A STUDY ON CAPITAL STRUCTURE ANALYSIS FOR CARBORUNDUM UNIVERSAL LTD BY G.

ZAFFAR REG NO: 35104417

A PROJECT REPORT Submitted to the Department of

MASTER OF BUSINESS ADMINISTRATION In the FACULTY OF ENGINEERING AND TECHNOLOGY

In partial fulfillment of the requirement for the award of the degree Of MASTER OF BUSINESS ADMINISTRATION IN SRM SCHOOL OF MANAGEMENT S.R.M ENG COLLEGE S.R.M INSTITUTE OF SCIENCE AND TECHNOLOGY (Deemed University) May 2006

BONAFIDE CERTIFICATE Certified that this project report titled A STUDY ON CAPITAL STRUCTURE ANALYSIS FOR CARBORUNDUM UNIVERSAL LTD., is a bonafide work of Mr.G.Zaffar (Reg no: 35104417) who carried out the research under my supervision. Certified further, that to the best of my knowledge the work reported here in does not from part of any other project or dissertation on the basis of which a degree or award was conferred on an earlier occasion on this or any other candidate.

Signature of the guide

Signature of HOD

Ms.S.Kavitha

Dr.Jayashreesuresh

ABSTRACT

The study An Analysis of Capital Structure has been carried out for Carborundum Universal Ltd, Chennai.

The major objective of the project is to study about the Capital structure of the company. Find out the optimal capital structure i.e. Debt-Equity mix.

Secondary data for the study was collected through annual report of the company. The collected data were analyzed using various tools like ratio, leverage and cost of capital. The findings based on the analysis and suitable suggestions to the organization have been presented in the report.

ACKNOWLEDGEMENT My special thanks and my sincere gratitude to Mr.VISWESSWARA RAO, F.C.A and also my sincere gratitude to Mr. SIVA SANKARAN, Corporate Finance. Carborundum Universel Ltd, Chennai, I take this opportunity than all of those who have helped me to complete this project. It is a pleasure at this time to remember each and every one. My special thank to my respected Dr. Jayashree Suresh, PhD, Dean who indeed helped me a lot to end the project successfully. I extremely grateful to my guide Lecturer Ms.S.Kavitha, M.B.A, faculty of management studies for his valuable support, inspiration, guidance and help at all stages of this study. I should not forget to thank my parents and friends all those encouraged me to do the project.

CHAPTERS

S. No: 1 2 3 4 5 6 7

Name of the Chapter Introduction Statement of the problem Objectives of the study Review of literature Methodology & Limitations of study Statistical tools Company profile

Page No: 02 10 12 14 17 20 33

8 9 10 11 12

Analysis and Interpretation Findings Suggestions Conclusion Appendices Bibliography Balance sheets-P&L a/c s

39 65 69 71 73 73 74-89

LIST OF TABLES TABLE NO 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.9 3.10 3.11 3.12 3.13 PARTICULARS Financial Leverage Operating Leverage Combined Leverage Cost Of Equity Cost Of Debt Composite Cost of Capital Debt Equity Ratio Capital Gearing Ratio Interest Coverage Ratio Ratio Of Fixed Assets To Funded Debt Ratio Current Liability To Proprietors Proprietary Ratio Fixed Assets Turnover Ratio PAGE NO 39 40 41 42 43 44 45 47 49 50 51 52 53

3.14 3.15 3.16 3.17

Ratio of Reserves To Equity Capital Capital Structure Of CUMI Price Earnings /Earnings Yield Ratio Return On Share Holders Investment Or Net Worth

54 55 57 58

LIST OF CHARTS

CHART NO 1 2 3

PARTICULARS Debt Equity Ratio Capital Gearing Ratio Capital Structure Of CUMI INTRODUCTION

PAGE NO 46 48 56

INTRODUCTION

Finance is an important integral part of modern economic life. Financing decision plays a vital role. It involves raising funds for the company. It is concerned with the designing of capital structure. The financial decision should be shaped in such a way it should support the companys capital structure. Capital structure should be examined from the viewpoint of its impact on the value of the firm. The firm should select the financing mix in such a way that it maximizes the shareholders wealth. The combination of debt and equity determines it. If the company opts for more debt, they may trigger off a high Interest burden, devour profits and depress earnings per share and, above all, endanger the very survival of the firm. On the other hand, a conservative policy may deprive the company of its advantage in terms of magnifying the rate of return to its

equity owners as higher equity component results in low earnings per share. The finance manger should consider various factors while deciding the choice of debt and equity. Apart from risk return financial considerations, the financial manager also considers nonfinancial factors. When equity shareholders are more in numbers; they have access to control the company. But when debts Owings are more then equity, finance managers consideration is more on debt then equity. Financial crisis may arise in the firm due to two main reasons. They are Unexpected decline in operating profit. Requirement for increased funds. Non-payment of interest or principal amount to lenders at specified time will have to be recovered through liquidations in the company. At the same time the non use of debt prevents the firm from availing an opportunity to have the advantage on rate of return to its shareholders.

The financial manger would always try to maximize the wealth of shareholders. Hence the credit of the financial manger lies on how he settle Disputes, overcome difficulties with help of optimum mix of debts and equity, which would satisfy both the shareholders and creditors. He has to make a risk return transaction between these two sources in such a way that it earns maximum benefits to the company. When the finance manger, is not able to provide benefits to the company he needs to redefine capital structure.

Capital Structure A telecommunication regular need to know about capital structure and the value of the firm in order to assess if the firm is adequately financed. Capital structure gives the

early warning indications on the firms financial distress. With a number of firms to be regulated the firms capital structure becomes important for continued client service.

Important Learning Terms Capital structure Break Even Analysis Leverage/Gearing

MM Model Degree of financial Leverage Degree of Operation Leverage Degree of Combined Leverage

The firms session structure, the proportions of debt and equity used to finance the firms assets, has implications for stockholder value. Additionally, capital structure affects leverage, which, in turn, affects the expected return and risk facing owners and creditors of the firm. The session analyzes the co-dependent leverage/capital structure phenomenon when the corporation has both fixed operating and fixed financial expenses in its cost structure.

Capital Structure, Leverage, Leverage Effects, and the Return/Risk Relationship Definitions

Capital structure is the mixture of sources of funds a firm uses (debt, preferred stock, common stock). The amount of debt that a firm uses to finance its assets is called leverage. A firm with a lot of debt in its capital structure was called to be highly levered. A firm with no debt is said to be unlevered.

Capital structure can be viewed as the permanent financing the firm represented primarily by long-term debt, preferred stock, and common equity but excluding all shortterm credit.

Debts Vs Equity Financing Financing a business through borrowing is cheaper than using equity. This is becauseLenders require a lower rate of return than ordinary shareholders. Debt financial securities present a lower risk than shares for the finance providers because they have prior claims on annual income and liquidation. In addition security is often provided and covenants imposed.

A profitable business effectively pays less for debt capital than equity for another reason: the debt interest can be offset against pre-tax profits before the calculation of the corporation tax bill, thus reducing the tax paid. Issuing and transaction costs associated with raising and servicing debt are generally less than for ordinary shares. There are some valuable benefits from financing a firm with debt.

