10 Chapter5 PDF

CHAPTER 5
DATA AND DATE ANALYSIS

TABLE 5.1
AGROCHEMICALS: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
AIMCO PESTICIDES LTD. (524288) : GROUP-C

Operating Profit Margin(%)
6.68
7.66 14.78 11.15
10.6
2.3
Profit Before Interest And Tax Margin(%) 1.57
2.94 11.22 7.85
7.43
-1.71
Gross Profit Margin(%)
4.28 -6.06
5.04
-0.08
7.45
-9.53
Net Profit Margin(%)
-5.56 -9.76
1.62
-1.64
-5.67
-14.94
ATUL LTD. (500027) : GROUP-B
12.24 16.29 9.33
8.42
9.06
8.37
Profit Before Interest And Tax Margin(%) 10.33 11.63 4.67
4.44
5.52
4.97
8.90 12.09 6.57
6.07
6.6
6.16
5.45
5.55
0.37
2.31
10.07
2.78
BAYER CROPSCIENCE LTD. (506285) : GROUP-A
12.1 15.23 9.22 10.69
12.48
6.79
7.16
9.47
4.56
9.73 13.91 8.76 12.31
13.28
11.32
2.65
4.01
3.58
5.32
7.17
7.00
PAUSHAK LTD. (532742) : GROUP-C
-9.57 -13.01 -19.94 -14.06
30.65
20.18
155
2008
2009
2010
2011
2012
-19.5 -9.39 1.94 -6.81 -0.97

-24.91 -14.05 -0.52 -8.13 -1.39
-25.61 -14.14 -0.53 -8.19 -1.4
-36.92 -24.57 -8.51 -12.24 -4.3
7.22
4.27
4.3
3.4
13.16
10.39
10.48
2.98
12
8.76
8.86
4.39
12.16
9.57
9.65
6.21
11.32
8.85
8.89
4.88
7.97
5.81
5.85
3.94
11.76
10.04
10.13
6.31
12.88
11.28
11.35
7.33
10.76
9.2
9.24
6.12
11.36
9.73
9.86
6.04
13.5
22.18
19.25
18.68
14.71
Profit Before Interest And Tax Margin(%) -10.1 -12.12 -16.54 -16.96
25.00
15.07
7.22 16.83 13.23 12.84 9.47
-8.4 -8.62 -4.28 -7.59
32.22
20.5
7.25 17.03 13.52 13.41 9.79
-10.0 -9.94
1.49
-8.2
22.42
11.37 14.12 12.24 8.27 12.01 9.92
RATIOS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
PI INDUSTRIES LTD. (523642) : GROUP-B
7.50
7.94
9.6
8.86
7.56
8.33
7.8
12.26 13.92 14.57 14.77
4.89
6.92
6.54
5.14
5.87
5.45 10.09 11.75 12.64 12.91
5.12
4.64
7.1
7.4
5.46
5.55
5.46 10.11 11.77 12.65 12.98
0.33
0.24
2.45
3.12
1.29
1.24
1.5
4.46
6.87
8.1
10.47
SOCRUS BIO SCIENCES LTD. (524719) : GROUP-C
-0.66 -0.70 -0.75
-0.1 -0.60 10.00 10.67 9.87 11.32 18.9 21.44
Profit Before Interest And Tax Margin(%) -1.78 -0.40 -1.59 -0.35 -0.56 4.00
7.56 10.10 13.93 18.49 21.24
2.00
4.35
1.31
0.35 11.46 8.78
9.89 12.50 14.67 18.6 21.27
0.45
0.24
-2.94
0.05 -19.4 -16.07 3.82
0.35
2.59
20.8 16.95
UNITED PHOSPHORUS LTD (512070) : GROUP-A
21.34 27.91 23.4 19.54 21.02 15.84 6.85
13.7 12.74 14.3 13.33
Profit Before Interest And Tax Margin(%) 13.78 13.92 17.16 13.69 14.55 8.48
2.27
9.55
8.48 10.12
8.6
13.56 17.2
15.3
14.7 17.46 14.75 2.47 10.09 8.74 10.53 8.92
1.53
1.54
6.25
6.18
8.7
7.37
5.54
6
6.51
4.97
6.72
156
CHART 5.1
CHART 5.2
157
CHART 5.3
CHART 5.4
158
CHART 5.5
CHART 5.6
CHART 5.7
159
5.1
PROFITABILITY ANALYSIS OF AGROCHEMICALINDUSTRY:
5.1.1
Operating Profit Margin:
The purpose to include this ratio for the study is to examine the debt-contracting
capacity of a company. It is found that in most of the companies, the operating profit
margin ratio is higher when compared with other profitability ratios. This implies that
in the Agrochemical industry, on an average the proportion of a company's revenue
left over after paying for operating costs of production such as wages, raw materials,
etc. is high. In Group A, B and C companies the average operating profit ratios are
14.14, 10.65 and 6.22(%) respectively and the average Debt-Equity ratios are 0.82,
1.09 and 3.14. Group A companies have the highest operating profit margin ratio and
both Group A and Group B companies can increase the amount of debt whereas
Group C companies have the lowest operating profit margin ratio and still have
courted a much greater amount of leverage.
5.1.2
Profit Before Interest and Tax Margin:
This ratio is a fundamental base to calculate the interest coverage efficiency of the
respective company. Thus this ratio is used in the study. This ratio reflects all profits
before taking into account interest payments and income taxes. PBIT margin nulls the
effects of the different capital structures and tax rates used by different companies.
The ratio is fairly consistent in Group A Agrochemical companies except for the years
2007 and 2008 which show a dip in the ratio. In Group A, B and C companies the
average Profit before Interest and Tax ratios are 9.77, 7.76 and 2.93 (%) respectively
and Debt-Equity ratios are 0.82, 1.09 and 3.14. Group A companies have the highest
profit ratio and both Group A and Group B companies have a choice of opting for
greater amount of debt to accelerate their profitability whereas Group C companies
have the lowest profit ratio and in that context it has a higher amount of leverage.
5.1.3
Gross Profit Margin:
This ratio is a barometer of how efficiently a business unit carries out its
manufacturing activities. It was the highest, on an average, in the year 2006 for all the
agrochemical companies. But in the recent years it can be seen to be on the lower
side. In Group A, B and C companies the average Gross Profit ratios are 11.32, 8.14
and 3.28 (%) respectively and Debt-Equity ratios are 0.82, 1.09 and 3.14. Group A
160
companies have the highest profit margin ratio and both Group A and Group B
companies have the potential to opt for more leverage and use greater profits to
service greater amount of debt for higher profitability whereas Group C companies
have a much greater amount of leverage even though the profit ratio is low.
5.1.4
Net Profit Margin:
This ratio can be considered as one of the parameters to sustain existing investors and
to attract potential investors. This ratio is showing net figure of profit available for
equity shareholders or for re-investment in business. In Group A, B and C companies
the average Net Profit ratios are 5.56, 4.13 and -1.23(%) respectively and DebtEquity ratios are 0.82, 1.09 and 3.14. Group A companies have reported the highest
profit margin ratio and as such Group A and Group B companies can use the
augmented profitability to service greater amount of debt which can lead to greater
profits, whereas Group C companies have the lowest profit ratio (negative) and still
have opted for a much greater amount of leverage.
161
TABLE 5.2
AGROCHEMICALS: LIQUIDITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Current Ratio
1.1
1.13
1.1
1.07
2.09
1.91
4.97
1.37
1.25
2.63
0.89
Quick Ratio
3.0
3.15
3.06
2.55
3.82
2.62
3.12
3.05
2.01
1.6
0.6

