Orient Papers & Industries Limited

8/14/2019 Orient Papers & Industries Limited

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Managerial AccountingAssignment: Company Analysis

Company Name- Orient Papers & Industries Limited

Submitted by: Priyanka Ojha

Roll no. : 36

Pgpbf (2009-2011)

VISSION-


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Ongoing improvement through higher productivity, increasing efficiencies, value engineering,

cost competitiveness, optimum resource utilisation and research development.

Customer focus by improving brand equity, increasing market share, value-for-money product,

channel motivation, customer delight.

Result orientation in improving shareholder value, robust financials and continuous growth

and expansion.

PHILOSOPHY-

Giving shape to customers aspiration is companys pivotal strength.

Social commitment by environment enrichment, natural resource conservation and community

upliftment. Creating human capital as strength by team work, staff motivation, employee welfare, skills

development, safety and security.

Companys value strategy is focused on continually enhancing value for customers,

stakeholders, employees and the community at large.

SHAREHOLDING PATTERN-

Share holding pattern as

on : 30/06/2009 31/03/2009 31/12/2008

Face value (in Rs.) 10.00 1.00 1.00

No. Of

Shares

%

Holding

No. Of

Shares

%

Holding

No. Of

Shares

%

Holding

Promoter's holding

Indian Promoters 70793827 36.72 70995565 36.85 70887955 36.80

Foreign Promoters - - - - 6000 -Sub total 70793827 36.72 70995565 36.85 70893955 36.81

Non promoter's holding

Institutional investors

Banks Fin. Inst. and

Insurance

19141891 9.93 19735420 10.24 21155457 10.98

FII's 2553014 1.32 2278473 1.18 2219330 1.15

Sub total 61877002 32.10 60794844 31.56 59412358 30.84

Other investors

Private Corporate Bodies 26831775 13.92 25923371 13.46 28510257 14.80NRI's/OCB's/Foreign

Others

4470456 2.32 4642320 2.41 4657926 2.42

Govt 4000 - 4000 - 4000 -

Others 710 - 710 - 710 -

Sub total 31306941 16.24 30570401 15.87 33172893 17.22

General public 28813880 14.95 30275670 15.72 29139184 15.13

Grand total 192791650 100.00 192636480 100.00 192618390 100.00


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AREAS OF OPERATIONS-

The company operates in three segments:

1. CEMENT DIVISION-

Segment status within company: Largest

Portfolio: Portland Pozzolana Cement(PPC) and Ordinary Portland Cement (OPC)

Revenue(in 1st quarter of year 2009): Rs. 21549.39 lacs

Proportion of Companys total Revenue: 62.4%

2. PAPER DIVISION-

Segment status within company: Second largest

Revenue (in 1st quarter of year 2009):Rs. 2793.42 lacs

Proportion of Companys total Revenue: 8.04%

3. ELECTRICAL CONSUMER DURABLES-

Segment status within company: Third largest

Revenue(in 1st quarter of year 2009):Rs. 10183.32 lacs

Proportion of Companys Revenue: 29.4%

MAJOR PRODUCTS & SERVICES-

The Paper segment engages in the manufacture and sale of pulp, paper, and board. The

company engages mainly in the production and distribution of products such as copy paper, uncoated

and coated paper, digital photo paper, corrugated paper, plastic paper, kraft paper, graphic design paper,

antifraud thermal security paper and other paper and packaging-related products. This segment offers

writing, printing, photocopying and tissue papers under DIAMOND TOUCH and ORIENT brands.

The Company has recently set up state-of-the-art facilities to produce a spectrum of Soft Tissue Paper

of world class quality. Orient Paper products are being regularly shipped to Africa, Middle East,

Bangladesh, Sri Lanka and Nepal.

The Cement segment offers Portland pozzolana cement under the brand BIRLA A1 and ordinary

portland cement under the brand ORIENT GOLD primarily in Andhra Pradesh, Maharashtra, and

Gujarat, India.

The Electrical Consumer Durables segment manufactures and sells electric fans, including ceiling fans,

desk fans, wall-mounted fans, pedestal fans, exhaust fans, and multi-utility fans under the ORIENT

PSPO brands, as well as offers components and accessories. The Knowhow and Services segment

renders technical knowhow and servicesto companies in Nigeria, Egypt, and Sultanate of Oman.

ECONOMIC ANALYSIS: State of Indian Economy


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The Indian economy, the fifth largest economy in the world after the United States, China and Japan and among

the fastest growing large economies in the world, accounts for approx. 4 per cent of the world's GDP.Indias

GDP grew at 9.2% in 2007-2008.However this growth rate is expected to decrease to less than 7 % in 2008-09.

The effects of the global economic crisis are clearly visible in the slowing growth rate of the Indian economy as

it posted a 6.1% growth rate for the first quarter of 2009.

Effects of Recession:

Due to shrinkage in demand in the markets, it is not only manufacturing industry but also the services

sector that is getting hit.

The WPI based inflation has softened to below zero level. However, prices of items of mass

consumption (food articles) show no signs of softening and have risen substantially due to supply sideconstraints.

Countrys merchandise exports and imports have fallen compared to the numbers achieved in the

previous years without any indication of quick recovery.

MAJOR ECONOMIC INDICATORS:

1. Industrial production- The industry grew by 2.7% in May 2009 as compared to the growth of 4.4% posted

in the corresponding month of the previous year. Positive growth in the consumer goods segment was seen to

come only from the consumer durables registering 2.4% growth during the month of May 2009 in contrast to

the growth of 2.8% in May, 2008.An improvement in the production of six core infrastructure industries was

witnessed in May 2009 coming mainly from cement, power and coal. The paper industry came in negativecategory in growth basically due to slackening of demand.