Forms tend to avoid very high gearing levels. One reason is financial distress risk. This could be induced by the requirement to pay interest regardless of the cash flow of the business. If the firm hits a rough patch in its business activities it may have trouble paying its bondholders, bankers and other creditors their entitlement. Relationship between Expected return (Earnings per share) and the level of gearing can be represented below.

Features of capital structure 1. Return The capital structure of the company should be advantageous subjects to other considerations; it should generate maximum returns to the shareholders without adding additional cost to them.

2. Risk The use of excessive debt threatens the solvency of the company. Debt can be used the point where there is no significance risk, it should be avoided.

3. Flexibility The capital structure should be flexible. It should be possible for the company to adapt its capital structure with a minimum cost and delay if warranted by a changed situation. It should also possible for the company to provide funds whenever needed to finance its profitable activities.

4. Capacity The capital structure should be determined within the debt capacity of the company, and the capacity should not be exceeded. The capacity depends on the ability to generate future cash flows. They should have enough cash to pay the creditors fixed charges and principal sum.

5. Control The capital structure should involve minimum risk of loss of control of the company. The owners of closely held companies are particularly concerned about dilution of control. For example, a company may give more importance to flexibility then control while another company may be more concerned about solvency than any other requirement; Further more the relative importance of the requirement may change with shifting conditions.

Forms of capital structure The capital structure of a new company may consist of any of the following forms. A. Equity shares only. B. Equity and Preference shares. C. Equity shares and Debentures. D. Equity shares, Preferences shares and Debentures.

Optimal Capital Structure

The optimum capital structure may be defined as that capital structure or combination of debt and equity that leads to the maximum value of the firm. It maximizes the value of the company and wealth of its owners and minimizes the companys cost of capital.

Consideration For Optimum Capital Structure The company should make maximum possible use of leverage. The firm must save considerable amount in paying tax by using advantages of tax leverage. The firm should avoid undue financial risk The firms capital structure should be flexible.

STATEMENT OF PROBLEM

STATEMENT OF PROBLEM

The study encompasses an analysis of capital structure at CUMI. In order to run and manage a company, Funds are needed. Right from the promotional stage up to end, finance plays an important role in companys life. If funds are adequate or inadequate the business suffers. Therefore it is necessary that correct estimate of the current and future need of capital is to be made. Capital structure helps to find the proportion of debt and equity and in which way it affects the value of the firm. Capital structure leads to maximum market valuation and to minimum cost of capital.

The company is in need to maintain a proper balance between profitability and liquidity and these allow smooth operation of the firm as well as perfect the interest of the

creditors and investors. That is why it is necessary for the company to evaluate from time to time the liquidity and profitability position.

As the decision regarding the capital mix of debt-equity have become very important. I have decided to study the capital structure of CUMI.

OBJECTIVE OF STUDY OBJECTIVE OF STUDY Following are the objectives of the present study.

PRIMARY OBJECTIVES The primary objective of the study is to analyze the capital structure of Corborandum Universal Pvt Ltd.

SECONDARY OBJECTIVES The study is specially aimed to attain the following objectives. To assess the capital structure of the company. To determine the long-term profitability of the company. To assess the change in proportion of debt and equity. To offer suitable suggestions for framing effective capital structure to meet the requirement of the company.

REVIEW OF LITERATURE

REVIEW OF LITERATURE

The study aims to determine the capital structure practices followed by Corborundum Universal Ltd. Is their major shift in the debt equity financing over a period of time, particularly from 1999-2000 to 2003-2004. It was also considered useful to present the data for five year each, primarily to observe the changes, if any, in the capital structure practices over the years. Various financial tools were used to analyze the data such as cost of capital, leverage, ratio and economic value added analysis.

For examining the capital structure practices, capital structure ratios have been used. It is useful for the creditors to know the liquidity position of the firm. Ratio like proprietary ratio, fixed assets turnover ratio etc are likely to manifest all the major dimensions of the capital structure practices of the company.

The cost of capital analysis is used in the budgeting as discount rate or the minimum required rate of return. It is also used in various other techniques like net present value, profitability index and internal rate of return to identify whether the proposal can be accepted or rejected. If the cost of capital is minimized, it helps to maximize the wealth of the investors. It also helps the company to attract the more investors to make available funds to the company.

To analyze the risk considerations, financial risk is measured in terms of financial leverage and operating risk is measured in terms of operating leverage. It is used to

analyze the level of return available to shareholders under varying conditions of financing.

The present study gives better insight to the managers in deciding the choice of capital, which to the company to survive in has long run as well as to attract more investors and to retain them to make available for the finds needed for future growth.

METHODOLOGY AND LIMITATIONS OF STUDY RESEARCH METHODOLOGY

Research methodology is a way through which systematically we solve the research problem. It is understood as a science of studying how research is dined scientifically. It is necessary for the researcher to know not only the research methods and techniques but also methodology.

RESEARCH DESIGN Research design is the conceptual structure within which research is conducted. It constitutes the blue print for collection, measurement and analysis of data. As the study aims at narration of existing facts and figures regarding financial position of the company, the research design adopted in the study has been descriptive in nature.

AREA OF STUDY

The study was carried out in the finance department of CUMI, Chennai.

PERIOD TAKEN FOR STUDY The study covers a period of five years from 1999-2000 to 2003 -2004.

DATA COLLECTION The study involves only secondary data.

SECONDARY DATA Secondary data were collected through annual report and balance sheets, and manuals of the company.

STATISTICAL TOOLS

TOOLS OF ANALYSIS In order to analyze the capital structure and dividend policy of the company the following statistical tools are used. Leverage analysis Cost of capital analysis Ratio analysis Theories of capital structure

1. LEVERAGE ANALYSIS LEVERAGE MEANING Leverage refers to an increased means of accomplishing some purpose. In financial management the term leverage is used to increase the return to its owners i.e. Shareholders.

DEFINITION The employment of an asset or source of funds for which the firm has to pay a fixed cost or fixed return.

TYPES OF LEVERAGE Basically there are two types of leverages. Operating Leverage Financial Leverage

The leverage associated with the employment of fixed cost assets is referred to as operating leverage, while the leverage resulting from the use of fixed cost / return source of funds is knows as financial leverage. In addition to this two kind of leverages, one could always computer Composite leverage to determine the combined effect of the leverages.

FINANCIAL LEVERAGE Each and every company has a legal binding to pay the interest. The rate of interest differs on each of financing. The use of fixed charges sources of funds, such as debt and preference capital along with owners capital in the capital structure is known as

financial leverage. Here the owners equity is used as the base to raise debt and the supplier has limited participation in companys profits.