Current Ratio
1.42
1.10
1.18
1.00
0.97
1.04
1.05
1.49
1.44
1.02
1.83
Quick Ratio
1.56
1.42
1.42
1.29
1.27
1.50
1.51
1.44
1.21
1.33
1.19

Current Ratio
0.97
1.45
1.44
1.63
1.6
1.60
1.10
1.34
1.33
1.25
1.5
Quick Ratio
0.86
1.28
1.06
1.16
1.33
1.33
0.75
0.7
0.81
0.85
1.01

Current Ratio
6.78
7.33
12.54
1.38
1.73
0.64
0.71
0.75
0.86
1.94
1.23
Quick Ratio
6.89
7.33
12.22
3.90
4.40
0.45
0.65
0.58
0.84
1.10
1.15

Current Ratio
0.73
0.74
0.88
0.87
0.73
0.71
0.65
0.68
0.99
0.79
0.98
Quick Ratio
0.56
0.59
0.52
0.71
0.78
1.00
1.15
0.98
0.87
1.10
0.98
162

Current Ratio
17.6
17.73 36.38
7.08
38.17 176.97 2787.71 335.49 618.08 324.31 300.33
Quick Ratio
7.66
8.22
5.15
34.46 158.88 2522.81
20.78
105.8
322.56 221.47 188.79

Current Ratio
0.8
0.9
1.52
2.03
1.77
2.38
2.59
2.76
3.39
2.32
2.37
Quick Ratio
0.24
0.34
1.58
1.77
1.75
2.6
2.46
2.99
3.35
2.95
2.57
163
CHART 5.8
CHART 5.9
164
CHART 5.10
CHART 5.11
165
CHART 5.12
CHART 5.13
CHART 5.14
166
5.2
LIQUIDITY ANALYSIS OF AGROCHEMICAL INDUSTRY:
5.2.1
Current Ratio:
It is found that in majority of the companies, the current ratio was at its peak in the
year 2008 and at its lowest in the year 2002. This shows the level of fund sufficiency
or insufficiency in those years. In Group A companies, however, the current ratio has
been fairly high to show them up to be properly liquid. In Group A, B and C
companies the average Current ratios are 1.77, 1.01 and 156.33 respectively and
Debt-Equity ratios are 0.82, 1.09 and 3.14. Group C companies have the highest
Debt-Equity ratio and yet their average Current Ratio is the highest. Hence these
companies have sufficient liquidity and the debt raised has not adversely affected the
companies liquidity position. The Group A and B companies have slightly lower
Current ratio and also have lower Total Debt to Owners Fund ratios.
5.2.2
Quick Ratio:
This ratio is a reflection of how much quick liquidity does a firm enjoy. In Group A, B
and C companies the average Current ratios are 1.62, 1.11 and 121.57respectively
and Debt-Equity ratios are 0.82, 1.09 and 3.14. Group C companies have the highest
debt ratio and yet their average Quick Ratio is the highest. Hence these companies
have sufficient liquidity and it follows that the debt raised has not hampered the
companies liquidity position. The Group A and B companies have comparatively
much lower Quick ratio and also have lower Debt-Equity ratio.
167
TABLE 5.3
AGROCHEMICALS: SOLVENCY RATIOS
RATIOS
2002 2003 2004
2005
2006
2007
2008
2009
2010
2011
2012