The following chart shows the trend of changes in cement industry in India:

2. Inflation- Slowdown in the economy and rapid decline in global commodity prices brought down the overall

inflation to below 0 levels for the first time in 35 years. However, it was found that prices of some of the items

of mass consumption were still rising.While, the average overall inflation numbers for the month of June 2009

turned negative .This has an effect on demand for products.

4. Foreign Trade-Decline in total merchandise trade continues. Performance of merchandiseexports remain

bad as it posted negative growth for straight eighth months. Exports registered a negative growth of 30% in


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May 2009 compared to an increase of 12% in the same month of previous year. Imports too were seen to

weaken, slipping by 60% in May 2009.

5. Fluctuations in Oil prices The oil prices affects the cement industry as it is one of the major factor that

affects the prices of other commodities and thus demand for cement follows accordingly.

6. Money Supply: Availabilityof money on credit will determine the demand for housing loans, thus affecting

the demand for cement. The decrease in interest rates will lead to increase in demand for Housing loans, thus

the demand for cement will increase and opens an opportunity for the sector.

7. The policies made by the government will affect the paper industry. As the educational facilities provided by

the government will lead to an increase in demand for paper.

8.Size of the population:As the size of the population increases ,the demand for consumer durables will

increase.

9.Lower taxes lead to an increase in disposable incomes of the people.These will help to boost consumer

confidence and create additional economic activities through increased consumption.

INDUSTRY ANALYSIS:

CEMENT INDUSTRY:

India is the world's second largest producer of cement after China, with cement companies adding nearly eight

million tonnes (MT) capacity in April 2009, taking the total installed capacity to 219 MT and despatch of 16.65

million tonnes during April 2009. With the boost given by the government to various infrastructure projects,

road networks and housing facilities, growth in the cement consumption is anticipated in the coming years.

Despite concerns of slowdown, led by a change in economic scenario along with excess supply pressure, the

cement industry has ended FY 2008-09 on a strong note.

Continuous technological upgrading and assimilation of latest technology has been going on in the cement

industry. Presently, 93 per cent of the total capacity in the industry is based on modern and environment-

friendly dry process technology and only 7 per cent of the capacity is based on old wet and semi-dry processtechnology. There is tremendous scope for waste heat recovery in cement plants and thereby reduction in

emission level.

Government initiatives in the infrastructure sector, coupled with the housing sector boom and urban

development, continue being the main drivers of growth for the Indian cement industry.

Increased infrastructure spending has been a key focus area over the last five years indicating good

times ahead for cement manufacturers.

The government has increased budgetary allocation for roads under National Highways Development

Project (NHDP).

Appointing a coal regulator is looked upon as a positive move as it will facilitate timely and proper

allocation of coal (a key raw material) blocks to the core sectors, cement being one of them.

FUTURE OUTLOOK:

According to a report by the ICRA Industry Monitor, the installed capacity is expected to increase to 241

MTPA by FY 2010-end. Indias cement industry is likely to record an annual growth of 10 per cent in the

coming years with higher domestic demand resulting in increased capacity utilisation. Moreover,

according to the Centre for Monitoring Indian Economy (CMIE), cement production is expected to grow


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by 8.1 per cent and demand for the same is likely to rise by a healthy 7-7.5 per cent in FY 2009-10.Fast rising

Government Expenditure on Infrastructure sector in India has resulted a higher demand of cement in the

country. In the same direction, participation of larger companies in the sector has increased.

The performance of the company as compared to the cement industry is better. Last year the company sold

24.135 lac tonnes of cement and 1.849 lac tonnes of clinker. Against this, it had achieved sales of 29.00 lac

tonnes of cement representing a growth of over 20% in sales of cement. This has been one of the highest

growth rates in the country.Cement demand in the markets where the company has a presence in general and

Andhra Pradesh in particular has been growing at substantially higher rate than the national average for thepast two years

PAPER INDUSTRY:

The paper sector has traditionally been the laggard in the commodities pack. However, the sector has seen a

sharp reversal in fortunes in the September 08 with double-digit growth in topline and positive growth in net

profit, backed by higher paper prices and buoyant demand, despite an increase on all cost fronts.Paper & paper

board consumption in India slowed down to around 6% for the year 2009 from almost 9% last year. Tissuepaper demand however maintained its double-digit growth. As part of stimulus packages, the government

reduced excise duty on writing & printing paper from 8% to 4% and on tissue paper from 14% to 10% from 8

December 2008. Excise on tissue paper was further revised from 10% to 8% w.e.f 25 February2009.

Raw material expenditure rose by 30% significantly higher than last year. This is due to an increase in cost of

inputs like pulp and wood material, besides other raw materials and chemicals, which account for 35-40 % of

thetotal cost of paper companies. Power & fuel cost has also grown by 34%, compared to de-growth in Q2

FY08. This led to decline in operating margin. But the situation will improve as the sector is likely to witness a

decline in raw material cost due easing of commodity prices. The fall in crude prices will reduce the power &

fuel bill of companies. The challenges faced by paper products industry are:1. Increase in production and distribution expenses i.e. increase in transportation cost.

2. Reduction in demand i.e. competition from other media.

These factors are likely to continue in future and will soon draw away investors, customers, and advertising

money from the paper products industry.

The performance of the company was poor as compared to the industry. Because of the other reasons like higher

cost of production, shut down of the plant for upgradation.

