Financial Analysis

Of

NIRMA Ltd.
A
Project Report
Presented to

Dr. Ashwin Modi

Project Guide,
S.K.School of Business Management,
Hemchandrachrya North Gujarat University.
On
December 1, 2010
In partial fulfillment of requirements for the
Managerial Accounting-1 course in the
Master of Business Administration Programmed.
By:BIREN DAVE - 10
JAYESH PARMAR - 33
JAY PARMAR 34
BHAVIK NAYAK - 25

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

PREFACE
As a student of MBA it is important to study practical things with
theoretical knowledge of financial management.
The Financial Analysis of NIRMA Ltd based on the Annual
reports for three consecutive years from the year 2008-09 to 2009-10.
The basic objective behind making such analytical reports is to
have the knowledge of sales Oriented and corporate environment.
Moreover we can develop written communication and analytical skill.
The report contains information about financial condition of the
company. It also highlight future plan of the company. Also it contains
growth rate of company in various aspects and financial soundness of
company. As it was our first financial analysis, we learnt a lot.

By:-

.
BIREN DAVE
JAYESH PARMAR
JAY PARMAR
BHAVIK NAYAK

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

ACKNOWLEDGEMENT
Quality is never an Accident it is always the result of an
intelligent effect. There must be a will to produce a superior thing. All
we need in this world is hard work and confidence and the success is
sure. Success is not a one-man phenomenon but it is the result of
working together.
First and for most, we would like to express my deepest
gratitude towards Dr. Ashvin Modi Sir, Faculty of S.K.S.B.M,

Patan. For his consent and support, we are profoundly grateful to

him, who has shared his precious time to help us and for giving us
valuable guidance to develop this report.
We would like to thank, who have helped us for providing
valuable Information for making project report.
Last but not the least; we are very thankful to all the staff
members and none teaching staff for their expert guidance and
continuous encouragement throughout, to see that maximum benefit
is taken out of this exercise.
At last, let us express our heartfelt gratitude to all those who
helped us directly or indirectly in completing this project, from
beginning.

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

EXECUTIVE SUMMARY
Our Financial Analysis project is on NIRMA Ltd.. Main objective of
this project is to know the financial strengths and weaknesses of
NIRMA Ltd. For that we had references the three consecutive years
annual report from 2008 to 2010. In addition to these annual reports of
Nirma Ltd we had also used various Books and Web based
information to cover the current trends of the company and its
competitors, as well as the whole industry.
To analyze the firm, we have used various calculation based
ratios and also study some other statements like Trends analysis,
Cash flow statements, DU-Pont Charts etc.
We found that the Nirma Ltd is doing well in general. Most of
the graphs and Ratios are supporting us to say Nirma a good
company. Nirma is consistently going ahead. Nirma has done a good
job in the market of detergent and soaps, but still there is a space for
Nirma in various other products, and also the company has to
concentrate on spreading its business as well. Though the sales of a
company have decreased, the Net profit is increase slightly. But the
decrease in the sales is not a good sign for company.

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

CONTENTS
No

Sub
No.

Page
No.

Particulars.
Preface
Acknowledgement
Executive summary

1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9

Introduction of company
Group of Company
History of Company
Nature of Business
Product Profile
Basic Detail of Company
Board of Directors
Bankers and Auditors
Share holding pattern

2
3
4
5
6
6
8
9
9

Balance sheet :Trend and vertical

Analysis

11

Trend Analysis of Profit and Loss

Account : Trend and Vertical Analysis

18

Analysis of Ratios
Liquidity Ratios
Profitability Ratios
Assets Turnover Ratios
Financial Ratios
Valuation Ratios

27
28
31
36
43
48

Du Pond Chart

52

Comparison with peers and Future

development

55

Recommendations and Suggestions

63

Bibliography

64

4
4.1
4.2
4.3
4.4
4.5

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

LIST OF TABELS
No.

Particular

1
2
3
4
5
6
7
8
9
10
11

Listing on BSE
Shareholding Pattern
Balance Sheet
Trend Analysis of Balance Sheet
Vertical Analysis of Balance Sheet
P-L Statement
Trend Analysis of P-L statement
Vertical Analysis of P-L statement

12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33

Current Ratio
Quick Ratio
Net Working Capital
Gross Profit Ratio
Operating Profit Ratio
Net Profit Ratio
ROI
ROE
TATO
Net Fixed Turnover
Inventory Turnover
Average Age Of Inventory
Debtors Turnover
Average Age Of Debtor
Equity Ratio
Debt Ratio
Debt Equity Ratio
Interest Coverage Ratio
EPS
DPS
Dividend Yield
P/E Ratio

Page No.

SALES, EXPENDITURE, PBT AND PAT

Total Assets and Liabilities

SHARE CAPITAL, INVESTMENT,
RESERVES AND DEBT

9
9
12
14
17
19
20
22
23
24
25
29
30
30
31
33
33
35
36
37
38
39
40
41
42
44
45
46
47
48
49
50
51

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

LIST OF GRAPH
No.
1
2
3
4
5
6
7
8

Particular

Page No.

Shareholding Pattern
Trend Analysis of Balance Sheet-1
Trend Analysis of Balance Sheet-2
Trend Analysis of P-L statement
Trend Analysis of P-L statement-2
SALES, EXPENDITURE, PBT AND PAT

Total Assets and Liabilities

SHARE CAPITAL, INVESTMENT,
RESERVES AND DEBT

10
15
15
21
21
23
24
25

Financial statement
analysis/NIRMA LTD
Man
A/C /Batch 2010-

Chapter: 1
Introduction of Company

1.1

Name of Company

1.2

Group of Company

1.3

History of Company

1.4

Nature of Business

1.5

Product Profile

1.6

Basic Detail of Company

1.7

Board of Directors

1.8

Bankers and Auditors

1.9

Share holding pattern

1.1 Name of the Company

Nirma is one of the few names - which are instantly recognized as a true
Indian brand, which took on mighty multinationals and rewrote the marketing rules
to win the heart of princess, i.e. the consumer. Nirma is one of the good reputed
companies in India. The people of Gujarat have a proud for this company because
it is also provide an Education
Nirma, the proverbial Rags to Riches saga of Dr. Karsanbhai Patel, is a
classic example of the success of Indian entrepreneurship in the face of stiff
competition. Starting as a one-man operation in 1969, today, it has about 14,000
employee-bases and annual turnover is above Rs. 3350 cores.
India is a one of the largest consumer economy, with burgeoning middle class
pie. In such a widespread, diverse marketplace, Nirma aptly concentrated all its
efforts towards creating and building a strong consumer preference towards its
value-for-money products.
It was way back in 60s and 70s, where the domestic detergent market had only
premium segment, with very few players and was dominated by MNCs. It was
really an innovative, quality product with indigenous process, packaging and
low-profiled marketing, which changed the habit of Indian housewives for washing
their clothes. In a short span, Nirma created an entirely new market segment in
domestic marketplace, which is, eventually the largest consumer pocket and
quickly emerged as dominating market player a position it has never since
relinquished.
The performance of Nirma during the decade of 1980s has been labeled as
Marketing Miracle of an era. During this period, the brand surged well ahead its
nearest rival Surf, which was well-established detergent product by Hindustan
Lever. It was a severing battering for MNC as it recorded a sharp drop in its
market share. Nirma literally captured the market share by offering value-based
marketing mix of four Ps, i.e. a perfect match of product, price, place and
promotion.
2

Now, the year 2008 sees Nirmas annual sales touch 8, 00,000 tones, making
it one of the largest volume sales with a single brand name in the world. Looking
at the FMCG synergies, Nirma stepped into toilet soaps relatively late in 1990 but
this did not deter it to achieve a volume of 100000 per annum. This makes Nirma
the largest detergent and the second largest toilet soap brand in India with market
share of 38% and 20% respectively.

In 2000, Nirma had a 15% share in the toilet soap segment and more than 30%
share in the detergent market. Aided by growth in volumes and commissioning of
backward integration projects, Nirma's turnover for the year ended March 2000
increased by 17% over the previous fiscal, to Rs. 12.17 bn.

