years. The company should take care that it

maintains the growth level so that its profitability increases.

Table 4.12

Return on Equity

Return on Equity = net profit after taxes X 100

Shareholders equity

Year 2007 2008 2009 2010 2011

NPAT(in Rs. Crores) 40.88 28.17 56.49 76.64 68.50

Shareholders

equity(in Rs. Crores)

347.42 372.8 389.2 429.61 485.1

ROE 11.77 7.56 14.51 17.84 14.12Source: secondary data

Chart 4.12

Return on Equity


Interpretation:

This ratio indicates the productivity of the owned funds employed in the firm. From the

above table and chart it can be observed that the year 2008 has got the lowest ratio among all other

years, 2010 has got the highest ratio. It can be concluded that the company is not so efficient at

productive utilization of owners funds employed as the ratios does not show much progress. The

company has to increase its earnings by way of sales or by decreasing the production costs so that

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they have a good return on equity ratio. Increased return on equity ratios would mean higher

productivity of owned funds.

Table 4.13

Dividend payout ratio

Dividend payout ratio = total dividend to equity holders X 100

Total net profit belonging to equity holders

2007 2008 2009 2010 2011

Dividend to

equity

holders(in Rs.Crores)

7.11 7.11 8.30 11.85 14.22

Net profit toequity

holders(in Rs.

Crores)

40.88 28.17 56.49 76.64 68.50

D/P ratio 17.39 25.24 14.69 15.46 20.76


Chart 4.13

Dividend payout ratio


Interpretation:

This ratio indicates the policy of management to pay cash dividend. A higher ratio indicates that

the organization is following the liberal dividend policy regarding the dividend while a lower ratio

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indicates a conservative approach of the management towards the dividend. The graph shows that

the company has been maintaining a high dividend payout ratio and the years 2008 and 2011 have

higher ratios than other years. The ratio had increased in the year 2008 which again decreased during

the next year. The years that followed witnessed a growth in the ratio which is a comfort for the

shareholders and indicates liberal dividend policy of the company.

Table 4.14

Inventory Turnover ratio

Inventory turnover ratio = cost of goods soldAverage inventory

2007 2008 2009 2010 2011

Cost of goods

sold(in Rs. Crores)

1329.08 1597.6 2426.36 1991.11 2408.07

Avg inventory(inRs. Crores)

141.96 170.68 170.77 161.87 175.28

Inventory turnover

ratio

9.36 9.36 14.21 12.30 13.74


Chart 4.14

Inventory Turnover ratio

Source: Secondary dataInterpretation:

Inventory turnover ratio measure how quickly inventory is sold. It is a test of

efficient inventory management. To judge whether the ratio of a firm is satisfactory or

not, higher ratio shows efficient use of inventory. As seen from the graph highest ratio

has been in the year 2009 showing that that year had evidenced efficient use of

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inventory and even all other years have a high ratio indicating efficient use of

inventory through the years.

Chapter 5

Findings, Suggestions and Conclusions

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Findings

From the study it is seen that the firm is maintaining a satisfactory current ratio

through all the years.

All the ratios except in the year 2010 exhibits good liquidity of the firm.

The fixed asset turnover ratios for all the years are seen to be less which is presumed

to have occurred due to policies imposed by government on fertilizer industry.

The current asset turnover ratios for all the years show a consistent growth which

exhibits a growing financial state of the company.

The working capital ratios of the company show a fluctuating trend which is due to

varying sales.

The debt-equity ratios of the company show a less risky situation for the creditors as

it had been low for all the years and is a measure of creditors contribution in the financing

of the company.

The gross profit ratios of the company for all the years indicate increased efficiency

of production and lower production costs which has lead the company to earn more profits.

The study reveals that the return on asset ratios are following an increasing trend

thus leading to the conclusion that the business performance in a path of continuous growth.

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Suggestions

The firm should maintain the right balance between current assets and liabilities so

that its ability to payback its short-term liabilities is not badly affected.

High fixed asset turnover ratios of a company are indicators of maximum sales with

minimum investment in fixed assets. Since it is observed from the study that the company

has got lower fixed asset ratios, it is advisable on part of the company to maintain high sales

keeping in mind the subsidy provisions.

As observed from the study the debt-equity ratios are low which means less risk for

the creditors. The company needs to maintain a required balance between long-term debt

and shareholders equity such that the creditors have a sense of security.

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Documents

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