Earnings before interest and tax Degree of financial leverage= -------------------------------------Profit before tax

OPERATING LEVERAGE Operating leverage refers to the relationship between firms sales revenue and its earnings before interest and tax. Operating leverage results from the operating cost of a firms income. The operating cost may be fixed cost, variable cost, semi-variable or semi-fixed cost. The firm will employ assets in such a way that their revenues are sufficient to cover all fixed and variable cost. Where, contribution= sales-variable cost Contribution Degree of operating leverage = ------------------------------------------Earning before interest and tax

COMBINED LEVERAGE The operating leverage and financial leverage constitutes combined leverage. The combined leverage represents the effects of a given in the sales revenue on EPS. It affects the total risk of the firm. To keep a risk with in manageable limit. The firm, which has high degree of operating leverage, should have low financial leverage and vice versa. Combined leverage = operating leverage*financial leverage

2. COST OF CAPITAL ANALYSIS COST OF EQUITY Equity is the permanent capital for a firm. The company may raise equity capital both internally and externally. It can rise internally by retained earnings and externally by issuing new shares. When a company wants to raise funds by way of equity shares, their expectations have to be evaluated and for that cost of equity is calculated. Dividend per share Cost of equity = ---------------------------------- * 100 Market price per share

COST OF DEBT A company may raise debt in various ways. It may be in the form of debenture or loan borrowed from financial or public institutions for a certain period of time at a specific rate of interest. The debenture or bond may be issued at par, discount or premium. It forms the basis for calculating cost of debt. Cost of debt Interest = --------------------* 100 Total debt

COMPOSITE COST OF CAPITAL

By using composite cost of capital to determine the optimal debt-equity mix for the company.

3.RATIO ANALYSIS DEBT- EQUITY RATIO The relationship between borrowed funds and owners capital is a popular measure of the long-term financial solvency of a firm. This relationship is shown by debt-equity ratio. This ratio was calculated to measure the relative claims of outsiders and the owners against the firms assets. It indicates the relationship between the external equities (or) outsiders funds and the internal equities (or) the shareholders funds. Debt equity ratio = Long term debt -------------------------Share holders fund

CAPITAL GEARING RATIO The term capital gearing is used to describe the relationship between equity share capital including reserves and surplus to preference share capital and other fixed interest bearing loans. If preference share capital and other fixed interest bearing loans exceed the equity share capital including reserves, the firm is said to be highly geared and vice versa. Equity share capital (+) reserves and surplus --------------------------------------------------------Long term debt

Capital gearing ratio =

INTEREST COVERAGE RATIO It is also known as time-interest-earned ratio. This ratio measures the debt servicing capacity of a firm in so far as fixed interest on long-term loan is concerned. It is determined by dividing the operating profits or earnings before interest and taxes (EBIT) plus depreciation by the fixed interest charges on loans. Interest coverage ratio = EBIT+ depreciation ----------------------------------Fixed interest charges

RATIO OF FIXED ASSETS TO FUNDED DEBT This ratio measures the relationship between the fixed assets and the funded debt and is very useful to the long-term creditors. TABLE NO. 3.10 Fixed assets RATIO OF FIXED ASSETS TO FUNDED DEBT Ratio of fixed assets to funded debt = -------------------------------Funded debt

PRICE-EARNINGS RATIO/EARNING YIELD RATIO The price earnings ratio is closely related to the earnings yield/earnings price ratio. It is actually the reciprocal if the latter. This ratio is a summary measure, which primarily reflects the factors such as growth prospects, risk characteristics, shareholders orientation, corporate image and degree of liquidity.

Market price of share Price earnings ratio = ---------------------------Earnings per share

PROPRIETORY RATIO

Proprietory ratio is a variant to the debt equity ratio. This ratio establishes the relationship between shareholders funds to total assets of the firm. it is an important ratio for long-term solvency of a firm. Share holders fund Proprietory ratio = ------------------------Total assets

RATIO OF CURRENT LIABILITY TO PROPRIETORS FUND The ratio of current liabilities to proprietors fund establishes the relationship between current liabilities and the proprietors fund and indicates the amount of long term fund raised by the proprietors as against short-term borrowings. Ratio of current liabilities to proprietors fund = Current liabilities ------------------------Shareholders fund

FIXED ASSETS TURNOVER RATIO The fixed assets turnover ratio indicates the velocity with which assets are turned over in relation to sales. This ratio is supposed to measure the efficiency with which fixed assets are employed. Fixed assets turnover ratio = Net sales ---------------Fixed assets

RATIO OF RESERVES TO EQUITY CAPITAL This ratio establishes a relationship between reserves and equity capital. The ratio indicates that how much profit does the firm for the future growth generally retain.

Reserves Ratio of reserves to equity capital = ----------------------------Equity share capital 4. THEORIES OF CAPITAL STRUCTURE COST OF CAPITAL MEANING The cost of capital of a firm is the minimum rate of return expected by its investors. It is the weighted average cost of various sources of finance used by a firm. The concept of cost of capital is very important in the financial management. A decision to invest in a particular project depends upon the cost of capital of the firm. Generally higher the risk involved, higher is the cost of capital.

DEFINITIONS A cut-off rate for the allocation of capital to investments of projects. It is the rate of return on a project that will leave unchanged the market the price of the stock - JAMES C. VANHORNE Cost of capital is the minimum required rate of earning or the cut off rate of capital expenditures. - SOLOMON EZRA

Computation of overall cost of capital of a firm involves: a. Computation of cost of specific source of finance, and b. Computation of weighted average cost of capital.

CAPITAL STRUCTURE OF CUMI (PROPORTION OF EQUITY AND DEBT CAPITAL) The capital structure is the combination or the proportion of different sources of financing (debt and equity) to the total capitalization. It is the permanent financing of a firm represented by long-term debt plus preferred stock plus net worth. The main problem in framing the capital structure is choosing the best mix of debt and equity.

RETURN ON SHARE HOLDERS INVESTMENT OR NET WORTH This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. It shows the relationship between net profits (after interest and tax) and the proprietors funds. This ratio is of great importance to the present and prospective shareholders as well as the management of the company.

Net profit (after interest and tax) Return on shareholders investments = -----------------------------------------*100 Shareholders funds

LIMITATION OF THE STUDY 1. The study mainly depends on the secondary data taken from annual report and internal records of the company. 2. The figures taken from the financial statement for analysis were historical in nature; time value of money is not being considered. 3. The study is confined to a short period of five years. This would not picture the exact position of the company.

4. The results made using the statistical techniques are expected outcomes and not the fact. 5. Every company will be having their own factors and situations. The findings of the study could be taken only as guidelines and cannot be applied directly to other companies of the same industry. Company Profile

About the Murugappa Groups What stared 100 years ago as a small family run business in indigenous financing is today an INR 52,000 million (US$ 1billion) corporate with diversified interests in abrasives, engineering farm inputs, plantation, sugar, bio-products, chemicals, pharmaceuticals, insurance and financial services. The Murugappa Group is today an industry leader in many fields and enjoys a high degree of credibility in the market place. The group is also one of the first Indian corporate to begin the process of transformation from being a family owned business to a professionally run organization. Recently changes have been effected at the board level by binging in professional non-family members to run the business. The group has been working on transition of the family owned business into a professionally managed one. In November 1999 the Murugappa corporate Board was formed which included family members and three independent directors. In April 2001, Mr. M V Subbiah, a family member, stepped down as chairman and handed over the reins to Mr. N S Raghavan, a non-family professional who became the non-executive chairman of the Board-a landmark in the history of family run business where chairmanship is handed over to a

professional non-family member with the appointment of Mr. P S Pai, former Vice Chairman of Wipro, as Executive Chairman, the Murugappa Group has once again reiterated its commitment to practice a high degree of corporate governance. On attaining the age of retirement, Mr. M V Subbiah stepped down from the Murugappa Corporate Board and relinquished office from all other statutory boards in January 2004 yet another move towards upholding corporate governance.