It has been persistent effort of Nirma to make consumer products available to

masses at an affordable price. Hence, it takes utmost care to provide finest
products at the most affordable prices. To leverage this effort, Nirma has gone for
massive backward integration along with expansion and modernization of the
manufacturing facilities.
The main objective behind modernization plan is of up gradation with
resource-savvy technology to optimize capabilities. Nirmas six production
facilities, located at different places, are well equipped with state-of-art
technologies. To ensure regular supply of major raw materials, Nirma had opted
for backward integration strategies. These strategic moves allowed Nirma to
manage effective and efficient supply-chain.

1.2 Group of Company

Subsidiary Company of Nirma Ltd.:

As required under Section 212 of the Company Act, 1956, The Nirma
Ltd. has only one registered subsidiary company, Nirma Consumer Care
Limited, a wholly owned subsidiary company.

1.3 History of Company.

In scorching heat of 1969, a son of small-time farmer was trying to mix
Soda Ash and few other intermediaries, to make a detergent produce. He was a
qualified Science graduate and was working as junior chemist in Government
laboratory. As a moonlighting activity, he was making detergents in the 100 Sq. Ft.
back yard of his home, using bare hands and bucket. Once the mixture is ready,
he used to pack them in polythene bag and was selling door-to-door Gradually,
the product became well accepted in the consumer community, and the rest is
known to one and all This is a success saga of a first generation entrepreneur,
on his way to create history in the Indian marketplace - that was Dr. Karsanbhai
Patel.
In a short span, he captured the domestic market, with a quality product.
He swiftly crafted low-to-medium consumer pockets a whole new consumer
segment for detergent category. He took on mighty multi-nationals and rewrote the
marketing rules. In true sense, he spearheaded the market revolution by offering
innovative, value-for-money products, and changed the cloth-washing habit of
Indian housewives - the revolution called Nirma.
The launch of Nirma detergent cake came 16 years after the introduction of
the detergent powder. Its success was almost a foregone conclusion. In 1990,
Nirma Super Detergent, a spray-dried blue detergent powder was launched. With
the launch of high-TFM content Nirma Beauty Soap, Nirma began to expand its
product portfolio. To counter the success of Nirma Beauty Soap, Hindustan Liver
Ltd. launched Breeze. In a flanking operation that would have done military
strategists proud, Nirma, launched another brand: Nima. Both the brands from the
Nirma stable have been successful in grabbing a huge chunk of all incremental
sales growth in the soap category in the past twelve years.
In 1994, Nirma Ltd. was listed on stock exchanges. Today Nirma is the
flagship company of the group with complete rights and ownership of the brand.
Its wholly owned subsidiary, Nirma Consumer Care Ltd, is the distribution arm.

From initial days, Nirma believed in value-for-money equation, in creating

and maintaining long-lasting relationships. It has always remained committed to
offer better products, at better value, for better living

1.4 Nature of Business:

Nirma is a customer-focused company committed to consistently offer
better quality products and services that maximize value to the customer.
This customer-centric philosophy has been well emphasized at Nirma
through:

Continuously exploring & developing new products & processes.

Laying emphasis on cost effectiveness.

Maintaining effective Quality Management System.

Complying with safety, environment and social obligations.

Imparting training to all involved on a continuous basis.

Teamwork and active participation all around.

Demonstrating

belongingness

and

exemplary

behavior

towards

organization, its goals and objectives.

Nirma Ltd. The Group's principal activity is to manufacture detergents and
toiletries. The Group operates in two segments namely, Soaps and Surfactants
and Other Businesses. The Soaps and Surfactants include detergents, toilet soap
and its ingredients. The Other businesses include single super phosphate,
vacuum salt. Iodized salt, tooth paste, liquid blue and incense sticks. The Group's
products are launched under two brand names Nirma and Nima.

1.5 Product Profile

The Nirma Ltd. is producing following products:

1.5.1 Soap

Nirma Bath Soap

Nirma Beauty Soap

Nirma Lime Fresh Soap

Nima Rose

1.5.2 Detergents

Nirma Washing Powder

Nirma Detergent Cake

Super Nirma Washing Powder

Super Nirma Detergent Cake

Nirma Popular Detergent Powder

Nirma Popular Detergent Cake

1.5.3 Scouring Product

Nirma Clean Dish Wash Bar

Nima Bartan Bar

1.6 Basic Details of Company.

Registered Office :
Nirma House,
Ashram Road,
Ahmedabad 380009.
Ph: 079-27546565.
Website: www.nirma.co.in
6

Plant Locations :
1) Block No. 16/B,
Ahmedabad-Mehsana Highway,
P.O. Mandali.
Dist. Mehsana.
Gujarat.
Pin 382732.
2)

Village : Moraiya,
Post Chacharwadi, Vasana,
Near Modern Denim Bavala Road,
Taluka: Sanand,
Dist: Ahmedabad,
Gujarat.
Pin: 382213

3)

Alindra Detergent Complex,

P.O. Alindra,
Taluka: Savli,
Dist: Baroda,
Gujarat.
Pin: 391775.

4)

Bhavnagar Chemical Complex,

P.O. Kalatalav,
Dist: Bhavnagar,
Gujarat.

5)

Wind Farm Project at Survey No. 691,

Village: Dhank,
Taluka: Upleta,
Dist: Rajkot,
Gujarat

6) Survey No. 358-369,

Village Sachana,
Taluka: Viramgam,
7

Dist: Ahmedabad.

1.7 Board of Directors.

Dr. K. K. Patel, Chairman

Shri Rakesh K. Patel, Vice Chairman

Shri Shrenikbhai K. Lalbhai

Shri Pankaj R. Patel

Shri Rajendra D. Shah

Shri A. P. Sarwan

Shri Chinubhai R. Shah

Shri Kaushikbhai N. Patel

Shri Kalpesh A. Patel, Executive Director

Shri Hiren K. Patel, Managing Director

1.7.1

Bankers & Auditors

Bankers of the Company :

State Bank of India

HDFC Bank Ltd.

Kalupur Co-operative Bank

ICICI Bank

Indian Overseas Bank

COMPANY SECRETARY
Shri Paresh Sheth

Auditors of the Company :

Hemansu Shah & Co.

Chartered Accountants,
Ahmedabad.

1.8

Listing on Stock Exchange

The Companys equity shares are listed on stock exchanges at

Mumbai at BSE and NSE.

Table 1: Listing on Stock Exchange

Name of Stock
Exchanges

Stock Code

Bombay Stock Exchange

National Stock Exchange

500308
NIRMA EQ

1.9 Comments on Share Holding Pattern

Description
Promoter and Promoter Group
Indian Promoters
Individuals / Hindu Undivided Family
Bodies Corporate
Other
Any Others (Specify)
Total of Promoter and Promoter Group
Institutions
Mutual Funds / UTI
Insurance Companies
Foreign Institutional Investors
Non-Institutions
Bodies Corporate
Individual shareholders up to Rs. 1 lakh
Individual shareholders excess of Rs. 1 lakh
Any Others (Specify)

% of
Share
77.17
25.59
12.57
39.01
39.01
77.17
1.48
0.84
0.02
0.63
21.34
2.55
3.66
15.06
0.07

Non Resident Indians

Total Public Shareholding

0.06
22.83

Tabel-2 Share holding Pattern

Fig -1 Pie chart

Comments:As we can see, Total promoter and Promoter group has total
77.17% of companys share whereas public has only 22.83% share. So,
company is totally controlled by its promoters it is good for the company.