FUTURE:

While the going has been good for the paper sector, companies may face challenging times ahead due to the

changing macroeconomic scenario. Demand of paper has historically been linked to GDP growth. As GDP growt

is expected to moderate, it can impact growth rate of companies.

Further, sales growth of companies, which had got a boost due to firm paper prices, is likely to decline due to

correction in paper prices. But softening crude prices and lower inflation rate are expected to ease companies

operational costs. The outlook for this sector is negative for the medium to long-term.
http://economictimes.indiatimes.com/Features/Investors_Guide/Paper_sector_Outlook_negative_for_long_term_/articleshow/3838151.cmshttp://economictimes.indiatimes.com/Features/Investors_Guide/Paper_sector_Outlook_negative_for_long_term_/articleshow/3838151.cmshttp://economictimes.indiatimes.com/Features/Investors_Guide/Paper_sector_Outlook_negative_for_long_term_/articleshow/3838151.cms


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CONSUMER DURABLES:

Fan industry in India is estimated have grown by around 1% during 2008-09. While domestic market is

estimated to have grown by around 2.5%, exports were down by more than 11%.

Therefore, fan production in India continued to remain more or less at last year's level of around 28 million

fans, valued at Rs. 1,950 crores, with organised sector continuing to hold around 75% of the market. The

industry continues to be fiercely competitive where every player is vying for greater market share. As a

result, there seems to be some consolidation in favour of stronger players in the business. While the

industry witnessed reasonably good growth in demand during the first half of the year, it was faced steepincrease in cost of all major inputs like steel, copper, paints etc. On the other hand, while demand slowed

down considerably during the second half of the year, reduction in Although there is a fierce competition in

this product also, there is a huge opportunity for growth for cost efficient and quality products backed by

aggressive marketing.commodity prices helped to some extent. However, as fans are normally bought at the

finishing stages of building construction, there may be some slowdown in off-take during the next six

months because of reduced construction activities in the last six months. Indian customers are becoming

more conscious about energy conservation because of rising cost of energy. Therefore, CFL market is

continuing to grow fairly rapidly. Simultaneously, competition is also increasing as newer player enter the

market and the established ones increase their capacitiesSales in north fell due to slowdown in the progress

of infrastructure projects and construction activities. The western region was partly affected by the

lacklustre demand in export markets due to recession. Though prices increased in April, they may comeunder pressure with the onset of the monsoon.

The name Orient is a leader in this division and the company has performed well in this sector.

The company continues to be the highest exporters of fans from India by far with a share of nearly 36%

of all the fans exported by the organised fan industry of India.

Overall, the company sold 36.99 lac fans this year against 35.35 lac fans last year, thus registering a

growth of 4.6% against the national average of only around 1%.

SWOT ANALYSIS:

STRENGTHS:

1) The promoters of the company G P Birla / C K Birla Group has promoted and established a large number of

industrial undertakings manufacturing a diverse range of products such as Automobiles, Earthmoving

Equipment, Engineering Products, Ball Bearings, Building Materials, Chemical Plants and Software

Development etc. This gives company an advantage of belonging to a reputed corporate group.

2) Pan Indian , well diversified presence enables the company to capture every upturn in growth across someof the fast-growing businesses of India.

3) The cost effectiveness that have been achieved by the company has placed it as one of the lowest cost

producer of cement in India. The increased capacities as well as starting of captive power plant should give

the company further benefits of scale of operations and lower cost of production. This will enable it to

withstand any temporary reduction in realisations in the worst case scenario.

4) Orient is a trusted and preferred brand in the field of electrical fans and has a strong distribution channel.

Because of these strengths, it could sell 4.7 million CFLs in the very first year of its entry into this market.

This has further strengthened the belief that there is significant synergy and opportunity for the company to

acquire a reasonable share of the fast growing energy efficient lighting and luminaries market.


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5) Riding on the goodwill of the Orient brand, the company expect to gain strong presence in the lighting

products market, although this is likely to be a gradual increase. Lighting business is expected to grow

multi-fold based upon the distribution network developed last year.The competitive position of the company

will also improve significantly because of newly commissioned CFL production plant.

6) The company is also the countrys largest exporter of fans. But following the slowdown in export demand

during the year, the company increased its focus in the domestic (semi-urban) market. Ceiling fans account

for 77% of total demand for fans. Orient is a leading player in this segment.

WEAKNESSES:

1. The ability of the company to utilise the existing capacity is not efficient.It is not able to maintain the

assets properly.The shut down of one of the plant indicates this.

2. The company has not been able to pay the statutory dues against it payable from a long time.This could

affect its financial strength in the long run.

OPPORTUNITIES:

1. With growing emphasis on universal education and once economy starts growing faster,paperdemand should also start growing at 8-9% per year. In any case, tissue paper is already growing at

around 15%.

2. The expected emphasis on infrastructure development should ensure robust growth in demand for

cement from this sector. Demand for cement from rural areas has been growing steadily and this trend is

expected to continue, as rural economy has been the least hit by recent events. There are also some signs of

slow revival in the realty sector.

3. The company is focusing on core markets of Telengana region of Andhra Pradesh and

Marathwada, Vidharbha and Khandesh regions of Maharashtra and have established a significant presence in

these markets. Cement demand in these markets in general and Andhra Pradesh in particular has been growing

at substantially higher rate than the national average for the past two years. Based upon the assessment of the

ongoing activities in both public and private sectors, the company believes that this trend is likely to continue.

THREATS:

1. Inadequate availability and increasing cost of raw materials continues to be an area of major concern for

the paper division of the company which is already going through tough phase.

