Second Part of Report

8/3/2019 Second Part of Report

1/15

INTRODUCTONThe 21st century has witnessed unmatchable development in industrial sector. Further

industrialization benefited the mankind in various ways many shapes but it also put the

man before insurmountable industrial hazardous.

One of the most potent dangers is pollution and global warming. Due to the sensitivity

of the matter and its horrible consequences, the world scientists were compelled to sit

together to avert this threat and to minimize the threat perception. That is why

Atmosphere environment become the talk of the town.

In this context, Sitara Chemical Industries Limited amicably decided to cap hazardous

gas emissions effects and further to take the necessary steps that are atmosphere

friendly.

Fortunately, business of chemicals opened new vistas of success and progress due to

low cost and environment friendly. Within very noticeable time, it stretched its wings

with full vigor and it is to be considered as icon of success. Due to this environment

amicable strategy of Sitar Chemical I selected it for my report

Sitar Chemical Industries Limited was incorporated in 1981 and began producing

caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The plants

capacity was gradually increased over years to current level of 545 metric tones a day.In addition, various by-productsfacilities have been added and expanded from time totime to cope with growing demand. Company entered into Textile Spinning Business

in 1995.Its specialty chemicals and export division was established in 2001 and agri

chemicals division in 2003.

Purpose of analysing financial statements

I am a student of MBA at KIMS .Prepration of this report is the requirermentof karachi university Business school and is a part of my exam

Being a students of MBA , I am also interested in the analysis of financial

statements to understand a companys financial position . It is also helpful for

me regarding my course studise.

Page 1 of 15


2/15

Scope and Limitations.

This financial analysis report will

Highlight areas of significant importance

Enable management to address and resurrect critical internal policies

Give a broader view of the financial health of the company to its existing as

well as prospective lenders to make certain credit decisions.

Sources

In the course of the preparation of this assignment, the following materials have been

referred to

Annual Report on Sitara Chemicals limited

Financial statement analysis tools by Meigs and Meigs

Counseling and guidance from worthy Mr. Imran Qureshi.

www.sitara.com.pk

www.wikipedia.org

Report organization

This Report analysis the Profitability. Growth .market share .Gross profit ratios

.Earning per share .price earning ratio of sitara chemicals

Page 2 of 15
http://www.sitara.com.pk/http://www.wikipedia.org/http://www.sitara.com.pk/http://www.wikipedia.org/


3/15

VISION

Strive to develop and employ innovativetechnological solutions to add value

to business with progressive and

proactive approach.

MISSION

Continuing growth and diversificationFor bottom line results with risks

well contained.

Page 3 of 15


4/15

COMPANY PROFILE

Sitar Chemical Industries Limited was incorporated in 1981 and began producing

caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The

plants capacity was gradually increased over years to current level of 545 metric

tones a day. In addition, various by-products facilities have been added andexpanded from time to time to cope with growing demand. Company entered into

Textile Spinning Business in 1995.Its specialty chemicals and export division was

established in 2001 and agri chemicals division in 2003.

Core business activities of the Company

Operation of Chlor-alkali plant, wherein Caustic Soda and Chlorine Gas are produced

out of common salt through electrolysis process. Caustic Soda is a basic chemical

having a broad spectrum application in various industrial processes. A number of bi-

products being manufactured are chlorine based.

Spinning units, wherein all types of yarn e.g. Combed, carded, knitting and Slub yarn

are being spun to catering domestic/export market.

Agri application Nutrients and Soil yarn conditioner.

In addition to foreign technology based products various products have been

developed by company R & D people. Such products are covered in Specialty

Chemical and Agriculture products.

Products

Caustic soda solid

Caustic soda liquid (50%)

Caustic soda liquid (33%)

Caustic soda flakes

Bleaching powder (commercial)

Sodium hypochlorite

Liquid chloric acid

Ammonium chloride

Page 4 of 15


5/15

COMPANY INFORMATIONBoard of Directors

Chairman Haji Bashir AhmedChief Executive Mr. Muhammad Adrees

Directors Mr. Javed Iqbal

Mr. Muhammad Anis

Mr. Imran Ghafoor

Mr. Haseeb Ahmed

Mrs. Rukhsana Adrees

Mr. Rashid Zahir

(Nominee Director of Saudi Pak Industrial and

Agricultural Investment Co. (Pvt.) Ltd.)