10

Chapter: 2
BALANCE SHEET

2.1

BALANCE SHEET

2.2

TREND ANALYSIS

2.3

VERTICAL ANALYSIS

11

BALANCE SHEET AS AT 31ST MARCH, 2013

Schedule As at
31.03.2013
I

As at
As at
31.03.2012 31.03.2011

SOURCES OF FUNDS
Shareholders Funds
Share capital
Reserves and surplus

1
2

79.57
2,675.89
2,755.46

79.57
2,521.47
2,601.04

82.36
2502.62
2584.98

Loan Funds
Secured loans
Unsecured loans

3
4

751.97
235.31
987.28
3,742.74

1,048.12
85.67
1,133.79
3,734.83

182.54
261.4
443.94
3028.92

4,298.43
2,382.32
1,916.11
279.24

4,048.53
2,129.59
1,918.94
243.08

3,738.92
1,826.96
1,911.96
259.61

2,195.35
535.73

2,162.02
539.77

2,171.57
45.85

592.15
269.28
92.29
759.39
1,713.11

600.27
250.49
213.59
599.59
1,663.94

635.16
216.37
72.65
500.86
1,425.04

249.07
149.47
398.54
1,314.57
302.91
1,011.66
3,742.74

189.93
135.28
325.21
1,338.73
305.69
1,033.04
3,734.83

195.46
129.68
325.14
1,099.9
288.4
811.5
3,028.92

II APPLICATION OF FUNDS
Fixed Assets
Gross block
Less : Depreciation
Net block
Add : Capital work-inprogress
Investments
Current Assets, Loans &
Advances
Inventories
Sundry debtors
Cash and bank balances
Loans and advances

6
7
8
9
10

Less :
Current liabilities
Provisions
12
Net Current Assets
Deferred tax liabilities (Net)
19

TABLE 3 BALANCE SHEET

12

Introduction:
Trend Analysis involves calculations of percentage changes in financial
statement items for a number of successive years.
It is an extension of horizontal analysis of several years.
Trend analysis is carried out by first assigning a value of hundred to the
financial items in a past financial year used as a base year and then expressing
financial statement in the following years as a percentage of the base year value.
Here we are taking 2005-2006 as a base year.

13

2.1 Trend Analysis

Year

Mar-2010

Share capital

Reserves and
Surplus

Mar-2009

Mar-2008

Mar-2007

795.7
795.7
823.6
823.6
96.824045 96.824045 100.21903 100.21903
26758.9

25214.7

25026.2

23474.2

Mar-2006
821.8
100
19658.1

136.1215

128.26621 127.30732 119.41235

100

Total Debt

9872.8
283.6278

11337.9
4439.4
3248.5
325.71749 127.53598 93.323566

3480.9
100

Net Block

19161.1
19189.4
19119.6
20448.1
109.48387 109.64557 109.24674 116.83761

17501.3
100

Net Current Assets

9,537.2
10,643.5
8,241.8
7,821.7
119.09144 132.90586 102.91572 97.669917

8,008.3
100

Total Assets

37427.4
37348.3
30289.2
27546.3
156.20263 155.87251 126.41147 114.96402

23960.8
100

Total Current
Liabilities

Investments

2490.7

1899.3

1954.6

21460

917.7

271.40678 206.96306 212.98899 2338.4548

100

5357.3
5397.7
458.5
67
7152.6035 7206.5421 612.14953 89.452603

74.9
100

TABLE-4 TREND ANALYSIS OF BALANCE SHEET

COMMENT:

Investment has increased 71 times that is good for the company.

Reserves have increased 1.3 times and Total Assets has increased 1.5
times with marginal decrease of 4% in share capital that is good for the
company.
Total debt was increasing at higher rate compared to net block but it
decreased last time so it is good for the company.

14

Liabilities have been increased 2.7 times that is not good for the company.

FIG-2 TREND ANALYSIS OF BALANCE SHEET-1

FIG-3 TREND ANALYSIS OF BALANCE SHEET-2

15

2.2 Vertical Analysis

TOTAL LIABILITIES
1

SOURCES OF FUNDS
Shareholders Funds
Share capital
Reserves and surplus

2.12
71.49

2.13
67.5

2.71
82.6

Loan Funds
Secured loans
Unsecured loans
TOTAL

20.09
6.28
100

28.06
2.29
100

6.02
8.63
100

MAR-2010

MAR-2009

MAR-2008

DEBT-EQUITY RATIO= Total equity / Total debt

MAR-2010
0.36:1

MAR-2009

MAR-2008

0.44

0.17

COMMENT:
Equity Debt ratio should be 2:1 ideally. But, Household product industrys ratio is
0.8:1. So to match the industry standard company should raise the debt. Here, it
is not good for the company.

16

TOTAL ASSETS
2

APPLICATION OF FUNDS
Fixed Assets
Gross block
Less : Depreciation
Net block
Add : Capital work-inprogress
Investments
Current Assets, Loans &
Advances
Inventories
Sundry debtors
Cash and bank balances
Loans and advances
TOTAL
Current Liabilities and
Provisions
Less :
Current liabilities
Provisions
Net Current Assets
Deferred tax liabilities (Net)

MAR-2010

MAR-2009

MAR-2008

114.84
63.65
51.19
7.46

108.39
57.01
51.37
6.5

123.44
60.31
63.12
8.57

14.31

14.45

1.51

15.82
7.19
2.46
20.28
45.77

16.07
6.7
5.71
16.05
44.55

20.96
7.14
2.39
16.53
47.04

6.65
3.99

5.085
3.62

6.45
4.28

35.12
8.09

35.84
8.18

36.31
9.52

100

100

100

TABLE-5 VERTICAL ANALYSIS OF BALANCE SHEET

17

Chapter: 3
PROFIT AND LOSS STATEMENT

3.1

PROFIT AND LOSS STATEMENT

3.2

TREND ANALYSIS

3.3

VERTICAL ANALYSIS

18

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31ST MARCH, 2010

19

Schedule
INCOME
Sales
Less : Excise duty
Sales Net
Other income
Increase / (Decrease) in stock
EXPENDITURE
Consumption of raw materials
Purchase of goods traded in
Payments to and provision for employees
Manufacturing, administrative and selling expenses
Interest and charges
Profit before Exceptional items, Depreciation
and Tax
Less : Provision for depreciation
Profit before Exceptional items and Tax
Less : Impairment of asset (See Note No.11)
Less : Fixed assets written off
Less : Exchange loss on revaluation on long
term monetary items (See Note No.12)
Profit before Tax
Less : Provision for taxation
- Current tax
- Fringe benefit tax
- Deferred tax
Add : Excess depreciation provided in earlier years
written back
Less : Provision of taxation of earlier years written
back
Net Profit
Add : Balance in profit and loss account brought
forward
Profit available for Appropriation
Less : Transferred to capital redemption reserve
: Transferred to general reserve
: Final dividend on preference shares
: Proposed dividend on equity shares
: Tax on dividend
Balance carried to Balance Sheet
Earnings per equity share
(See Note No.16)
Basic
Diluted
Notes forming part of accounts

13
14

15
16
17
18

2013

Rs. in
carores
2012

2011

3329.18
211.23
3117.95
19.17
6.8
3,143.92

3354.06
323.89
3030.17
8.78
31.08
3,070.03

2650.78
318.57
2332.21
13.65
25.96
2371.82

1,254.02
36.87
113.45
1,134.99
31.72
2,571.05
572.87

1,398.89
22.7
99.
1,049.46
47.41
2,617.46
452.57

1084.06
1.15
81.65
814.7
7.92
1989.48
382.34

287.56
285.31
Nil
3.94
5.05

244.38
208.19
60.
Nil
29.86

276.32

118.33

226.65
70.89
226.58
Nil
Nil
226.58
26

50.
Nil
(2.78)
8.84

13.6
.4
17.29
Nil

0.4
29.55
229.73
12.18

Nil

(6.39)

217.55

237.94
30.06

93.43
114.

71.13
288.68

268.
Nil
100.
Nil
71.61
11.91
84.48

207.43
2.79
100.
.1
63.66
10.82
30.06

Nil
100
0.17
63.66
10.85
114

14.95
14.95

5.86
5.86

13.66
13.66

19

TABLE-6 PROFIT AND LOSS STATEMENT

3.1 TREND ANALYSIS

20

YEAR

Mar-2010

Mar-2009

Net Sales

31179.5
162.49479

30301.7
23322.1
22460.4
157.92005 121.54524 117.05441

Total
Expenditure

Mar-2008

Mar-2007

Mar-2006
19188
100

25710.5
26174.6
177.39209 180.59419

19894.8
137.2661

19538.9
134.81054

14493.6
100

PBT

2763.2
1183.3
80.320912 34.396256

2265.8
65.86245

1783.9
51.854543

3440.2
100

PAT

2379.4
934.3
98.574861 38.706604

2175.5
90.1276

2197.9
91.055597

2413.8
100

30700.3
23718.2
23397.9
157.45358 121.64427 120.00154

19498
100

Operating profit

31439.2
161.2432

TABLE-7 TREND ANALYSIS OF PROFIT AND LOSS STATEMENT

COMMENTS
Net sales and operating profit has increased 1.7 times that is good for the
company.
Total expenditure has increased 1.7 times with decrease of 2% in PAT it is
not good for the company.