2. Internet threatens the paper products , as it has become the new market channel (such as,) for many

companies. Email marketing campaigns and online banner ads have reduced the demand for traditional print

advertising. Print advertising now includes newspaper and magazine production only. Newsletters, articles,

books are now available online and that that has reduced the use of print services. Apart from Internet, cellphones can also be used to access news, and other information, which makes the demand for paper more

uncertain.


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OPERATIONS:

The company has acquired a caustic/chlorine manufacturing facility on 1 October 2008 for

incorporating in paper division. This will help the segment to become more cost efficient.

The operations at Panafrican paper Mills (E.A.) Limited (Panpaper) came to a stand still on 30 January

2009

It happened due to certain factors like rise in international price of fuel oil (its principal source of

energy) as well as cost of grid power, manifold increase in wood royalties by the Government of Kenya and

irregular and adhoc allocation of wood by the Government. Panpaper continued to incur cash losses and ranout of cash.

The Company's cement and electricals divisions performed very well during the year and continued to

maintain their cost leadership in their segments.

The company has taken steps for expansion of cement capacity to 5 million tonnes per year. The cement

division's cost competitiveness will further go up with commissioning of new projects including captive

power plant.

The new tissue paper plant have been started in March 2009, as per schedule.

Upgradation and increase in the pulping and soda recovery capacities have also been completed in June

2009 and commercial production from these new/upgraded facilities should commence shortly.

In the electrical division, setting up of the first line for in-house production of energy saving CFLs have

been completed which the company is outsourcing and marketing from last year.This reflected a sale of 43 lacunits within the first year of launch of this product.

Cement and clinker exports were maintained at the last year's level of 6 million tonnes, although there

was some disruption during early part of the year because of the temporary ban on exports.

The company has also started the process of commissioning of the first 25-MW power plant on 10 June

2009. The second 25-MW power plant is also at final stages of completion and is expected to be operational

from September 2009. The company have so far been depending upon grid power for entire power needs at

Devapur. Upon commencement of this captive power plant, cost of power, which forms a major part of cost of

cement, will reduce significantly

STRATEGIES & IMPACT ON FINANCIALS:

There is an increase of 31% in sales of Birla A1 brand of cement only because of several innovative

steps taken by the company to position BIRLA Al as a preferred brand through aggressive promotion backed

by quality of the product, expansion of distribution channel and better servicing of the market.The company

basically focused on cost effectiveness.

In cement division the company was able to improve the net realisation per tonne over last year because

of further optimisation of product and market mix, without necessarily increasing prices.With increased

volumes and better net realisation, net sales turnover of the cement business grew by 19% to Rs. 871.75

crores from Rs. 733.20 crores last year.

The company has also started the process of commissioning of the first 25-MW power plant on 10 June

2009. The second 25-MW power plant is also at final stages of completion and is expected to be operationalfrom September 2009. The company have so far been dependent for power on Devapur plant Upon

commencement of this captive power plant, the cost of power,which forms a major part of cost of cement,

will reduce significantly.

Last year,the company reduced the power consumption per tonne of cement by almost 5 units per

tonne through various process optimisations.This makes the company as one of the lowest cost cement

producer in the country.

To improve the performance of paper segment the company is making investments for upgradation of pulp

mill and have acquired a chemical plant producing caustic/chlorine for backward integration. It has also setup

up a 43-MW thermal power plant to meet the total steam and power requirement . OPILs new tissue plant of

15,000 tonnes capacity is also set to commence production this year and may aid realisations and margins in the


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paper business. The company is striving to improve the sales further by setting up a network for selling the new

branded notebook and tissue products to institutional segments.

The company is also putting the required efforts on social and farm forestry through high-yielding

clonal plantations route. The company assisted 557 farmers to plant 7.45 lacs clonal plants and 56 lacs seed

rooted plants in a land area of over 2,570 Ha. It has approached the Madhya Pradesh Government for

permission of using identified waste lands around the plant for plantation purposes and are waiting for a

decision.

Last year, company had gone for an upgradation of the IT system and had chosen SAP as preferred

ERP. While finance, materials management, sales and distribution modules are fully operational, it will soon

start using SAP for production planning and HR. In Fan division the company is focusing on improving its market share in the relatively weaker geographical

areas in the domestic market and for this several new models to suit every requirement are being regularly

introduced. Advertisement strategies like television, print media & outdoor campaigns endorsed by the

celebrity cricketer, Mahendra Singh Dhoni, during the last couple of years has further enhanced the brand

equity of "Orient PSPO".

In view of the termination of the Panpaper mills, it has been decided by the company to write off all amounts

due by way of loans, fees and interest from Panpaper, aggregating to Rs. 48.39 crores, out of which Rs. 8.13

crores had been provided earlier.

The paper division's performance for the year was not very satisfactory initially, due to water shortage-

related long shut down and subsequently due to disturbed working of the pulp mill. The company have taken

up necessary corrective measures during the first quarter of the current financial year to ensure smoothfunctioning of the division.

UNFCCC recently approved issuance of 97707 CERs in recognition of the contributions of the company

towards reduction in carbon emissions at the cement division. An income of Rs. 7.68 crores is estimated to

be received from sale of these CERs and has been accounted for during the year under review. Total revenue

generated from the CDM project during the last three years amounts to Rs. 24.46 crores.

RISKS:

The growth in cement demand in Indian markets should be able to largely absorb the likely additional

supply from capacity expansions, cement prices are quite sensitive to any imbalance between supply and

demand. Therefore,fluctuations in cement prices cannot be ruled out and could impact profitability from

time to time.