The group is also the first and only business group in Asia to have been awarded the IMD Distinguished Family Business Award by the internationally famous Management Development Institute located in Lausanne, Switzerland.

Right through its one hundred years of evolution, the group has maintained transparency in all its activities and enjoys an excellent reputation for the high ethical standards in whatever business it is in. highly people oriented, the group has a workforce of nearly 20,000 satisfied employee. Traditional in values but innovative and modern in its outlook, the group is also know to be very environment conscious and eco friendly. Nearly half of its turnover is from agro-based products. As part of its globalization, some of the companies in the Murugappa Group have already started moving towards international accounting practices.

MURUGAPPA GROUP VALUES AND BELIEFS Adhere to ethical norms in all dealings with shareholders, employees, customers, suppliers, financial, institutions and government. Provide value for money to customers through quality products and services.

 Treat our people with respect and concern; provide opportunities to learn, contribute and advance; recognize and reward initiative innovativeness and creative. Maintain An organization climate conducive to trust, open communication and team spirit. A style of operations befitting our size, but reflecting moderation and humility. Manage environment effectively for harnessing opportunities. Discharge responsibilities to various sections of society and preserve the environment. Grow in an accelerated manner, consistent with values and beliefs by continue organization renewal. ABOUT CUMI CUMI, a flagship company of the Murugappa group was founded in 1954 as a tripartite collaboration between Ajax products ltd., India. The Carborundum co., USA and the universal wheel co. ltd., U.K. With technical assistance from its collaborators, CUMI undertook the ambitious project of manufacturing Indias first Coated and Bonded Abrasive Products. Besides this, CUMI also pioneered the manufacturing of Super Refectories, Electro Cast refectories, Electro Minerals, Industrial Ceramics, Ceramic Fibers and Ceramic Colorurs in India. With state-of-the art facilitate and strategic alliances with global partners, CUMI have achieved a reputation for quality and innovation. The companys range of

over 20,000 different varieties of abrasives, refractory products and electrominerals are matched by very few companies worldwide. CUMI is one of the five manufactures in the world with fully integrated operations that include mining, fashioning, wind and hydro power stations, manufacturing, marketing and distribution. Almost all of CUMIs ten manufacturing facilities have received the ISO 9002 accreditation for quality standards. A well-connected marketing and distribution network of offices and warehouses in India and abroad ensure that service to customers is given prime importance. CUMIs constant innovation and product up gradation, through in-house R7D and strategic alliances with global leaders in grinding technology have not only ensured it market leadership in India and abroad, but also global recognition as a manufacturer of quality abrasives and a provider of total grinding solutions. CUMIs products are being exported to major international customers in USA, Europe, Japan, Australia, Africa, Bangladesh, China and the Far East.

ANALYSIS AND INTERPRETATION

Analysis and Interpretation FINANCIAL LEVERAGE TABLE NO. 3.1

Financial Earning before interest and tax Year (Rs.in.million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 492 471 425 529 445 (Rs.in.million) (Times) 349 358 309 455 402 1.41 1.32 1.38 1.16 1.11 Profit before tax leverage

SOURCE: SECONDARY DATA

INTERPRETATION It shows that the financial leverage was high in the year 1999-2000 with 1.41 times and low in the year 2003-2004 with 1.11 times. Thus it can be concluded that a low rate of financial leverage indicates a low interest outflow and consequently lower borrowings.

OPERATING LEVERAGE TABLE NO. 3.2

Earning Before Contribution Year (Rs.in.million) (Rs.in.million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 1376.40 1934.20 1600.00 1480.28 1663.50 AVERAGE 492 471 425 529 445 2.79 4.11 3.77 2.79 3.74 3.44 Interest and Tax (Times) Operating leverage

SOURCE: SECONDARY DATA

INTEPRETATION It reveals that operating leverage it was high in the year 2000-2001 with 4.11 times and lower in the year 1999-2000 and 2002-2003 with 2.79 times. On an average operating leverage 3.44 times.

COMBINED LEVERAGE TABLE NO. 3.3 Operating Year leverage 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 2.79 4.11 3.77 2.79 3.74 1.41 1.32 1.38 1.16 1.11 Financial leverage (Times) 3.93 5.43 5.20 3.24 4.15 Combined leverage

SOURCE: SECONDARY DATA

INTERPRETATION It shows that the combined leverage is high in 2000-2001 with 5.45 times and low in the year 2002-2003 with 3.24 times. Since the total risk is high in 2000-2001 the company can increase its equity to reduce the risk.

COST OF EQUITY TABLE NO. 3.4 Dividend per Year share (%) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 6.0 7.0 7.5 10.0 12.5 Market price per share Rs 106 90 77 105 172 Cost of equity Capital (%) 5.66 7.78 9.74 9.52 7.27

SOURCE: SECONDARY DATA

INTERPRETATION It reveals that the cost of equity capital was high in the year 2001-2002 with 9.74% and low in the year 1999-2000 with 5.66%. the market price was fluctuating for all the years. In 2001-2002 the market price had been drastically falling and hence the cost of equity was high. The decline in the market price was due to the recession in the Indian economy.

COST OF DEBT

TABLE NO. 3.5 Interest Year (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 143 113 116 74 43 (Rs. In million) 780.44 964.66 1012.10 650.69 395.78 (%) 18.32 11.71 11.46 11.37 10.86 Debt Cost of debt

SOURCE: SECONDARY DATA INTERPRETATION The above table it is clear that the cost of debt has shown a decreasing trend in the five years. The cost of debt was high in the year 1999-2000 with 18.32% and low in 2003-2004 with 10.86%. Due to the high interest rate in 1999-2000 the cost of debt was maximum.

Computation of Composite Cost of Capital TABLE NO. 3.6

Year

Debt-Equity Mix %

Cost of Debt % 18.32 11.71 11.46 11.37 10.86

Cost of Equity % 5.66 7.78 9.74 9.52 7.27

Composite cost of Capital % 8.57 8.76 10.22 9.98 7.95

1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

23:77 25:75 28:72 25:75 19:81

SOURCE: SECONDARY DATA

INTERPRETATION From the above, it is clear that the composite cost of capital is the lowest at 19% debt and 81% equity. Hence optimal debt-equity mix is 19% debt and 81% equity.