21

FIG-4 TREND ANALYSIS OF P-L STATEMENT-1

FIG-5 TREND ANALYSIS OF P-L STATEMENT-2

22

3.2 VERTICAL ANALYSIS 0F P-L STATEMENT

Mar10

Mar09

INCOME
Sales
Less : Excise duty
Sales Net
100
100
Other income
0.61
0.29
Increase / (Decrease) in stock
0.21
1.02
TOTAL INCOME
100.83 101.31
EXPENDITURE
Consumption of raw materials
40.21
46.16
Purchase of goods traded in
1.18
0.75
Payments to and provision for employees
3.61
3.26
Manufacturing, administrative and selling expenses
36.4
34.63
Interest and charges
1.017
1.56
TOTAL EXPENDITURE
82.45
86.38
Profit before Exceptional items, Depreciation and 18.37
14.93
Tax
Less : Provision for depreciation
9.22
8.06
Add : Provision of expenses earlier years written
back
Profit before Exceptional items and Tax
9.15
Less : Impairment of asset (See Note No.11)
Less : Fixed assets written off
0.12
Less : Exchange loss on revaluation on long
0.16
0.98
term monetary items (See Note No.12)
Profit before Tax
8.86
3.9
Less : Provision for taxation
- Current tax
0.44
- Fringe benefit tax
1.6
0.013
- Deferred tax
0.08
0.58
Profit for the year
7.34
2.87
Add : Excess depreciation provided in earlier years
0.28
0.21
written back
Less : Provision of taxation of earlier years written
back
Net Profit
7.63
3.08
Add : Balance in profit and loss account brought
0.96
3.76
forward
Profit available for Appropriation
8.59
6.84
TABLE-8 VERTICAL ANALYSIS OF PROFIT AND LOSS STATEMENT

Mar08

100
0.59
1.11
101.69
46.48
0.05
3.5
34.93
0.33
85.3
16.39
9.71
3.03
9.71

9.71
1.11
0.017
1.26
9.32

9.85
0.52
12.37

COMMENT:
23

Highest profit is in the year 2006 and lowest is in 2009 .Less profit in 20082009 is due to following reasons.

Other income is only 0.2% instead of 0.5%

Employee costs are 3.6% which was 3.5% last year and Additional
purchase of goods is 0.74%.
Interest and charges are 1.56%
Exchange losses are 0.99% and depreciation is 0.2%.
Provisions of 3% is not added which was there in 2008.

3.3 P-L and BALANCE SHEET

YEAR

Mar-2006

Mar2007

Mar2008

Mar-2009

Mar2010

Net Sales
Total
Expenditure
PAT
PBT

19188

22442.8

23322.1

30301.7

31179.5

14493.6

19538.9

19894.8

26174.6

25710.5

2413.8
3440.2

2197.9
1783.9

2175.5
2265.8

934.3
1183.3

2379.4
2763.2

TABLE-9 SALES, EXPENDITURE, PBT AND PAT

FIG-4 SALES, EXPENDITURE, PBT AND PAT

24

Analysis

Total expenditure has increased but Net sales has also increased it is good
for the company.
PBT and PAT both decreased and then increased it is good for
thecompany.
PBT is less in 2010 compared to 2006 but PAT is almost same that is good
for the company.

YEAR
Net Current
Assets
Total Current
Liabilities
Net Block
Total Assets

Mar2006

Mar2007

Mar2008

Mar-2009

Mar2010

9518.6

9928.4

10999

13387.3

13145.7

1689.5

3398.3

3251.4

3252.1

3985.4

17501.3
23960.8

20448.1
27546.3

19119.6
30289.2

19189.4
37348.3

19161.1
37427.4

TABLE-10 TOTAL ASSESTS AND LIABILITIES

FIG-5 TOTAL ASSESTS AND LIABILITIES

Analysis
Total Assets are increasing with Increase in liabilities. But increase in
liabilities is much lower than increase in assets. Also, Net block has been
increasing. It is good for the company.

25

YEAR

Mar-2006 Mar-2007 Mar-2008 Mar-2009

Mar-2010

Share capital
Reserves and
Surplus
Total Debt
Investments

821.8

823.6

823.6

795.7

795.7

19658.1

23474.2

25026.2

25214.7

26758.9

3480.9
74.9

3248.5
67

4439.4
458.5

11337.9
5397.7

9872.8
5357.3

TABLE-11 SHARE CAPITAL, INVESTMENT, RESERVES AND DEBT

FIG-6 SHARE CAPITAL, INVESTMENT, RESERVES AND DEBT

Analysis
Reserves and investment have increased with stable share capital.
This is good for the company.

26

Chapter: 4
RATIO ANALYSIS
4.1 Liquidity Ratios
4.2 Profitability Ratios
4.3 Assets Turnover Ratio
4.4 Finance Structure Ratios
4.5 Valuation Ratio

27

INTRODUCTION:
Ratio Analysis is a widely used tool of Financial Analysis. It
is defined as the systematic Use of Ratio to interpret the financial statement so
that the strength and weakness of a firm as well as its historical performance and
current financial condition can be determined. The Ratio refers to the numerical or
quantitative relationship between two variables\items. Ratio analysis presents the
financial statement into various functional areas which highlight various aspects of
the business like inequality, Profitability, assets turn over, financial structure etc.,
all these ratios are important to both categories of the suppliers of funds owners,
and outsiders. Whose interest is reflected in various valuations rations?

Thus, the integrated relationship of various functional ratios can be

presented as under:

4.1 Liquidity Ratios

4.2 Profitability Ratios
4.3 Assets Turnover Ratio
4.4

Finance Structure Ratios

4.5 Valuation Ratio

28

4.1 Liquidity Ratios:

The importance of adequate Liquidity in the sense of the ability of a firm
to meet the current or short-term obligation when they become due for payment
can hardly be overstressed. In fact Liquidity is a perquisite for the very survival
of the firm. The Liquidity ratio measures the ability of the firm to meet its short
term obligation and reflect the short-term financial strength\solvency of a firm.
This ratio indicates the ability of the company to discharge the liabilities as and
when they mature.
1. Current Ratio
2. Quick Ratio
3. Net Working Capital

4.1.1 Current Ratio

Current ratio is the indication of the firm commitment to meet its short-term
liabilities. It is widely used indicator of a companys ability to pay its debts in shortterm. The Current Ratio is the ratio of total current assets to total current liabilities
it can be calculated, by dividing current assets by current liabilities.

Current Ratio =

Total Current Assets

Total Current Liabilities

Where,
The current assets of the firm represent those assets which can be in the
ordinary course of business, converted in to cash within a short period of time,
normally not exceeding one year. The current liabilities defined as liabilities which
are short maturing obligation.
Current Assets = Inventories + Debtors + Bill Receivables +
Marketable Securities + Bank & Cash Balance +

29

Prepaid Expenses.
Current liability = Creditors + Bill payables + Unpaid expenses +
Provision for tax + dividend Payable + Bank over
Draft.

Particulars

Year
2013-14

2012-13

2011-12

Total Current Assets

953.72

1064.35

Total Current Liabilities

249.07

189.93

195.46

3.83

5.80

4.73

Current Ratio

924.18

TABLE-12 CURRENT RATIO

Analysis:

Current Ratio should be 2:1.

It is measure of companys Liquidity i.e. how quickly company
can convert assets to cash.
Here, it is more than 2 it is not good for the company.
Company has higher capacity to convert its assets into cash
more than required.