Company Secretary Mr. Mazhar Ali Khan

Chief Financial Officer Mr. Anwar-ul-Haq (ACA)

Audit Committee

Chairman Mr. Muhammad Anis

Members Haji Bashir Ahmed

Mrs. Rukhsana Adrees

Head of Internal Audit Mr. Muhammad Yameen (FCA

Auditors M/S. M.Yousuf Adil Saleem & Co

Chartered Accountants

Legal Advisor Mr. Sahibzada Muhammad Arif

Bankers Meezan Bank Limited.

National Bank of Pakistan

Allied Bank Limited

United Bank Limited

Bank Alfalah Limited

Dubai Islamic Bank Pakistan Limited

The Bank of Punjab

MCB Bank Limited

Standard Chartered BankFirst Habib Bank Modaraba

Saudi Pak Industrial and Agricultural

Investment Co. (Pvt.) Limited

Saudi Pak Commercial Bank Limited

First National Bank Modaraba

Al-Baraka Islamic Bank B.S.C. (E.C.)

Askari Commercial Bank Limited

Faysal Bank Limited

Registered Office 601-602, Business Centre, Mumtaz Hasan Road,

Karachi-74000

Factories 28/32 K.M., Faisalabad - SheikhupuraRoad,

Faisalabad.

Page 5 of 15


6/15

Industry Overview

Chemical Division:

Over all Chemical industry in Pakistan showed a growing trend and kept pace the

growth of economy in spite of potential slump in Textile Industry. Especially 3rd and

4th quarters ended with positive note though initial quarters were not financially so

significant.

We wish to express our gratitude towards Almighty Allah on successful completion of

our 22MW Power Project. Electricity generation started in April 2007 and cost

benefits are credited in these financial statements for last quarter April 2007 to June

2007.Uninterrupted supply generated by Power Plant will not only reduce cost of our

production but increase the life and efficiency of sophisticated membrane technology.

Production Operations:

All 22, during the year company have produced 137,473 metric tons of Caustic Soda

against last years production of 129,838 metric tons. Further production of specialty

chemicals also witnessed reasonable increase from last years Textile Division

production remained 9,978,032 Kgs of Yarn against 10.991.174Kgs in the last year.

During the year 080 spindles remained operational.

Financial Performance:

Company has achieved a net sales of Rs.4,374 Millions during 2007 under review

against Rs.3,812 Millions in the previous year showing an increase of 14.7% Gross

Profit earned during the year is Rs.1,084 Millions against previous years figure of

Rs.705 Millions. Net Profit before tax accounted for Rs.537 Millions against Rs.358

Millions in the previous year. Company became able to achieve this growth after

commencement of production at power plant and efficient/ economic management of

electricity from other sources. During the year total exports of the company remained

at Rs.55 Millions.

Research and Development:

Company continued its research and development activities at its exclusive R & D

department that constitutes highly professional and fully dedicated staff. During last

few years R & D department introduced various products of which a few have gainedmaturity. In 2000 company started production of Calcium Chloride as pilot project.

Information Technology:Company is determined to implement paperless environment is managing its day to

day affairs of the company. Automated indenting, store issues, all inter office

communication through LAN, systemized managerial reports regarding different

operational matters for better control at top level, departmental expenses reports,

system generated reports for filing with Government Authorities etc. has been

successfully launched.

Page 6 of 15


7/15

Human Resource Development:

Called for to train the staff. Company has nominated 39 employees to attend courses

and workshops Company always welcomed the opportunities for staff training, broading their knowledge, vision and skill and awareness about changing

technological and learning developments. For this purpose 30

workshops/courses/seminars were held during the year under review wherein

renowned consultants of Indo Pak were held at various well known institutions of

Pakistan.

Environment, Health and Safety:

Company is strongly committed to continue improvement of its environmental

management system by adaptation of appropriate pollution prevention and complying

with all relevant legislation. For this purpose company has closed the operation at old

mercury plant during the year. Company is also committed to the slogan of safety

starts from the entrance.

Business Risk and Challenges:

Textile sector, which consumes approximately 42 % caustic soda of total market, is

facing difficulties in Pakistan. Despite the fact Government and APTMA is taking

steps to overcome the problems, company has planned to evolve new avenues as is

evident from export of caustic soda during the year. Growth of other sectors like Soap

& Detergent, Chemicals, Paper & Board, Ghee & Oil and Powder Generation is

expected to mitigate shortfall, if any, in the demand in Textile Industry. Company is

also extending its product line.Errection of new unit of caustic soda may also create anenvironment of competition. But we are certain that it will not affect sale of SCIL as

demand is also on increasing trend.