Deteriorating quality and rising cost of coal continue to be areas of serious concern. While the approved

linkage covers 75% of companys requirement of coal for cement production, it have to buy the balance 25%

through auctions or from private parties at substantially higher prices. Therefore, landed cost of coal, which

is one of the major ingredients of cement costs, continues to be uncertain.

Adequate availability of blending material like fly ash is another area of uncertainty. In case this becomes

a general constraint, it could limit proportion of blended cement and impact both volumes and profitability.

Even though the company expect a robust growth in cement demand, cement markets may be adversely

impacted by excess availability over demand because of new capacities already added and those in the

pipeline.

While the internal efficiencies of the company will get fully restored or further improved, paper market

could come under some pressure in the short term because of reasons explained above.Caustic/chlorine

prices also keep fluctuating from time to time.

Although prices of wood and bamboo, our principal raw materials, have of late been stable at current

levels, further increases cannot be ruled out. Inadequate availability and deteriorating quality of coal

coupled with its increasing cost also continue to remain an area of concern.


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There could be a slowdown in the growth of domestic demand unless realty sector revives fully.

Demand from export markets is likely to remain subdued for some time.

Input costs have started firming up again and if this trend continues margins could drop.

ANALYSIS:

1. The Tangible assets of the company have increased from year 2005 to 2009 by

220%.Hence,company is continuously acquiring these assets for generating revenue,thus

expanding.

2. Also after 2007 the Share capital has decreased by 42%,thus implying that asset expansion could

have come from this equity.

3. The increase in long term liabilities is 80% from year 2005 to2009.This can also be an indication of

purchasing the assets by raising loans.

4. The total liabilities have increased by 135% but the owners equity is decreased.Also the percent of

Term liabilities is more as compared to owners equity. Thus,showing that creditors margin of

safety is decreased.

5. Inventories have been increased by 22% from year 2005 to 2009, this shows that company has not

been able to manage them well. Probably the reason is an increase in capacity of production.

6. As we can see that Loans and Advances have decreased from year 2005 by 90 %.This means that

they have been recovered.

7. The cash & bank balances form a less proportion of total assets and sundry debtors form a large

proportion of the assets, which is consistent over all the years. conveys that company is facing

difficulty in recovering this money.

8. The total proportion of payables in the form of loans taken is 43.89% in the year 2009.This shows

that there is a debt pressure and it can affect the financial condition of the company.

9. The investments have been increased by 63 % from 2005. Thus company taking steps to increase its

growth. This is also evident from the cash inflows from interest income and dividend income.

10. The proportion of cost of goods sold in Total sales is decreasing from year 2005 to 2009.This

shows that company is improving its cost effectiveness and marketing policy.

11. The cost of goods sold as a percent of sales is decreasing which resulted in an increase in Gross

margin as a percent of sales continuously from 2005 to2009.This gives us an indication of greater

profitability .


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12. There is an increase in selling expenses from year 2005 to 2009 by 142%.Also there is an increase

in these expenses as a percent of total sales over these years. This shows that company is making

greater and more costly efforts in selling its product.

13. The increase in sales over the years is 94% but the increase in cost of goods sold is 55%.This shows

that there is a control over these costs and thus managed efficiently.

14. The increase in sales is justified by increase in tangible assets. Thus, company is maintaining a

growth and appropriately using its assets.

15. The increase in total current assets over the years is 40 % and the increase in total current liabilitiesis 18 %. This indicates a good financial position of the company.

16. The net cash inflow from Operating Activities is increasing till 2007 then it started decreasing. This

indicates the companys capacity to generate inflows from Operations to meet the short term

obligations is decreasing.

17. There is a decrease in the cash and cash equivalents by 18% from 2005 to 2009.Thus indicating that

the financial capability of the company to meet current requirements is decreasing.

Comparision with competitors in year 2009:

1.The proportion of inventory of total assets at the end of the year 2009 in case of Grasim industries is

8.6 % and in case of Century textiles is 14.62%.But it is less than both in case of my company. Hence ,it

can be concluded that Orient Papers is well efficient in managing the inventories as compared to both

the competitors.

2.The total investments of Grasim Industries is 28.8 % as a percent of total assets but it is only 0.64%

for Orient Papers.This proportion is more than that of Century Textiles. Thus Orient Papers has invested

less as compared to Grasim Industries. Thus, showing that it is growing at lesser rate.

3.The proportion of Tangible assets in case of Orient Papers is more than that of both the

competitors.This shows that the company is more keen to acquire assets to generate revenue and thus

increase its growth rate as compared to its competitors.

4. The percentage of sundry debtors and other receivables as of total assets is more in Orient Papers as

compared to the competitors. Thus, showing that it is having a considerable amount of sales in credit as

compared to others .


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5. The difference between Gross margin and Cost of goods sold as a percent of Total sales is less in case

of Orient Papers as compared to both the competitors. This shows the better cost efficiency and

profitability in case of Orient Papers as compared to others.

6.The selling expenses as a percent of sales is less in Orient as compared to Grasim while it is only 1%

in case of Century. This implies that Orient Papers is getting problem in selling its product as compared

to others.

7.The proportion of total current assets in total assets is more in case of both the competitors is more as

compared to Orient Papers and the proportion of total current liabilities in total liabilities is less in case

of competitors .This shows the better financial position of others.

8. In case of Grasim the, net cash inflow from Operating Activities is better than Orient Papers ,thus

indicating efficient capacity to meet the short term obligations is as compared to Orient Papers. But the

reverse is true for Century.