4.1.2 Quick Ratio (Liquid Ratio / Acid Test Ratio)

All Current Assets are not equally liquid. While cash is readily available to
make payments to suppliers .Debtors can be quickly converted into cash,
Inventories are two steps away from conversion into cash (sales and collection).
The quick ratio or acid test ratio is computed as a supplement to current ratio. The
ratio relates highly liquid current assets usually current assets less inventories, to
current liability.
Acid Test Ratio =

Quick Assets
Quick Liabilities

Where,
30

Quick Assets = Current Assets Inventories

Quick Liabilities = Current Liabilities-bank overdraft.

Particulars

Year
2010-09

2009-08

2008-07

Quick Assets

361.57

464.08

289.02

Quick Liabilities

249.07

189.93

195.46

1.35

2.44

1.48

Quick Ratio

TABLE-13 QUICK RATIO

Analysis:
o If Inventories are as less as possible that is good for the company. It
can be measured by Quick Ratio.
o Quick Ratio has decreased from 2.44 to 1.35 that is very good for
the company.

4.1.3 Net Working Capital:

Net Working Capital (NWC) represents the excess of current assets over
current liabilities.
Net Working Capital = Total Current Assets Total Current Liability

Particulars

Year
2010-09

2009-08

2008-07

Total Current Assets

361.57

464.08

289.02

Total Current Liabilities

953.72

1065.34

924.18

Net Working Capital

704.65

874.42

728.72

TABLE-14 NET WORKING CAPITAL

Analysis:
Here Working Capital has been decreasing compared to the last years that
is not good for the company.

31

4.2 Profitability Ratio:

Profitability is measure of earning ability of the business.
Profitability ratios are generally measured in percentage based on
the calculation of absolute profit figures. Profit is a positive difference
between sales and the expenses.
4.2.1 Gross Profit Ratios
4.2.2 Operating Profit Ratios
4.2.3 Net Profit Ratios
4.2.4 Rate of Return on Investment (ROI)
4.2.5 Rate of Return on Equity (ROE)

4.2.1 Gross Profit Ratio:

This Ratio expresses the relationship between gross profit and net sales. It
is a degree to which the sales price of good per unit may decline without resulting
in losses from operations to the firms. It also helps in ascertaining whether the
average percentage of mark-up and the goods in maintained. It can be calculated
as follows:
Gross Profit = Gross Profit *100
Total Sales
Where,
Gross Profit = Sales COGS
COGS = Raw material Consumed + Labor Costs + Factory Overheads.

32

Particulars

Year
2010-09

2009-08

2008-07

Gross Profit

1713.61

1509.58

1165.35

Total Sales

3117.95

3030.17

2332.21

Gross Profit Ratio

54.96%

49.82%

49.97%

TABLE-15 GROSS PROFIT RATIO

Analysis:

If the ratio is high it indicates Gross Profit is high or the purchasing is

efficient alternating and vice versa.

Here the ratio is increasing from last years.

The highest value of the ratio is 54.96%

And the lowest value is

49.97% .This is good for the company

4.2.2 Operating Ratio.

Operating Ratio is a ratio of Total Cost of Good Sold and
Total Operating Expenses which is divided by net sales. It is calculated as follows,

Operating Ratio =

Sales- Operating Expenses * 100

Net Sales

Where,
Operating Expenses = Manufacturing Expenses + Administration &
Selling Expenses + Depreciation

Particulars

Year
2010-09

2009-08

2008-07

Operating Profit

569.63

430.26

350.65

Total Sales

3117.95

3030.17

2332.21

Operating Profit Ratio

18.27%

14.20%

15.04%

33

TABLE-16 OPERATING PROFIT RATIO

Analysis:

This ratio shows that percentage of Operating profit over Sales.

Here there is an increase in cost of operating Expenses but also increase

in sales as well as increasing in profit ratio. It is good for the company

4.2.3 Net Profit Ratio:

It is the indicator of the net margin earned on sale of Rs 100. It helps in
determining the efficiency with which affairs the business are being managed. It
can be calculated as follows.
Net Profit Ratio =

Net Profit * 100

Net Sales

Particulars

Year
2010-09

2009-08

2008-07

Net Profit

237.94

93.43

229.73

Total Sales

3117.95

3030.17

2332.21

7.63%

3.09%

9.85%

Net Profit Ratio

TABLE-17 NET PROFIT RATIO

Analysis:

It measure a collecting overall profitability of business and shows efficiency

otherwise a operating the expenses over a sell.

Value of the ratio is highest in year 2008-07 i.e. 9.85% because of

decrease in the value of Net Sale.

Here in the year 2008-09 the value is decrease to 3.06% because of less
Net profit.

In year 2009-10, Net Profit is increased to 7.63%.

It is not good for the company that ratio remains below 8%.

34

4.2.4 Rate of Return on Investments:

Rate of Return on Investment is term as the profit of the firm

distributed
To its Investor.
Rate of Return on Total Assets =

EBIT (Earning Before Tax and Interest)

Total Assets

Where,
EBIT = Net Profit + Interest + Tax.
Total Assets = Net Fixed Assets + Investments + Net Working Capital.
Instead of Total Assets, Total Capital Employed is also shown as
denominator.
Total Capital employed = Owners Fund (Capital + Reserves Miscellaneous
Expenses) + Long term Debt.
It should be noted that the amount of total assets and total capital
employed would be same.

Particulars

Year
2010-09

2009-08

2008-07

EBIT

308.04

165.74

234.50

Total ASSETS

3742.74

3734.83

3028.92

8.2%

4.43%

7.74%

ROI

TABLE-18 ROI

Analysis:

The ratio shows the total profit on total investments of the company.

35

This ratio is very important to the shareholder.

As per this table there is an Decrease then increase in the net profit before
interest and taxes but the main important point is company pays money to
its long term loan holders and companys reserves are more so there is an
good point of the company and they have a retain earnings is more.

6.2.5 Rate of Return on Equity:

Return on Equity = Earnings Available to Equity Shareholder * 100

Net Worth

Where,
Profit for the Equity = Net Profit Preference Dividend
Net Worth = Equity Capital + Reserves Misc. Expenses

Particulars

Year
2010-09

2009-08

2008-07

Profit for Equity

237.94

93.43

229.73

Net Worth

2755.46

2601.04

2584.98

8.64%

3.59%

8.89%

ROE

TABLE-19 ROE

Analysis:

Through the above calculation we can say that the rate of return on equity
ratio decreased and then increased year to year it means shareholders
earnings will decline then incline. This Ratio must not be less then 8%.

The main cause to decrease the value of the ratio is the decrease in the
value of the net profit for equity. This is not good for the company.
36

6.3 Assets Turnover Ratio.

Assets Turn over Ratios is basically productivity ratio which measures the
output produced from the given input deployed. This relationship is shown as
under:
An asset is Input which is deployed to generate production (or Sales).
The same set of assets when used intensively (i.e. use of machines for three shift
instead of a single shift), Produces more output or sales. If the assets turnover is
high, it shows efficient or productive use inputs, i.e. assets.

It should be noted that in the turn over ratios, the numerator is always
sales or its variant like total sales, credit sales, cost of goods sold etc, and
denominator is always, the assets like total assets, group of assets (fixed or
current) or individual assets like inventories or debtors.

6.3.1 Total Assets Turnover

6.3.2 Net Fixed Assets Turnover
6.3.3

(A) Inventory Turnover

(B) Average age of Inventories

6.3.4

(A) Debtors Turnover

(B) Average age of Debtors

6.3.1 Total Assets Turnover Ratio:

Total Assets Turnover Ratio is shows Turnover of the
company is how much percentage of total investment. It is calculated as
below,

37

Total Assets Turnover Ratio =

Total Net Sales

Total Assets

Where
Total asset = Net Fixed Assets, Investments and Net Working Capital (i.e. Current
assets less current liabilities)

Particulars

Year
2010-09

2009-08

2008-07

Sales

3117.95

3030.17

2332.21

Total Assets

3742.74

3734.83

3028.92

0.83

0.81

0.77

Total Assets Turn Over

TABLE-20 TATO

Analysis:

This is a measure of the efficiency how the assets are utilized it indicates
how many times assets can make sales.

The company turnover ratio has increased last year.

This is good for the company.