Future

Outlook:Whereas currently sales of all products are on growing trend and costs are efficiently

controlled, we expect the same continued growth in coming years if all contribution

factors remained favorable

Company is considering different options for diversifying its product line.PVC and

Calcium Carbide projects are actively under consideration and techno commercial

activities are being carried out. Company has started work on erection of CalciumChloride and CPW plants which will be in operation in current year inshallah.Capacity

of Calcium Chloride will increase to 21,000 metric tons per annum from current

capacity of 5,000 metric tons per annum and product quality will meet international

standards..

Contribution to National Exchequer:

During the year, the Company contribution to the national exchequer amounted to

Rs.610 Million in respect of payments toward sales tax and income tax, this does not

include the import duties, withholding tax deducted by the company from employees,

suppliers and contractors and deposited into treasury

Page 7 of 15


8/15

SITARA CHEMICAL INDUSTRIES LIMITED

ANALYSIS OF INCOME STATEMENT

FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004

2007 2006 2005 2004

Rupees Rupees Rupees Rupees

Sales4,374,051,8

813,811,890,043

3,942,390,774

3,506,147,629

Cost of Goods Sold3,289,672,1

583,106,772,480

3,042,004,182

2,876,129,382

Gross Profit1,084,379,7

23705,117,56

3900,386,5

92630,018,24

7

Operating Expenses

Selling and Distribution Cost54,814,5

8854,522,87

363,080,4

9130,597,20

2

Administrative Expenses164,803,0

36140,981,54

4129,744,9

89111,121,55

5

Other Operating Expenses39,893,5

5723,904,31

599,571,6

9329,211,66

8

Finance cost317,624,3

73137,785,60

2129,373,6

1298,265,83

7Share of profit of associatedCompany

54,132 359,465

Profit before taxation

507,298,3

01

348,282,69

4

478,615,8

07

360,821,98

5

Other Operating Income29,617,6

049,939,00

19,089,36

09,827,30

6

Operating Income536,915,9

05358,221,69

5487,705,1

67370,649,29

1

Texation163,876,0

2091,709,03

1141,538,1

10132,025,68

6

Net profit for the year aftertaxation

373,039,885

266,512,664

346,167,057

238,623,605

Loss on disposal assets ofdiscontinued Operation

50,067,798

Net profit for the year373,039,8

85266,512,66

4296,099,2

59238,623,60

5

Earning per share 20.11 14.36 15.96 12.86

Page 8 of 15


9/15

SITARA CHEMICAL INDUSTRIES LIMITED



2007 2006 2005 2004%age of

Sale%age of

Sale%age of

Sale%age of

Sale

Sales 100.00% 100.00% 100.00% 100.00%

Cost of Goods Sold 75.21% 81.50% 77.16% 82.03%

Gross Profit 24.79% 18.50% 22.84% 17.97%

Operating Expenses

Selling and Distribution Cost 1.25% 1.43% 1.60% 0.87%

Administrative Expenses 3.77% 3.70% 3.29% 3.17%

Other Operating Expenses 0.91% 0.63% 2.53% 0.83%

Finance cost 7.26% 3.61% 3.28% 2.80%

Share of profit of associated Company 0.001% 0.009% 0.000% 0.000%

Profit before taxation 11.60% 9.14% 12.14% 10.29%

Other Operating Income 0.68% 0.26% 0.23% 0.28%

Operating Income 12.28% 9.40% 12.37% 10.57%

Texation 3.75% 2.41% 3.59% 3.77%

Net profit for the year after texation 8.53% 6.99% 8.78% 6.81%

Loss on disposal assets ofdiscontinued Operation 0.00% 0.00% 1.27% 0.00%

Net profit for the year 8.53% 6.99% 7.51% 6.81%

Page 9 of 15


10/15

Profitability

Sales

Page 10 of 15


11/15

PRICE EARNING RATIO

SHARE MARKET PRICE

Page 11 of 15


12/15



Revenue section

Dollar and percentage change

Increase or decrease 2007, 2006 2006, 2005 2005, 2004

2007 2006 2005 2004 Amount % 2006, 2005 Amount %

Net sale 4374051881 3811890043 3942390774 3506147629 56216183 14.74 Minus 43624314 12.44Net income 373039885 266512664 296099259 238623605 106527221 39.97 figure 57,475,654 24.08

By making analysis of income statements of last four years, it is seen that sale volume

of Sitara products booming year to year. That is good sign for the company and Net

income also shows an increase with the exception of year 2005, 06. In year 2007 the

inflation rate was 11% and net sale increase by 14% it shows net sale is increasingslightly more than the inflation rate therefore we can say that company is growing.