RATIOS

LIQUIDITY RATIO 2005 2006 2007 2008 2009 Grasim Century

Current Ratio 0.58 0.57 0.79 1.04 0.68 0.91 1.07

Quick Ratio 0.39 0.40 0.57 0.74 0.49 0.50 0.64

Cash Ratio 0.04 0.04 0.05 0.09 0.07 0.24 0.05

ACTIVITY RATIO

Inventory turnover ratio 8.0 8.4 9.0 9.5 9.8 6.5 5

Days of inventory holding 45.8 43.6 40.6 38.2 37.1 56.1 79.7

Receivables turnover ratio 0.8 0.6 0.6 0.6 0.6 1.0 1.2

Average Collection period 460.1 622.2 593.9 568.0 591.3 374.9 306.7

Payables turnover ratio 2.4 2.7 2.8 1.9 2.1 0.3 0.3

average payment period 154.2 135.6 132.0 194.8 171.3 1333.1 1393.4

Working capital turnover ratio 6.2 7.7 11.3 12.8 16.4 -35.5 35.4


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Total Asset turnover ratio 2.2 2.8 3.4 3.0 2.0 1.4 1.5

Fixed Asset turnover ratio 2.2 2.8 3.4 3.0 2.0 1.4 1.5

Capital turnover ratio 4.2 6.4 3.8 2.3 1.7 0.9 1.4

LEVERAGE RATIO

Total Debt ratio 1.14 1.24 1.04 0.59 0.71 0.56 1.32

Interest coverage ratio 1.19 2.26 7.23 17.31 9.29 16.47 0.00

Debt Equity Ratio 2.38 1.09 0.61 0.14 0.35 0.29 0.90

PROFITABILITY RATIOS

Ratios based on sales

Gross Profit ratio 0.31 0.34 0.43 0.46 0.46 0.43 0.35

Operating Profit Ratio 0.08 0.11 0.21 0.25 0.21 0.22 0.49

Net Profit Ratio 0.01 0.04 0.12 0.15 0.11 0.15 0.43

Expense Ratio

cost of goods sold ratio 0.88 0.83 0.72 0.69 0.66 0.70 0.75

selling & administrative expense

ratio

0.17 0.18 0.17 0.17 0.20 0.17 0.01

Raw material consumed ratio 0.38 0.37 0.33 0.33 0.32 0.33 0.35

ratios based on assets/investments

Return on Assets 0.02 0.12 0.42 0.46 0.23 0.21 0.64

Return on capital employed 0.35 0.69 0.79 0.57 0.37 0.19 0.68

MARKET RATIO

Return on equity 0.16 11.87 15.55 7.50 4.98 0.16 0.61

Earnings per share 5.63 21.84 91.70 10.42 9.24 167.75 98.01

dividend per share 0.00 5.30 13.44 1.48 1.77 34.51 5.27

Dividend payout Ratio 0.00 0.24 0.15 0.14 0.19 0.21 0.05

Price earnings ratio 2.37 1.24 0.45 4.32 2.63 9.40 2.24

earnings yield 0.42 0.53 2.04 0.23 0.38 0.11 0.45

Dividends yield 0.00 0.01 0.33 0.03 0.07 0.02 0.02

LIQUIDITY RATIOS:

There is a discontinuous trend in current ratio but it has increased from 2005 to 2009 by 17%.This shows that

the short term financial strength has improved but in a lesser proportion. The current assets are able to pay its

current maturing debt but if the value of assets decreased then it can create problem for the company .The quick

ratio has been also increased, it is showing that the company has a better control on inventories. It has more

liquid assets to meet the liabilities. Cash ratio is not sufficient, this shows that company has not invested much

in current investment. However, if we compare these ratios with the competitors they have more liquidity as

compared to Orient Papers in the year 2009.

ACTIVITY RATIOS:


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1.As we can see that the inventory turnover ratio is increasing continuously increasing from 2005 to 2009,this

implies that the company is able to use the inventories fast. If we compare this ratio with the competitors then

this ratio is less for both of them, thus indicating that Orient Papers is managing its inventories better than the

competitors.

2.The same is justified by a decrease in days of inventory holding by 19 %.Also this number is more in case of

competitors as compared to Orient Papers thus, showing greater efficiency.

3. The receivables turnover ratio is constant for last 4 years and it is very low as compared to the competitors.

The average collection period is higher in case of Orient Papers than others. This shows that the company is

not recovering its receivables and its credit policy is not strict enough.

4. The payables turnover ratio is decreasing upto 2008 then it has increased in 2009.But this ratio is higher than

the competitors , thus showing that Orient Papers is more efficient in settling the accounts rapidly than

others.Also there is a large difference between the competitors and the company further justifying the credit

worthiness of the company.

5. The working capital turnover ratio of the company has increased from 2005 by 165 % .This shows that there

has been better utilisation of working capital and it s profitability is higher. As compared to Grasim which has

a negative working capital the company is investing lesser in working capital while the case is opposite in case

of Century.

6.The Total Asset turnover ratio and Fixed Asset turnover ratio is increasing from 2005 to2007 but it has

decreased afterwards.This shows that after2007 less sales have been generated per rupee of tangible assets.The

ratio is more in case of Orient Papers than the competitors thus, it shows that sales generation per rupee of

tangible assets is more in former and hence implies higher efficiency.

7. The Capital turnover ratio is decreasing continuously from 2005.This shows that there is a decrease in the

sales made per rupee of the capital employed. While it is higher than both the competitors, thus indicating that

less capital is being used by Orient Papers than others.