DEBT-EQUITY RATIO TABLE NO. 3.7

Year 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004

Long term debt (Rs. million) 471.43 471.82 522.00 499.06 395.78 AVERAGE

Share holders fund (Rs. million) 1556.36 1397.34 1367.85 1530.39 1715.10

Debt equity ratio 0.30 0.34 0.38 0.33 0.23 0.32

SOURCE: SECONDARY DATA

DEBT-EQUITY RATIO

1800 1600 1400 1200 1000 800 600 400 200 0 19992000 20002001 20012002 20022003 20032004 EQUITY DEBT

INTERPRETATION

It refers that the debt-equity ratio was high in 2001-2002 with 0.38 and low in 2003-2004 with 0.23. The ratio shows a decreasing trend. The standard norm for debt equity ratio is 2:1. According to the above table the company maintains debt-equity ratio as 0.32 on an average. It implies that for every one rupee of outside liability the firm has two rupees of owners capital. Since debt is more than equity in all the years the ratio is satisfactory to the company.

CAPITAL GEARING RATIO TABLE NO. 3.8 Equity share Capital + Year reserves & surplus (Rs. In million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1556.30 1397.20 1368.40 1530.40 1715.40 471.43 471.82 522.00 499.06 395.78 3.30 2.96 2.62 3.07 4.33 Long term debt (Rs. In million) Ratio (%)

SOURCE: SECONDARY DATA

CAPITAL GRARING RATIO

CAPITAL GEARING RATIO

Equity share Capital + reserves & surplus (Rs. million) Long term debt (Rs.million )

0
1999 2000

500

2000 2001

2001 2002

2002 2003

INTERPRETATION

2003 2004

It indicates that the capital-gearing ratio shows an increasing trend in the five years except in 1999-2000. Since equity share capital (+) reserves and surplus exceeds the long-term debt in the years the company is said to be in a low gear.

INTEREST COVERAGE RATIO TABLE NO. 3.9 EBIT (+) Depreciation Year (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 614.10 584.70 541.50 648.50 560.90 Fixed interest charges (Rs in million) 143 113 116 74 43 Ratio (Times) 4.29 5.17 4.67 8.76 13.04

SOURCE: SECONDARY DATA INTERPRETATION It reveals that the ratio is high during 2003-2004 with 13.04 times and low during 1999-2000 with 4.29 times the ratio has shown an increasing trend in the five years. This indicates the better position of creditors and thus the companys risk is lesser.

RATIO OF FIXED ASSETS TO FUNDED DEBT TABLE NO 3.10

Fixed assets Year (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1013 972 989 911 865 Average

Funded debt (Rs in million) 93.40 116.40 173.00 231.06 205.78

Ratio (Times) 10.85 8.35 5.72 3.94 4.20 6.60

SOURCE: SECONDARY DATA

INTERPRETATION It shows that on an average 6.6 times of debt is in fixed assets. The ratio is high in the year1999-2000 with 10.85 times and low in the year 2002-2004 with 3.94 time. The ratio shows a decreasing trend in the five years. This indicates that the company had used less debt in the earlier stage and more debts in the later stages.

RATIO OF CURRENT LIABILITY TO PROPRIETORS FUND TABLE NO. 3.11 Year Current liabilities (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 314.70 317.22 285.60 275.43 315.69 Shareholders fund (Rs in million) 1556.36 1397.34 1367.85 1530.39 1715.10 Ratio (Times) 0.20 0.23 0.21 0.18 0.18

SOURCE: SECONDARY DATA INTERPRETATION It reveals that the ratio was high in the year 2000-2001 with 0.23 and low in the year 2002-2003 and 2003-2004 with 0.18. the table shows that the company had very less liabilities in proprietors fund.

PROPRIETORY RATIO

TABLE NO. 3.12 Year Share holders fund (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1556.36 1397.34 1367.85 1530.39 1715.10 Average Total assets (Rs in million) 2274 2237 2465 2314 2225 Ratio (Times) 0.68 0.62 0.55 0.66 0.77 0.66

SOURCE: SECONDARY DATA

INTERPRETATION The above table reveals that the ratio was high in the year 2003-2004 with 0.77times and low in 2001-2002 with 0.55. The ratio indicates that nearly 66% of the total assets are financed through shareholders funds and remaining 44% were financed through outsiders fund.

FIXED ASSETS TURNOVER RATIO TABLE NO. 3.13 Year 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 Net sales (Rs in million) 2161.90 2488.90 2483.40 2475.68 2748.38 Average Fixed assets (Rs in million) 1013 972 989 911 865 Ratio (Times) 2.13 2.56 2.51 2.71 3.18 2.62

SOURCE: SECONDARY DATA

INTERPRETATION It shows that ratio is high in the year 2003-2004 with 3.18 times low in the year 1999-2000 with 2.13 times. The table shows that on an average 2.09 times of investment are in fixed assets.

RATIO OF RESERVES TO EQUITY CAPITAL

TABLE NO. 3.14 Reserves& surplus Year (Rs in million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 1435.30 1303.90 1275.00 1437.00 1622.00 Average (Rs in million) 121.00 93.30 93.40 93.40 93.40 (Times) 11.86 13.97 13.65 15.39 17.37 14.45 Equity share capital Ratio

SOURCE: SECONDARY DATA

INTERPRETATION It reveals that an average ratio of 14.45 of equity share capital represented by reserves. The ratio was highest in the year 2003-2004 with 17.37 low in the year 19992000 with 11.86. The table also indicates that good amount o earnings were retained as reserve for future growth and expansion of business.

CAPITAL STRUCTURE OF CUMI TABLE NO. 3.15

Equity capital Year (Rs.in.million) 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 1556.30 1397.20 1368.40 1530.40 1715.40

Debt capital (Rs.in.million) 471.43 471.82 522.00 499.06 395.78

Proportion of debt & Equity 77:23 75:25 72:28 75:25 81:19

SOURCE: SECONDARY DATA

CAPITAL STRUCTURE OF CUMI

2500 2000 1500 1000 500 0 19992000 20002001 20012002 20022003 20032004 DEBT EQUITY

INTERPRETATION The above table shows the proportion of equity &debt in the capital structure of CUMI. During five years the company uses more equity capital than debt capital. In the year 2003-2004 the equity capital is maximum. Since the company has repaid the loans the debt capital is showing a decreasing trend.

PRICE EARNING RATIO TABLE NO. 3.16 Year 1999 2000 2000 2001 Market price per share (Rs) 106 90 Earning per share (Rs) 21.45 21.03 Ratio (Times) 4.94 4.28

2001 2002 2002 2003 2003 2004

77 105 172

23.05 39.15 33.98

3.34 2.68 5.06

SOURCE: SECONDARY DATA

INTERPRETATION It indicates that the ratio is highest in the year 2003-2004 with 5.06 times and lowest in the year 2002-2003 with 2.68 times. Hence it can be concluded that an increase in earnings per share decreases the price earnings ratio, which is preferred by the investors.

RETURN ON SHARE HOLDERS INVESTMENT OR NET WORTH TABLE NO. 3.17 Year 1999 2000 2000 2001 2001 2002 2002 2003 2003 - 2004 Net profit after tax (Rs in million) 259.50 232.00 215.20 365.50 317.17 Share holders Fund (Rs in million) 1556.36 1397.34 1367.85 1530.39 1715.10 Ratio (%) 16.48 16.60 15.73 23.88 18.49

SOURCE: SECONDARY DATA

INTERPRETATION

It reveals that the ratio i.e. return is high in 2002-2003 with 23.88 and low in the year 2001-2002 with 15.73. Since the company has repaid the in 2001-2002 the ratio is lower. In all the other years the ratio shows an increasing trend, which is satisfactory to shareholders as well as to the management of the company.