6.3.2 Net Fixed Assets Turnover Ratio:

Net Fixed Assets Turnover Ratio is shows Turnover of the company

is how much percentage of Net Fixed Assets. It is calculated as below,

38

Net fixed Turnover=

Sales
Net fixed assets

Particulars

Year
2010-09

2009-08

2008-07

Sales

3117.95

3030.17

2332.21

Fixed Assets

1916.11

1918.94

1911.96

1.63

1.58

1.22

Net Fixed Assets Turn Over

TABLE-21 NET FIXED ASSET TURNOVER

Analysis:

A net fixed asset turnover is indicates that the companys sales over the
total fixed assets.

The net fixed asset is high at 1.63 in the year 2010-09.

Assets are almost same but sales and hence ratio has increased that is
good for the company.

6.3.4 (A) Inventory Turnover Ratios:

This Ratio indicates the number of times inventory is replaced
during the year. It measures the relationship between the costs of goods
sold and inventory level. The ratio can be calculated in that way,

Inventory Turnover Ratios =

Cost of Goods Sold

Average Inventory

39

Particulars

Year
2010-09

2009-08

2008-07

COGS

2545.08

2577.60

1949.87

Average Inventories

592.15

600.27

635.16

4.30

4.29

3.07

Inventory Turn Over

TABLE-22 INVENTORY TURN OVER RATIO

Analysis:

The Inventory Turnover Ratio indicates the turnover of the stock in the
company.

The high turnover ratio is high profit of the company and the vice versa.

The ratio is increases for the two consecutive years from 3.07 to 4.30
times. This is good for the company.

6.3.4 (B) Average Age of Inventories

An Average Age of Inventory is shows that after
how much period of time its inventory is replaced and it is calculated as
follow,

40

Average Age of Inventories =

No. of Days (360)

Inventory Turnover Ratio

Particulars

Year
2010-09

2009-08

2008-07

No. of Days

360

360

360

Inventory Turn Over

4.30

4.29

3.07

83.75

83.83

117.27

Days

TABLE-23 AGE OF INVENTORY

Analysis:

This ratio indicates the waiting period of the investments in inventories and
is measured in days, week or months.

If ratio is less, good for the company and vice versa.

No. days has been decreasing that is good for the company. But it is
almost same in 2010=09 compared to last year that is not good for the
company.

6.3.5 (A) Debtors Turnover Ratio:

Debtors Turn over

Credit
Average

Sales
Debtors

Where,
Average Debtors = (Beginning debtors + closing debtors)/2
Particulars

Year
2010-09

2009-08

2008-07

Credit Sales

3117.95

3030.17

2332.21

Average Debtor

269.28

250.49

216.37

11.58

12.09

10.77

Debtors Turn over

41

TABLE-24 DEBTORS TURNOVER

Analysis:

This ratio measures the efficiency of a company credit and the collection
policy. This ratio shows the number of times each year a companys
debtors turn into cash.

Here the ratio increased and then decreased to 11.58.It less so it is not
good for the company.

6.3.5 (B) Average Age of Debtors:

360 Days

Average Age of Debtor Debtors Turnover

Particulars

Year

No. of Days
Debtors Turn over
Days

2010-09

2009-08

2008-07

360

360

360

11.58

12.09

10.77

31

30

33

TABLE-25 AVERAGE DAYS OF DEBTOR

Analysis:

High average age of debtors is not good because it indicates poor

collections procedure and idle fund blocking in debtors.

The average age of debtors is compared with the credit period allowed to
the customers.

42

Here, we can see that the Average age has decreased and then increased
last year.

This is not good for the company. It should be less or equal to Average
days in 2008-07.

4.4 Finance Structure Ratios

Finance structure ratio indicates the relative mix or blending of owners
fund and outsiders debt funds in the total capital employed in the business. It
should be noted that equity funds are the prime fund, which increases
progressively through reinvestment of profits, while outside debt funds are
supplementary funds and are added at the discretion of the management.
Management prefers to choose debt only when it helps in enhancing the earning
of equity. The debt funds are used to generate ROI greater than interest costs on
debts, the equity earning is enhanced, but if the interest costs are higher than
ROI, it adversely affects the earning of owner. This ratio is popularly described as
debt equity ratio. Higher debt ratio is (I) good if ROI is greater than interest on
debts and it is (II) bad if ROI is less than interest on debts. Thus, use of debts is
considered as a Double- Edge weapon. Some popular finance structure ratios
are as under:

4.4.1 Equity Ratios

4.4.2 Debt Ratios
4.4.3 Debt-Equity Ratios
4.4.4 Interest Coverage Ratios
4.4.5 Debt Service Coverage Ratios

43

6.4.1 Equity Ratios

Equity

Ratio

Total

Net Worth
Capital Emplyed

Where,
Net Worth = Equity Capital + Reserves Misc. Expenses.
Total Capital Employed = Net Worth + Long Term Debts .

Particulars

Year
2010-09

2009-08

2008-07

Net Worth

2755.46

2601.04

2584.98

Total Capital Employed

3742.74

3734.83

3028.92

0.74

0.70

0.85

Equity Ratio

TABLE-26 EQUITY RATIO

Analysis:

This ratio suggests the proportion of the Net Worth to total capital
employed. Net Worth is share plus reserves and surplus. The higher the
ratio the higher the net worth in total capital employed and vice versa.

The ratio decreases year by year because of the capital the total capital
employed increased.

It was the highest value is 0.85 in the year 2008-07.

It is decreased by 0.74 in the year 2010-09.This is not good for company.

44

6.4.2 Debt Ratios:

Debt Ratios = Long Term Debt
Total Capital Employed

Particulars

Year
2010-09

2009-08

2008-07

Long Term Debt

987.28

1133.79

443.94

Total capital Employed

3742.74

3734.83

3028.92

0.26

0.30

0.15

Debt Ratio

TABLE-27 DEBT RATIO

Analysis:

This ratio suggests the proportion of long-term debt to Total Capital

Employed. Long-term debt is a debt, which is of more than five years
and includes interest thereon. The higher the long-term the higher the
total capital employed and vice-versa.

The ratio has increased and then decreased. This is good for the
company.

6.4.3 Debt Equity Ratio:

When debt funds are used to generate ROI greater than interest cost on
debt, the equity earning is enhanced, but if the interest cost is higher than the
ROI, adversely affect the earning owners. This ratio is popularly described as
Debt-Equity Ratio. Higher debt equity ratio is (1) good if ROI is greater than
interest on debt. Thus, use of debt (or leverage) is considered as a Double Aged
weapon.

45

Debt

Equity

Ratio

Total

Longterm Debt
Net Worth

Particulars

Year
2010-09

2009-08

2008-07

Total Long Term Debt

987.28

1133.79

443.94

Net Worth

2755.46

2601.04

2584.98

0.36

0.44

0.17

Debt-Equity Ratio

TABLE-28 DEBT-EQUITY RATIO

Analysis:

Debt Equity Ratio is debt to Equity. Debt means long term fund having
maturity of five years or more including interest thereon.
Equity is paid up share capital plus free reserves. The higher the debt fund
used in capital structure, the greater is the financial risk. This is also known
as leverage ratio.
we can see that the value is increasing and decreasing.
It should be 2:1 but industry ratio is 0.8:1. Still it is higher than companys
ratio. So, company should raise the debt.

6.4.4 Interest Coverage Ratios:

This Ratio indicates the use of interest becoming debt funds in

generating higher operating profits or EBIT. Higher is the Ratio better is the
utilization of the debt funds. Higher interest coverage ratio enhances the equity
earning (i.e. EBIT interest) is passed over to the equity finance of the
capitalization. It can be concluded as follow:

Interest

Coverage

Ratio

EBIT
Interest

46

Particulars

Year
2010-09

2009-08

2008-07

EBIT

308.04

165.74

234.50

Interest

31.72

47.41

7.92

9.71

3.50

29.60

Interest Coverage Ratio

TABLE-29 INTEREST COVERAGE RATIO

Analysis:

A high ratio implies adequate safety for payment of interest.

It decreased but in the year 2010-09 the ratio increased.