And capturing its market share.

Cost of good sold and gross profit

The cost of goods sold was 82.03% of sale in 2004 and gross profit was 17.97%, it

might be possible that company purchased raw material at higher cost, or due to high

labor cost or high factory overhead expenses. It might be possible that company needs

to make maintenance of its plant and equipment to enhance production capacity that

will lower the cost of goods. But it is good sign that company sale increased in 2005

as that of 2004 but cost of goods sold decreased from 82.03% to 77.16% from 2004 to2005 and that has a direct affect on gross profit. Gross profit is increase from 17.97%

to 22.84% from 2004 to 2005, it means that management of the company keep vigilant

eyes and well aware about the extra cost of producing one extra unit. We are blind at

that point, either company reduced the number of labor or established advance

technology to increase the production in bulk and reduce the cost of goods sold or

might be possible reduce the factory overhead cost

Operating expenses

Selling expense

Selling and distribution cost is 0.87% of sale in 2004 and it is increase to 1.60% in

2005, but it is dropped down to 1.43% in 2006 and also decreased from 1.43% to

1.25% of sale in 2007. It indicates that the company management is reducing Selling

and distribution cost while increasing its admin expenses year to year, that can lower

down the company profit.

Finance cost

Finance cost for the operation was 2.80% of sale in 2004, 3.28% in 2005, 3.61% in

2006 and almost doubled (7.26%) in 2007 that is not a good sign for the company , it

Page 12 of 15


13/15

might be possible that company is paying more interest on borrowing amount but

output generated from that finance is not satisfactory.

Net income

Net profit for the year of the company was 6.81% of Sale in 2004, 7.51% in 2005,6.99% in 2006 and 8.53% in 2007 if we analyze net profit for these years it is increase

from 6.81% to 7.51% from 2004 to 2005 it is just due to decreasing the cost of goods

sold from 2004 to 2005 and increasing the sale volume even though operating

expenses were increased and loss on disposal assets in 2005 of 1.27% of sale and it

lower down from 7.51% to 6.99% from 2005 to 2006 is due to low sale volume and

cost of goods sold increases and other effect of increase in administrative expense in

2006 that causes the decrease in net profit for the year. It is increased from 6.99% to

8.53% from 2006 to 2007. One effect for increasing profit is due to high sale volume,

low cost of goods sold low selling and distribution cost and high operating income.

Even though increase in administrative expenses and finance cost and taxation could

not put bad effect on net profit for the year as compare to previous year.

Earning per share

2007

Net income 373039885

Share of capital stock outstanding 18553399

Earning per share (373039885 /18553399) 20.11

Earning per share is most widely used of all accounting Ratios .It directly affects

The market value of companys shares .In sitara chemicals earning per shareIncreases year to year .It is good sign for company. It shows that market value of its

share is increasing.

Price Earning Ratio

2007 2006 2005 2004

Current market price per share of stock 159.25 115 114.06 85.13

Earning per share 20.11 14.36 15.93 12.86

Price earning Ratio 7.92 8.01 7.16 6.62

Price earning ratio affects the investors expectations for companys future

Performance .Trend shows that price earning Ratio is slightly increasing from year to

year .This it will be the fortune for Sitara chemical in future prospects.

CONCLUSION.

Page 13 of 15


14/15

o By the financial analysis of the income statement of Sitara chemicals limited .It

is clear that companys financial position is much healthier in comparison to

the prior year income statement so when I analysis the revenue section i reach

on this conclusion that companys sale volume increase more than the inflation

rate which is 11% while sale increase by 14% .Therefore company is growing

o Companys operating expense i-e administrative expense and finance cost is

increases from year to year .It indicate that management is not using the

resources efficiently

o Earning per share shows the market value of companys share. Sitaras earning

per share increases from previous 4 years

o Price earning Ratio is also good .Which is showing the companys position is

better.

o Finally it is obvious that companys over all financial position is very good .Its

sale is increasing day by day that exactly effect the net income but companys

must make the strong strategy to overcome on the operating costs.

RECOMMENDATIONS

o Company should focus to control on the administrative expenses,

o Finance cost is also need to make the policy to overcome on it.

o Proper control on selling expenses will improve the income.

COMPANY INFORMATIONBoard of Directors

Chairman Haji Bashir Ahmed

Page 14 of 15


15/15

Documents

Second Part of Report