CAPITAL STRUCTURE CALCULATION UNDER NET INCOME APPROACH FOR THE YEAR (2001-2002) FORMULA Net Income available to share holders = Earning before Interest and Tax Interest Total market value of firm V Where S = = Equity capitalization rate Market value of equity shares. Net income = S+D

D And,

Market value of debt

Earning Before Interest and Tax Ko = Overall Cost of Capital = V Year 2001- 2002 = = 8.24% 1012.1 11.46%

Debt capital Cost of debt Cost of equity =

Earning Before Interest and Tax = 425 million Interest (less) = 115.99 million

Net income available to shareholders = 309 million

Market value of equity

= 309/.0824 = 3750 million

Market value of debt (ADD) V Ko

= 1012.1 = 4762.1 = 425/4762.1 = 8.92%

IF DEBT IS INCREASED BY 100 Earning before interest and tax Less interest

CRORES ( 1000 million ) = 425 million = 230.57 million

Net income available to shareholders = 194.42 million

Market value of equity

= 194.42/.0824 = 2359.47 million

Market value of debt V Ko

= 2012.1 = 4371.57 million = 425/4371.57 = 9.72%

INTERPRETATION The above is the net income approach calculation of the company for the year 20012002. It shows that EBIT is 425 millions. The debt capital is 1012.1 millions. The value of the firm is 4762.1 millions the cost of capital is 8.92%. By this assumption, if the debt is increased by 100 crores i.e. 2012.1 millions. This value of the firm will be increased to 4371.57 million and also increase the overall cost of capital from 8.92% to 9.72%.

VALUE OF THE FIRM ON THE BASIS OF NET OPERATING INCOME APPROACH YEAR 2001-2002 EBIT Debt capital Cost of debt Cost of equity Value of the firm V = 425 million = 1012.1 million = 11.46% = 8.24 = EBIT/Ko = 425/8.92 = 4764.57 million Market value of equity (S) = V-D

= 4764.57-1012.1 = 3752.47 million EBIT-I Equity capitalization rate = V-D = 425-115.99/4764.57-1012.1 = 8.24%

IF DEBT CAPITALIS INCREASED BY100 CRORES (1000 million)

EBIT Less Interest

= 425 million = 230.57 million = 194.42 million

Value of firm V

= 425/8.92 = 4764.57 million

Market value of equity (S)

=V-D = 4764.57-2012.1 = 2752.47 million EBIT - I

Capitalization rate

= V-D = 425-230.57/4764.57-2012.1 = 194.42/2752.47 = 7.06%.

Ko

= Ke{S/V}+Kd{D/V} = 0.0706{2752.47/4764.57}+0.1146{2012.1/4764.57} =0.0408+0.0484 =8.92%

INTERPRETATION The above shows the capital structure calculation of CUMI under the net operating Income approach in the year 2001-2002. The EBIT is 425 millions. The value of the debt capital is 1012.1 millions. The value of the firm is 4764.57millions. The weighted average cost of capital is 8.92%. The cost of equity is 8.24%. If the debt is increased by 100 crores (1000 million) that is 2012.1millions, the value of the firm remains the same as 4764.57 millions. But the equity capitalization rate is decreased to 7.06%. The weighted average cost of capital will remain constant as 8,92%. Thus it is clear that according to NOI approach, change in capital structure affect the value of firm and weighted average cost of capital.

FINDINGS FINDING OF THE STUDY In this chapter the researcher has made an attempt to present the findings and suggestion of the study. Financial leverage shows a decreasing trend except in 2001-2002 (Table No.3.1). This indicates that a low rate of financial leverage was due to low interest out flow and consequently lower borrowings. The operating leverage has been increased from 2.79 to 3.74 in the five years (Table No.3.2). This indicates that the company had effectively used its variable operating cost. The combined leverage shows a decreasing trend except in 2002-2003 (Table No.3.3). This indicates that the total risk is decreasing year by year. The cost of equity was lower in 1999-2000 and was higher in 2001-2002 (table No.3.4). The market price was very low, so the cost of equity was very high in that particular year. The cost of debt has shown a decreasing trend in the five years (Table No.3.5). Due to high rate of interest, cost of debt was higher in 1999-2000 with 18.33. Debt equity ratio was in the decreasing trend, due to the repayment of debt (Table No.3.7). Debt is more than equity in all the years and so the ratio is satisfactory to the company Capital gearing ratio shows an increasing trend in the 5 years except in 20012002 (Table No.3.8). This ratio indicates that the company is said to be in a low gear.

 Interest coverage ratio has shown an increasing trend in the five years (Table No.3.9). This indicates the better position of creditors and less risk of the company. Ratio of fixed assets to funded debt shows an decreasing trend in the five years (Table No.3.10). This indicates that the company had used less debts in the earlier state and more debts in the later stage. Ratio of current liability to proprietors funds shows an increasing trend (Table No.3.11). This ratio reveals that the company have used more long term funds. Proprietors ratio shows a fluctuating trend in the five years (Table No.3.12). The ratio indicates that nearly 66% of assets are financed through shareholders funds and remaining through outsiders. Fixed assets turnover ratio shows a fluctuating trend in the five years (Table No.3.13). The higher turnover ratio indicates the more efficient management and better utilization of available fixed assets. Ratio of reserves to equity capital shows a fluctuating trend in the five years (Table No.3.14). The ratio indicates that a fair amount of earnings were retained for future expansion. The capital structure of CUMI reveals that debt capital proportion is decreasing year by year due to repayment of debt. (Table No.3.15) The price-earnings ratio was high in 2003-04 with 5.06% times and low in 200203 with 2.68 times (Table No.3.16). The ratio reveals that an increase in Earnings per share decreases the price earnings ratio, which is preferred by investors.

The Earnings per share ratio was lower in 1999-2000 because the company was paying higher interest and EPS was higher in 2002-2003 due to higher profits (Table No.3.19). Return on shareholders investment shows that return is low in 2001-2002 as the company had repaid the loans. In the other years the ratio shows an increasing

trend, which is satisfactory to shareholders as well as management of the company (Table No.3.20). Capital structure calculation of CUMI under net income approach shows that an increase in debt capital increase the value of the firm and reducers the overall cost of capital. Capital structure calculation of CUMI under NOI approach shows that an increase in the proportion of debt capital in capital structure does not affect value of firm and overall cost of capital.

SUGGESTIONS

SUGGESTIONS

The company has to maintain the same proportion of debt-equity ratio.

 In future the company can use equity capital for long-term obligations and debt capital for the short-term obligations as equity capital is best suited for long run and debt capital is best suited for day-today activities. The company must give special attention to increase the earnings per share to safeguard and improve the welfare of its shareholders. The company can reduced operating expenses and financial burdens by reducing the manpower strength. The company should take necessary steps to minimize the cost of capital to earn high return in the future.