It is clearly indicates by the above calculation that interest expenses

decreases and also PBIT increase and so it implies that the debt of the
company decreases.

Thus in general we can conclude that the growth of the company is very
good.

47

4.6 Valuation Ratios:

Valuation ratios are the result of the management of the above four
categories of the functional ratios. Valuation ratios are generally presented on a
per share basis and thus are more useful to the equity investor. The per share
valuation are popularly presented as:
4.6.1

Earning Per Share (EPS)

4.6.2

Dividend Pay-out Ratios (DPS)

4.6.3

Dividend Yield

4.6.4

P/E Ratio

4.5.1 Earning Per Share:

If the company has issued preference share capital then net profit for
equity share = Net Profit - Preference Dividend. In absence of the preference
share capital net profit is taken in the numerator of the below formula.

Earning

Per

Share

Net profit for equity Shares

Number of Equity Shares

Particulars
Net Profit

Year
2010-09

2009-08

2008-07

229.01

87.04

217.5

14.95

5.86

13.66

No. of Equity Share

EPS

TABLE-31 EPS

Analysis:
48

It decreased in the year 2009-08 to 5.86 this is because of the net

profit decreased to 87.04

This provides companys future prices. It is increases gradually and

peaks in year 2010-09 at value 14.95. This is good for the company.

4.5.2 Dividend Pay Out Ratio:

This Ratio indicates the split of EPS between cash dividend and reinvestment of profit. If the company has profitable projects, then it will prefer to
keep D/P Ratio lower, it will re- invest higher proportion of the profit in the
business.

Dividend

Payout

Ratio

Dividend
Earning

Particulars

per shares
per shares

Year
2010-09

2009-08

2008-07

Dividend per Share

4.50

Earnings Per Share

14.95

5.86

13.66

Dividend payout Ratio.

0.26

0.76

0.29

TABLE-32 DIVIDEND PAYOUT RATIO

Analysis

This ratio indicates the splits of EPS between cash dividend and reinvest at
profit.

49

If the company has profitable project then it will keep D/P ratio lower it will
reinvest higher proportion of project in business.

Here the companys ratio is first increased but decreased in 2010-09

continuously. That means company is reinvesting their money.

So it is good for the long term investor but not good for the short term
investor. Company may provide higher profits after long-term. It is good to
invest for long term.

4.5.3 Dividend Yield Ratio:

The dividend yield represents the current cash return to shareholders. It is
computed by dividing the Dividend per Share by the current market price per
share. The investors also earn a return from a capital gain in shares.

Dividend

Yield

Ratio

Dividend per Share

*100
Average
Pr ice of Share

Particulars

Year
2010-09

2009-08

2008-07

4.50

Average market price

222

168

133

Dividend yield Ratio.

2%

2.67%

3.07%

Dividend per Share

TABLE-33 DIVIDEND YIELD RATIO

Analysis:

The lowest ratio is 2% in the year 2009-10 and it is high in the year in the
2009-08 and the value is 2.67%.

50

Higher ratio is good for the short term investor and lower ratio is good for
the long term investor. It is good in 2010-09 for long term investor.

4.5.4 P/E Ratios:

This ratio is a popular measure extensively used in investment
analysis. It is computed by dividing a Current Market Price of a share by the
annual Earning per Share. Many view the P/E Ratio as an indicator of a firms
growth prospects. It is used as a device to detect mix-priced stocks. A high Price
Earnings Ratio indicates the stock markets confidence in the companys future
earning growth.

P/E

Ratio

Current

Market Pr ice of Shares

Earning per Share

Particulars

Year
2010-09

2009-08

2008-07

222

168

133

Earnings Per Share

14.95

5.86

13.66

P/E Ratio

14.84

28.66

9.73

Current Market Price of Share

TABLE-34 P/E RATIO

Analysis:

This provides companys future price earning.

From the given chart we can see that the lowest value was achieved in the
year 2005-06.It is

With P/E ratio we can determine the price of its share in future as below.

51

Target price=EPS * Industrys P/E ratio.

Here EPS is 14.84 and Industrys P/E ratio is 15.7.

So Target price = 14.84 * 15.7 = 232.98

That means price will be 233 from 222 in future.

Chapter: 5
DU-PONT ANALYSIS
52

5.1 DU-PONT Chart:

ROI (in %)
2010:8.23%
2009:4.44%
2008:7.74%

53

Profit Margin (%)

Total Assets
Turnover

2010:9.87
2009:5.46
2008:10.05

2010:0.83
2009:0.81
2008:0.77

Investments
EBIT

Total Sales

2010:308.04
2009:165.74
2008:234.50

2010:537.91
2009:382.85
2008:342.73

Sales + Non-operating
Expenses

Operating Expenses
2010:1175.7
2009:1126.73
2008:822.62

2010:1713.61
2009:1509.58
2008:1165.35

Net Working
Capital

Net Fixed Assets

2010:1916.11
2009:1918.94
2008:1911.96

Total Fixed
Assets
2010:4298.43
2009:4048.53
2008:3738.92

2010:1713.11
2009:1663.94
2008:1425.04

2010:704.64
2009:874.42
2008:728.72

Accumulated
Depreciation
2010:2382.32
2009:2129.59
2008:1826.96

Total Current
Assets
2010:953.72
2009:1064.35
2008:924.18

Current Liability
+ Provision
2010:398.54
2009:325.21
2008:325.14

Analysis:

54

The DU-Pont chart indicates the rate of return on investments in

percentage.

The chart shows the allocation of financial performance of the company.

In the chart profit margin percentage and total assets turnover in times
is given. ROI is the multiplication of the profit margin and total assets
turnover.

We can say from the chart that profit margin decreased and then
increased. But in the last year it increased.

The reason behind the increment of profit margin is that the EBIT of the
company increases year-by-year. And the denominator, total sales also
increase but very minor differences.

The reason behind the increment in the total Assets Turnover ratio is
that the increment of Net Working Capital and Investment both are
increase simultaneously every year.

CHA-6
Comparison with peers and Future development

55

6.1 Industry Analysis:

6.1.1 Market Share

Nirma currently enjoys 20 per cent market share in the toilet soap industry under
its umbrella brands `Nirma' and `Nirma'.
56

6.1.2 Market Size

The First Detergent War was fought in the 80s when a small manufacturer in
Gujarat aggressively marketed a detergent powder called Nirmanationally at onefifth the price of existing detergent brands. The launch changed the profile of the
Indian detergent industry.

India's consuming class

Table I
Estimated households by
annual income
Annual
No. of
income (in
househol
Rupees) at
ds (in
1994-95
million)
prices
<25,000

80.7

25,001-50,000

50.4

50,001-77,000

19.7

77,001106,000
>106,000

8.2
5.8

Table II
Structure of the Indian consumer market (1995-96)
Annual
income
(in
Rupees)
at 199495 prices
<16,000

Classification

Number of
households (in
million)
Urba Rural Total
n

Destitute

5.3

27.7

33.0

16,00122,000
22,00145,000
45,001215,000
>215,000

Aspirants

7.1

36.9

44.0

Climbers

16.8

37.3

54.1

Consumers

16.6

15.9

32.5

The rich

0.8

0.4

1.2

Total no. of households:

Total no. of households
46.6
118.2 164.
164.9 million
8
Source: National Council of Applied Economic Research (NCAER). The above
presentation has been slightly modified by IndiaOneStop.Com

Data on income distribution of households is insufficient in determining

market size for different consumer products in India. This is because of the
lack of homogeneity of the consuming class and the varying prices of a
single product in different parts of India. For example, vegetables generally
cost more in Mumbai than in Calcutta, hence vegetable-purchasing power
for identical income groups would be different in the two places even
57

though they are the two biggest cities in India with comparable populations.
In other words, purchasing power is location-specific, not income specific.
Consumption habits of households are therefore better determinants of
consumer market size than income distribution. Of course, other factors are
also to be considered and they are detailed below.

While determining market size for a consumer product, the structure of the
consuming class as seen in Table II above, can be both revealing as well
as misleading depending on the kind of product. For example, any specific
consuming class would be fit to be a market for consumer products like tea
or soap, but a product such as vacuum cleaners would find market largely
only in the "consumers" and "rich" segments of the market as defined in
Table II above. Furthermore, even this may not be correct, because a taste
for a vacuum cleaner is not necessarily a function of purchasing power but
of culture and/or taste as well.