LEVERAGE RATIOS:

1. The debt equity ratio has decreased from 2005 to 2008 and then increased in 2009.This shows that the

company has now increased dependence on debt and owners are using using less money of their own. This ratio

is less than Grasim; it shows that Orient Papers is more financially strong than Grasim while it is the reverse in

case of Century.

2. The Total Debt ratio is decreasing from 2005, thus it shows that the total assets financed by total liabilities is

decreasing. This ratio is more than Grasim thus, it shows that Orient Papers is at better position than Grasim,

while it is opposite in case of Century.

3. The interest coverage ratio is increasing upto 2008 then it decreased in 2009.This shows that the ability of the

company to handle the fixed charge liabilities has decreased. This ratio is higher for Grasim than Orient Papers,

thus showing the better coverage of payment of interest to creditors.

PROFITABILITY RATIOS:

1. The gross profit ratio has increased upto 2008 ,then in 2009 it is constant. The net profit ratio has increased

upto 2008 but it decreased in 2009 may be because of increase in selling expenses. This shows that the

managements ability is decreased in 2009 to control these selling expenses.The gross profit ratio is more than

the competitors while the net profit ratio is less than them.This shows that company Orient Papers is facing

difficulty in selling its product as compared to others.


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2. The Operating Profit ratio is increasing from 2005 to 2009.This shows that the manufacturing efficiency of

the company is increasing. This is also evident from the increase in the acquisition of assets. This ratio is less in

case of Orient Papers as compared to competitors, thus showing better manufacturing efficiency of the

competitors.

3.Expense Ratio:

(a) The cost of goods sold ratio is decreasing continuously thus showing that the percentage of share of sales

consumed by cost of goods sold is decreasing. Hence, the proportion available for meeting selling expenses is

increasing.Also it is lesser than competitors for Orient Papers, this shows higher efficiency and hence greater

profitability of Orient Papers as compared to others.

(b) The selling and administrative expenses ratio is increased in 2009 and in previous years also. This implies

these expenses form a major part of sales and that company is not able to sell its product properly. Also this

ratio is more than the competitors thus showing,that the competitors have a higher efficiency in selling the

product.

(c)The raw material consumed ratio is decreasing continuously thus indicating that the percent share of raw

material consumed in sales is decreasing and company is using the raw material in an efficient way. It is also

lower than the competitors thus showing greater efficiency in using the resources.

4.Ratios based on investment:

(a)The return on assets was increasing till 2008 but it falled in 2009.This shows that the overall efficiency of

management in generating profits is decreasing as compared to the increase in the acquisition of tangible

assets.The return on assets is more for Orient Papers than Grasim thus, showing a higher profitability in 2009

for Orient Papers while the reverse is the case with Century.

(b)The return on capital employed is increasing till 2007 while it started decreasing from then onwards. This

shows that the efficiency of the company in using the long term funds of owners and creditors is

decreasing.This ratio is more for Orient Papers than Grasim hence, showing a greater profitability while this isopposite for Century.

MARKET RATIOS:

1.The return on equity is decreasing continuously from 2006.This shows that the ability of the company to

manage the shareholders fund is decreasing and the capital structure of the company is not properly

managed .But it is more than the competitors thus showing that Orient Papers is able to satisfy the shareholdersas compared to others.

2.The EPS and DPS is decreasing since 2007only DPS has increased in 2009 hence, the company is not able

to generate returns in relation to the shareholders capital. It is also lesser than competitors ,thus indicating less

profitability as compared to others.

3. The Dividend Payout Ratio is also discontinuous hence indicating that the the earnings belonging to

shareholders is not paid to them and the companys growth rate is decreasing. While it is less than Grasim thus

indicating higher profitability of Grasim, the opposite is the case with Century.


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4.The price earning ratio, earnings yield, dividend yield are decreasing after 2007 ,hence the profitability of the

company has decreased in market thus affecting the market value of the company.The position of the

competitors is better than this company.

LOOKING BEYOND THE NUMBERS (Ans 8):

The company has acquired a caustic/chlorine manufacturing facility for a total consideration of Rs 11.79

crores.This acquisition has been done through issuing non convertible preference shares.But the share capital is

decreasing in the year 2009.This implies that company is overinvesting in assets by utilising shareholders

capital but not able to satisfy them as shown in the ratios.

The requirement of coal for cement production is only 75% met by the existing facilities ,and for this the

company have to buy the balance 25% through auctions or from private parties at substantially higher

prices.This shows that company has to further raise capital either through shares or debentures because

companys cash balances are not adequate to meet these needs. The operations at one of the plant have remained

suspended since January 1999. Hence,to avail Voluntary Retirement Scheme there was a balance liability which

was Rs. 3.65 crores as on 31 March 2009 which is to be paid. According to auditors report all fixed assets have

not been verified by the management,thus there can be a discrepancy in the stock. The disclosures related to

companys interest in joint venture assets, liabilities, income, expenses are not in compliance with AS-27.There

may be some information which is not shown, which can be considerably significant. The amount of statuarydues have been increasing year on year which include dues since1996-97 till date.The depreciation rates which

company is following are higher than the Company Acts requirement. This can be an attempt to decrease the

taxable income by showing large non cash expenditure.

POINT OF VIEW OF AN INVESTOR:

The main concern of an investor who is investing in a company is that he should get a continuous returns on whatever

he has invested. The following information can be extracted from the financial statement analysis:

There is a decrease in PAT in the year 2009 from 2008.This shows that profitability of the firm is decreasing.