CONCLUSION CONCLUSION

In India, success and development of the private sector undertaking are depending upon the ultimate result of the Murugappa Group performance. The approach on capital structure and dividend policy of Carborundum Universal Ltd reveals that Leverage analysis of the company states that both financial and operating risk associated with the company is less and they are very efficient in using the operating cost. Cost of capital analysis of the company states that the company had taken steps to minimize their cost of capital and they were able to minimize it. It shows how effectively they had used the capital. The financial performance of the company is also good and they are maintaining it. Capital structure decisions are dynamic for every year. Overall, the companys capital structure is optimum. The study suggests the company to earn higher return in future.

APPENDICES

APPENDICES

BIBLIOGRAPHY Books:

Financial Management Shashi K. Gupta & R. K. Sharma

Page No:

3.1 to 3.20 14.1 to 14.33 15.1 to 15.38 16.1 to 16.20

Security Analysis & Portfolio Management Preethi Singh

Page No:

158 to 183 298 to 329

Web Site:

www.cumi.co.in

BALANCE SHEETS AND PROFIT/LOSS ACCOUNTS: BALANCE SHEET AS AT 31ST MARCH 2000 (Rs. in 000's)

Schedule

Previous Year 31.3.1999

SOURCES OF FUNDS SHAREHOLDERS' FUNDS Capital Share Capital Suspense Reserves and Surplus 1 1 2 12,10,26 6 143,53,28 12,09,76 56 125,85,41

155,63,60 LOAN FUNDS Secured Loans Unsecured Loans 3 4 47,14,34 30,90,07

137,95,73

65,67,67 38,37,24

78,04,41

104,04,91

TOTAL

233,68,01

242,00,64

APPLICATION OF FUNDS FIXED ASSETS

Gross block Less: Depreciation

207,08,52 103,87,28

201,73,78 93,59,66

Net Block Capital Work-in-Progress at cost

103,21,24 1,65,33

108,14,12 2,12,02

INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances

6 7

104,86,57 36,34,81

110,26,14 34,36,17

43,03,93 53,90,02 10,26,46 22,23,14

35,01,51 55,97,75 10,98,08 28,90,17

129,43,55

130,87,51

Less: CURRENT LIABILITIES & PROVISIONS Current Liabilities Provisions

8 31,47,42 8,19,38 30,24,28 6,52,57

39,66,80

36,76,85

NET CURRENT ASSETS

89,76,75

94,10,66

MISCELLANEOUS EXPENDITURE (Deferred revenue expenditure to the extent not written off)

2,69,88

3,27,67

TOTAL

233,68,01

242,00,64

ACCOUNTING POLICIES NOTES ON ACCOUNTS

14 15

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH 2000 (Rs. in 000's)

Schedule

Previous Year 31.3.1999

INCOME Sales Income from Processing Charges Other Income Profit on sale of Investments

257,05,61 90,86 9,92,18 7,17,41

250,35,63 66,40 8,70,15 1,96,26

275,06,06

261,68,44

EXPENDITURE Raw Materials consumed Employees Cost Other Costs Excise Duty

10 11

69,62,04 36,32,22 80,78,46 32,40,44

63,85,04 37,01,40 69,34,58 34,16,03

Depreciation Less: Transfer from Fixed Assets Revaluation Reserve

12,29,10 8,10

11,83,37 7,81

Interest and Finance charges (Accretion) / Decretion to stock

12

12,21,00 16,18,23 (7,31,68)

11,75,56 17,99,81 1,66,35

240,20,71

235,78,77

PROFIT BEFORE TAX Less : Taxation net of prior year adjustments

34,85,35 8,90,00

25,89,67 6,20,00

PROFIT AFTER TAX

25,95,35

19,69,67

Add : Unappropriated profits from previous year

7,44,80

6,01,70

Profit available for appropriation

33,40,15

25,71,37

APPROPRIATIONS Transfers to: General Reserve Debenture Redemption Reserve 16,00,00 8,50,00 3,24,00

16,00,00 Dividend Interim @ 50% (20%) Proposed Final @ 10% (30%) Dividend Tax thereon 6,05,16 1,21,03 93,19

11,74,00

2,35,16 3,52,74 64,67

Balance carried over to Balance Sheet

8,19,38 9,20,77

6,52,57 7,44,80

33,40,15

25,71,37

NOTES ON ACCOUNTS

13,14,15

BALANCE SHEET As of 31st March 2001 (Rs. in 000's)

Schedule

Previous Year 31.3.2000

SOURCES OF FUNDS SHAREHOLDERS' FUNDS Capital Share Capital Suspense Reserves and Surplus LOAN FUNDS Secured Loans Unsecured Loans

1 1 2

9,33,54 130,39,89 139,73,43 47,18,23 49,28,38 96,46,61

12,10,26 6 143,53,28 155,63,60 47,14,34 30,90,07 78,04,41

3 4

Total

236,20,04

233,68,01

APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work-in-progress at cost INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances

6 7

210,00,29 113,58,06 96,42,23 4,31,61 100,73,84 37,28,90 43,81,10 59,20,37 5,96,82 19,11,83

207,08,52 103,87,28 103,21,24 1 65 33 104,86,57 36,34,81 43,03,93 53,90,02 10,26,46 22,23,14

128,10,12

129,43,55

Less: CURRENT PROVISIONS

LIABILITIES

&

Current Liabilities Provisions

31,72,15 7,20,13

31,47,42 8,19,38

38,92,28

39,66,80

NET CURRENT ASSETS

89,17,84

89,76,75

MISCELLANEOUS EXPENDITURE (Deferred revenue expenditure to the extent not written off)

8,99,46

2,69,88

Total

236,20,04

233,68,01

ACCOUNTING POLICIES NOTES ON ACCOUNTS

14 15

PROFIT AND LOSS ACCOUNT For the year ended 31st March 2001 (Rs. in 000's)

Schedule

Previous Year 31.3.2000

INCOME Sales Income from processing charges Other income Profit on sale of investments Profit on sale of undertaking

280,07,24 63,82 7,92,53 3,45,77

257,05,61 90,86 9,92,18 7,17,41 -

292,09,36

275,06,06

EXPENDITURE Raw materials consumed Employee cost Other costs Excise duty Depreciation Less: Transfer from fixed assets Revaluation reserve Interest and finance charges (Accretion)/Decretion to stock

10 11

74,92,89 39,53,45 89,81,80 31,82,10 11,44,80 7,51 11,37,29 11,30,40 (2,44,01)

69,62,04 36,32,22 82,65,91 32,40,44 12,29,10 8,10 12,21,00 14,30,78 (7,31,68)

12

256,33,92

240,20,71

PROFIT BEFORE TAX Less: Taxation net of prior year adjustments

35,75,44 12,55,00

34,85,35 8,90,00

PROFIT AFTER TAX Add: Unappropriated profits from Previous year

23,20,44 9,20,77

25,95,35 7,44,80

Profit available for appropriation

32,41,21

33,40,15

APPROPRIATIONS Transfers to: General Reserve Investment Fluctuation Reserve Debenture Redemption Reserve Dividend Interim - Nil (50%) Proposed - Final @ 70% (10%) Dividend tax thereon Balance carried over to Balance Sheet 2