The prime market for consumer products in India is aware of the costbenefit or value for money, aspect. Their convent of value incorporates
socio-cultural benefits in addition to product utility. For example, many
households in the "consumers" class and the "rich" class (as defined Table
II) may have two television sets, but both the sets may not be top-of-theline. Thus, while they may be demand for an additional TV set in many
households in the two mentioned classes, it must not be mistaken as
demand for the higher priced TV models. The prime consumer market in
India therefore is not a market for absolute premium products, but for
something between the "high end popular brands" to the "premium brands.

77777 6.2 Market Growth

The Rise of Nirma In 1969 Karsanbhai Patels life typified that of millions of
other Indians. He worked as a chemist in a factory in Ahmedabad in the western
state of Gujarat. Earning a meager salary on which he was desperately struggling
58

to make ends meet. At the same time Karsanbhai recognized that there was a
vacuum in the rural Indian market for an affordable detergent. There were low
quality soap bars that did not wash very well and were very time-intensive or there
were up-market detergent brands that washed very well but were too expensive.
Karsanbhai recognized the need for an affordable detergent and concluded that a
good product would create its own market. On the basis of this rather simplistic
but accurate belief, Karsanbhai started conducting experiments in his kitchen. His
efforts finally yielded a pale whitish yellow powder that he named Nirma, after his
then one-year-old daughter Niranjana.
In no time he began producing small quantities of washing powder and
selling them to his neighbors. He packaged his product in small pouches with
neither colorful decorations nor designs. Every morning Patel got onto his bicycle
and

went from door-to-door selling his washing powder. Soon wholesalers and

distributors from different neighborhoods, towns, cities and states of India started
arriving at Karsanbhais doorstep to buy and redistribute Nirma. Karsanbhai took
on no responsibility for delivery or distribution; but his product was soon available
at every corner of India. Once Nirma arrived on the rural market things changed
for Indias poor -- they had an option.
By 1977 Nirma was the second largest volume seller in the country. Despite
this, no other company took Nirma seriously. The marketing gurus of the world
believed that Nirma was a regional product that was seeing temporary success
and that its bubble would soon burst. They predicted that at such a low sale price,
the margins Karsanbhai was making per unit would not sustain his business for
long. Moreover, Nirma is a superior company with a superior
Brand, and there was a strong belief that the only clients worthwhile pursuing
were the Indian middle class and elite. Since Nirma was not in premier market
segment, many other companies did not consider them a threat. The general
belief was that rural Indians were poor and the rural sector was too disorganized
to bother with.

59

6.3 COMPETITOR:
There is increased Competition not only from existing national players, and
stronger regional players, but also from a larger number of multinational
companies eyeing the Indian market as imports become more competitive in an
era of lower protection. In the past, a speedily growing and highly profitable
businesses (such as personal product and toilet soaps) subsidized higher
marketing investments in other segments. Today, the core soap and detergent
categories are de-growing and margins are under pressure. In personal products
the company has just managed to push up growth to double digits levels aided by
the power branding strategy. There too margins remain flat. The beverages
business continues to be impacted by an adverse commodity cycle. The foods
business is not mature enough - and would need further investments for a few
more years.
One of the starkest differences between other competitors and Nirma was the
price while the contents of the product may differ such a low cost detergent.
Aware that soda ash, the main raw material for of product, was abundant in
Gujarat, Karsanbhai set up shop in the vicinity. To keep a lean organization
Karsanbahi outsourced all the administrative functions. He contracted tasks like
selling, accounting, technical production capabilities and distribution. All this gave
him the flexibility to negotiate price during slow periods.

COMPETITORS
Shampoo:

Head & Shoulder

Pantene

60

Rejoice

Clinic All Clear

Sun silk

Clinic Plus

Detergent:

Ariel

Tide

Surf Excel

Surf Excel Blue

Rim Supreme

Rim Shakti

Wheel Active

Wheel Green

Salt:

Tata Salt

Annapurna salt

6.4 STRATEGY & MARKET SHARE

Nirma Ltds fiscal 2010 annual report shows the collateral damage it suffered from
the tussle between the multinationals, Hindustan Unilever Ltd (HUL) and Procter
and Gamble Home Products Ltd (P&G), for the prized Indian detergent market.
P&G's present strategy appears to mirror Nirma's original game plan, of using a
low price detergent to gain market share. P&G is happy with the initial results; its
management said in a conference call held after its June quarter results that Tide
shipments in India doubled, helped by the launch of Tide Naturals.

The Indian detergent market has been in lather for some time now. It all started in
fiscal 2009, when detergent companies hiked prices too sharply, in response to
higher raw material prices.
When inputs became cheaper, they held on in the hope of better margins, but
local players moved in for the kill with cheaper products. Nirma's per unit
realization on detergents rose by 34%, while HUL's rose by 30%, but their
61

volumes took a hit. P&G, too, jumped into the fray as part of its effort to grow
share in emerging markets.
Thus, fiscal 2010 became the year of corrections. HUL dropped prices on its mass
market detergents, and realizations went up by just 2.7% over the previous year,
but volumes fell by 3%. Despite price cuts, HUL's premium detergent brands
aided better realizations. The June quarter saw a better performance as HUL's
strategy is showing initial results.

Nirma's realizations fell by 9% in fiscal 2010, and its detergent volumes, too, fell
by 11%. Its revenue from selling detergents fell by a sharp 20% as a result. While
detergents contribute to nearly half of its stand-alone revenue, around 15% comes
from soaps. This category, too, witnessed price cuts by HUL.

Nirma had not hiked soap prices by much in fiscal 2009 and chose to hold on to
prices in fiscal 2010. That explains why its sales did not suffer, with volumes rising
by 1.6% and value sales rising by 2%.

Nirma finds itself under strain in the two main categories of soaps and detergents.
And the competitive intensity is not expected to reduce any soon.

Nirma's annual report gives few clues on how it intends to tackle the situation.
Instead, the company says it expects the soap and detergent market growth to
moderate or even decline. It predicts that volume growth will be marginal due to
high penetration. But the big players seem to think otherwise.

Nirma's focus appears to have shifted to its other businesses. It is now a

significant player in the chemicals market, an offshoot of its former backward
integration strategy. After acquiring an intravenous fluids business, it is setting up
a formulations plant too. A cement plant is being planned, with a 2 million ton
capacity

Comments on Latest Update:

At present Nirma ltd. is going through delisting phase.

62

The chairman has decided to buy back its share at 235 Rs/-.
This delisting is done for expansion plan.
The promoters of company are expected to come up with open offer to acquire
balance 3.63 core equity shares. Nirmas promoter has to shell out 853.66 crore to
buy them out.
This is done to attain flexibility to carry out its operation and facilitates its foray
into new capital intensive business.
Now Nirma is diversifying like Nirma cement, Nirma Power, Nirma pharma, Nirma
processed minerals and many else.

Chapter: 8
63

Recommendations and Suggestions

By analyzing the annual report of the company we can conclude that,

From the Liquidity Ratio we can recommend that the Liquidity of
the company is Very Good.
The Current ratio increases every year. The Current Assets
should be at least twice the Current Liabilities for a comfortable
liquid position. But here it more than 2 to 3 times, which very
good.
By the profitability ratio we can conclude that the profit of the
company decreased and then increased but it is slightly
increment.
But the Operating profit of the company is decreasing, so
company should try to reduce its Operating Cost by controlling
the expenses of Raw material consumption as well as the
selling, Distribution, and Administration and other expenses.
Here we can see that interest to be paid has been cut very well,
which is good for the company in the future.
Here from the analysis we can say that the company is not going
to spread its business because not considerable increase in the
investment has been found

64

Bibliography

Annual Reports of NIRMA LTD for period of 2005-06 TO 2009-10

WWW.NIRMA.CO.IN
Managerial accounting and financial book by R. Narayanswamy
Times of India News paper
WWW.BSEINDIA.COM
ACEANALYSER SOFTWARE

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66