Thus a prospective investor will be reluctant to invest in the company.

The return on equity has reduced from 2006.This reduces the prospects of investing and also a chance of

redemption of shares.

The other ratios also shows that the profitability of the company is decreasing, hence there can be a possibility

of aversion for the company from any prospective investor.

For the existing investor it is also a matter of concern that companys management is failing to generate


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sufficient returns and this is shown by various factors like inventory not managed properly,increase in selling

expenses, difficulty in recovering receivables and increase in payables.

POINT OF VIEW OF SHORT TERM CREDITOR:

The short term lender has to understand the cash flows and has nothing to do with the Operations of the business.

If we see the liquidity ratios of the company then there is a discontinuous trend. In the year 2009 the margin in

case of current ratio is 0.68 times. Thus, if a short term lender is lending money then first the period isconsidered because there are other payable obligations also.

If we take a look at the cash ratio then it is lower over the years and since it is a better indicator of liquidity,

there is a risk of company unable to meet its currently maturing obligations.

If the value of the companys assets decreased then it could not be able to meet its current liabilities because

there is a very less margin. Hence it is better for a short term lender if it will not lend to the company.

POINT OF VIEW OF LONG TERM CREDITOR:

The long term lender is the main risk taker when he finances the projects of the company. Hence it is verynessesary for him to analyse the capital structure and profitability of the company.

The Debt-Equity ratio is 0.35 which is better if the company is able to generate returns accordingly. It is a

good ratio if the company is not increasing it further because it is lacking the ability to repay it.

The company is incapable of increasing its profitability and there are obligations for payables. Also the net

cash flow from Operating Activities has decreased from 2008 to 2009.These factors are not favourable for a

prospective long term lender.

Because of these conditions the company is also not able to raise loans. Thus further, affecting the creditworthiness of the company. This decreases the safety margin for a creditor.

ASSESING THE COMPANYS PERFORMANCE( Ans. 11):

The Contingent Liabilities of the company has increased from 12305.74 lacs in the year 2008 to 16459.32

lacs in 2009.If in case they get realised then it will be worse situation for the company. Already the

Profitability has reduced in year 2009,thus the financial position of the company is not strong.

The cash inflows from Operations has decreased from the year 2008 in 2009.Thus the ability to meet short term


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X2 = Cumulative retained earnings to total assets

X 3= Earnings before interest and taxes to total assets

X4 = market value of equity to book value of total liabilities

X5 = sales to total assets

The Z score for the company is more than 1.8 for the year 2009,so it is not at the risk of bankruptcy.

CORPORATE SOCIAL RESPONSIBILITY:

The following are some of the social benefits that the company has provided:

Provided educational opportunities through subsidised schools in Amlai and Devapur.

Expanded our social forestry programme around Amlai, benefiting a large number of farmers and land owners.

Conducted free health check-up, awareness improvement camps & distributed free medicines across nearly

1200 residents in Jhagraha,Nawalpur and Saboo.

Provided skill development and employment opportunities.

Contributed significantly to environment protection and improvement through a reduction in carbon emissions.

Set up projects to utilise waste.

The Contribution of the company in reduction in carbon emissions through CDM Projects.

The company organised a community marriage function in Shahdol district of M.P.

YEAR 2005 2006 2007 2008 2009X1 -0.34 -0.37 -0.13 0.01 -0.13

X2 0.03 0.05 0.20 0.53 0.44

X3 0.10 0.15 0.34 0.37 0.23

X4 0.03 0.07 0.09 0.98 0.33

X5 1.47 1.69 1.83 1.72 1.21

Z Score 1.46 1.87 3.11 4.31 2.63


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Provided availability of drinking water and water harvesting management .

Based on the above I give a rating of3 on 5 to the company in Corporate social responsibility

taken by the company

CORPORATE GOVERNANCE PRACTICES :

The share holding pattern of the company is easily identifiable .The shareholding pattern is divided into

promotres institutional investors and other sharedolders The name of the organisation and the person holding

shares is mentioned in the promoters category.

The size of the board ,composition,details of shares held by the Directors,the number of meetings attended by

the Directors, remuneration given to them, is mentioned clearly by the company.

The committees formed in the company are Audit committee,Management committee,Shareholders committee,

Remuneration committee.The name of the members along with qualifications and meetings attended is given

in the report.

The complaints or queries received from shareholders or debenture holders were attended in time and there are

no grievances pending.

The schedule of the General body meetings, venue and time is given.

There are no related party transaction that may have conflict with the company.

No penalties have been imposed on the company by Stock Exchange or SEBI or any statuory authority on any

matter related to capital markets .

No half yearly report is sent to each household of shareholders.

The company has disclosed the contingent liabilities and statutory dues to the Government clearly.

The Company established adequate internal control systems, which provide reasonable assurance with regard

to safeguarding Company's assets, promoting operational efficiencies and ensuring compliance with various

statutory provisions.

The internal audit department reviews internal control systems in various business processes and also verifies

compliance of the laid down policies and procedures. Reports of the internal audit department are regularly

reviewed by senior management and are also placed before and comprehensively discussed at the meetings ofthe Audit committee. The Audit Committee reviews such audit findings and suggestions and the adequacy of

internal control systems.

The Statutory Auditors of the Company regularly interact with the Audit Committee to share their findings

and the status of further improvement actions under implementation.

The Company has adopted a progressive policy of development of its human resources through

continuous training and motivating them to achieve greater efficiencies and competencies.

Based on above I believe that company has followed GOOD Corporate Governance practices.


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Documents

Orient Papers & Industries Limited