7,00,00 4,00,00 5,00,00 16,00,00 6,53,48 66,65 7,20,13 9,21,08

16,00,00 16,00,00 6,05,16 1,21,03 93,19 8,19,38 9,20,77

32,41,21

33,40,15

NOTES ON ACCOUNTS

13, 14, 15

Balance Sheet

As at 31st March 2002 (Rs. in 000's) Schedule Previous Year 31.3.2001

SOURCES OF FUNDS SHAREHOLDERS FUNDS Capital Reserves and Surplus

1 2

9,33,54 127,45,05

9,33,54 130,39,89

136,78,59

139,73,43

LOAN FUNDS Secured Loans Unsecured Loans

3 4

52,20,05 49,01,84

47,18,23 49,28,38

101,21,89

96,46,61

238,00,48 Total APPLICATION OF FUNDS FIXED ASSETS Gross block Less: Depreciation Net Block Capital work-in-progress at cost 102,31,97 55,92,44 38,31,10 58,67,23 5 99,71,27 2,60,70

236,20,04

223,66,15 123,94,88

210,00,29 113,58,06

96,42,23 4,31,61

INVESTMENTS CURRENT ASSETS, LOANS & ADVANCES Inventories Sundry Debtors

6 7

100,73,84 37,28,90 43,81,10 59,23,94

Cash & Bank Balances Loans & Advances

10,35,64 19,57,86

5,96,82 19,08,26

126,91,83

128,10,12

Less : CURRENT PROVISIONS Current Liabilities Provisions

LIABILITIES

&

8 28,55,53 7,00,16 31,72,15 7,20,13

35,55,69

38,92,28

91,36,14 NET CURRENT ASSETS Deferred tax asset Deferred tax liability NET DEFERRED TAX LIABILITY MISCELLANEOUS EXPENDITURE (Deferred revenue expenditure to the extent not written off) 9 238,00,48 Total SIGNIFICANT ACCOUNTING POLICIES NOTES ON ACCOUNTS 15 16 (18,48,68) 1,88,47 (20,37,15)

89,17,84

6,88,61

8,99,46

236,20,04

Profit and Loss Account

For the year ended 31st March 2002 (Rs. in 000's) Schedule Previous Year 31.3.2001

INCOME Sales Other income Profit on sale of investments Profit on sale of undertaking

10

283,37,42 9,38,00 33,73 -

285,71,54 7,12,40 3,45,77

293,09,15

296,29,71

EXPENDITURE Raw materials consumed Employee cost Other costs Excise duty Depreciation Less: Transfer from fixed assets revaluation reserve Interest and finance charges (Accretion)/Decretion to stock

11 12

68,74,70 39,06,85 91,43,96 35,03,17

74,92,89 38,74,37 89,80,75 36,82,58

11,70,06 5,32

11,44,80 7,51

11,64,74 11,54,68 4,66,73 13 262,14,83

11,37,29 11,30,40 (2,44,01)

260,54,27

PROFIT BEFORE TAX

30,94,32

35,75,44

Less: Provision for income tax Current tax Deferred tax PROFIT AFTER TAX Add:Unappropriated profits from previous year Profit available for appropriation APPROPRIATIONS Transfers to: General Reserve Investment Fluctuation Reserve Debenture Redemption Reserve

8,35,00 1,07,09

12,55,00 -

21,52,23 9,21,08

23,20,44 9,20,77

30,73,31

32,41,21

12,00,00 1,67,00

7,00,00 4,00,00 5,00,00

13,67,00

16,00,00

Proposed Dividend @ 75% (70%) Dividend tax thereon

7,00,16 -

6,53,48 66,65

7,00,16 10,06,15 Balance carried over to Balance Sheet 2 30,73,31

7,20,13 9,21,08

32,41,21

Earnings per share - Basic and Diluted (Rs.) Face value Rs.10

23.05

21.03

Balance Sheet AS AT 31ST MARCH 2003 (Rs.million) Previous Year 31.3.2002

Schedule SOURCES OF FUNDS SHAREHOLDERS FUNDS Capital Reserves and Surplus

1 2

93.35 1437.04

93.35 1274.51

1530.39

1367.86

LOAN FUNDS Secured Loans Unsecured Loans Long liability term lease

3 4

499.06 151.63 6.96

522.01 487.63 6.13

657.65

1015.77

2188.04 Total APPLICATION FUNDS FIXED ASSETS Gross block Less: Depreciation OF

2383.63

2163.62 1237.43

2236.62 1239.49

Net Block Capital work-inprogress at cost

926.19 18.57

997.13 26.05

6 INVESTMENTS CURRENT ASSETS, 7 LOANS & ADVANCES Inventories Sundry Debtors Cash & Bank Balances Loans & Advances

944.76 501.97

1023.18 559.24

369.48 592.37 83.56 236.13

383.11 586.73 103.57 195.80

1281.54

1269.21

Less: CURRENT LIABILITIES & 8 PROVISIONS Current Liabilities Provisions

275.43 105.31

281.98 70.02

380.74

352.00

NET ASSETS

CURRENT

900.80

917.21

Deferred tax asset Deferred tax liability NET DEFERRED TAX LIABILITY MISCELLANEOUS EXPENDITURE

31.63 (191.12)

18.85 (203.71)

(159.49)

(184.86)

(Deferred expenditure to the

revenue 68.86

extent not written off)

9 2188.04 Total 2383.63

SIGNIFICANT ACCOUNTING POLICIES NOTES ON ACCOUNTS

15 16

Profit and Loss Account FOR THE YEAR ENDED 31ST MARCH 2003 (Rs.million) Previous Year 31.3.2002

Schedule INCOME Gross Sales Less : Excise duty Net Sales Other income 10 Profit / (Loss) on sale of investments Profit on sale of undertaking 2786.20 2475.68 106.44 (16.96) 221.04

2842.59 366.91

2833.74 353.90

2479.84 93.82 3.31 -

2576.97

EXPENDITURE Raw materials consumed Employee cost

722.68 11 451.84

687.47 390.69

948.08 Other costs Depreciation Less: Transfer from fixed assets revaluation reserve 119.51 73.95 15.50 12 120.24

910.75

117.01

0.73

0.53

Interest and finance charges (Accretion)/Decretion to stock 13

116.48 115.47 46.68

2331.56

2267.54

PROFIT BEFORE TAX Less: Provision for income tax Current tax Deferred tax PROFIT TAX AFTER

454.64 114.50 (25.38)

309.43 83.50 10.71

365.52 100.61

215.22 92.11

Add:Unappropriated profits from previous year Profit appropriation available for

466.13

307.33

APPROPRIATIONS Transfers to: General Reserve Debenture Reserve Redemption

225.00 15.00

120.00 16.70

240.00

136.70

Proposed Dividend @ 100 %

93.35

70.02

(75%) 11.96 Dividend tax 105.31 70.02 -

Balance carried Balance Sheet

over

to

120.82 2 39.15

100.61

E P S - Basic and Diluted (Rs.) Face value Rs.10 QUANTITATIVE 14 PARTICULARS SIGNIFICANT 15 ACCOUNTING POLICIES NOTES ON ACCOUNTS 16

23.05