Interest Cover
0.35
0.35
1.15
0.73
0.63
-0.09
-0.99
0.84
0.53
0.23
-0.16
Financial Charges Coverage Ratio
0.56
0.58
1.26
0.88
0.76
-0.20
-0.72
0.52
0.25
1.01
-0.02
Debt Equity Ratio
1.37
1.26
1.47
1.71
1.33
1.54
2.30
3.30
4.60
5.17
5.17
Long Term Debt Equity Ratio
0.47
0.53
0.59
0.69
0.96
1.14
2.30
2.08
2.87
2.73
2.73

Interest Cover
2.28
2.28
1.4
1.67
1.91
1.92
1.6
3.38
4.75
6.45
3.88
2.91
2.91
2.61
2.81
2.8
2.92
2.48
4.05
6.12
7.78
4.89
Debt Equity Ratio
1.26
1.08
1.84
1.31
1.26
1.37
1.06
0.79
0.72
0.64
0.59
0.58
0.81
1.30
0.80
0.79
0.85
0.86
0.66
0.41
0.64

Interest Cover
3.39
6.28
5.43
12.07 12.38
13
13.75
15.19
17.94 26.14
150
3.04
4.26
6.56
12.33 13.19 14.08 14.19
14.91
18.07 27.25
170
Debt Equity Ratio
1.67
0.60
0.30
0.41
0.33
0.28
0.19
0.09
0.20
0.16
0.17
1.1
0.37
0.16
0.28
0.11
0.22
0.10
0.07
0.07
0.12
0.14

168
Interest Cover
0.38
-0.30 -0.28 -1.23 13.26
5.39
2.74
6.25
5.69
12.78 14.26
0.18
-0.15 -0.32 -0.36 14.15
6.11
4.62
7.65
7.31
16.57 19.56
Debt Equity Ratio
0.28
0.23
0.55
0.87
0.82
0.30
0.27
0.08
0.08
0.08
0.09
0.28
0.23
0.55
0.23
0.33
0.08
0.07
0.07
0.08
0.08
0.08

Interest Cover
1.29
1.31
2.46
3.61
2.07
1.89
1.52
2.79
4.41
6.49
6.42
1.67
1.73
3.03
3.76
2.47
2.29
1.88
2.87
4.58
6.37
7.27
Debt Equity Ratio
1.56
1.58
1.02
1.39
1.81
2.51
2.61
2.19
1.26
1.23
0.73
0.78
0.88
0.74
0.88
1.04
1.35
1.28
0.92
0.46
0.37
1.4
3.27
5.46
3.2
5.54
3.22

Interest Cover
1.25
1.3
2.57
1.2
1.2
1.2
1.2
2.9
3.04
9.55
1.67
-6.74
1.02
79.34 126.29
Debt Equity Ratio
0.23
0.01
0.56
0.97
5.15
5.69
5.91
5.91
5.91
5.23
5.43
0.23
0.01
0.56
0.97
5.15
5.69
5.73
5.73
5.81
5.11
5.11

Interest Cover
1.34
1.31
2.05
2.47
3.01
2.39
1.65
3.36
2.94
2.57
2.21
1.56
1.75
2.5
2.97
3.82
2.98
2.17
3.7
3.58
3.11
2.86
Debt Equity Ratio
1.30
1.30
1.28
0.92
1.12
1.76
0.90
1.12
1.12
1.08
0.41
1.11
1.11
1.05
0.84
1.05
1.67
0.87
1.03
1.08
0.96
0.31
169
CHART 5.15
CHART 5.16
170
CHART 5.17
CHART 5.18
171
CHART 5.19
CHART 5.20
CHART 5.21
172
5.3
SOLVENCY ANALYSIS OF AGROCHEMICAL INDUSTRY:
5.3.1
Interest Cover Ratio:
As can be seen from the above diagrams, the interest coverage ratio on an average has
been raising over the number of years which is a good indicator of the industrys
earning capacity and debt-repayment capacity. The meteoric rise from an average of
1.67 to 25.69 substantiates the point. This is prominent only in Group A and Group B
companies. The average Interest Cover ratios for Group A,B and C companies are
13.29, 3.11 and 4.77 (times) respectively and the Debt-Equity ratios are 0.82, 1.09
and 3.14 respectively. Group A companies have employed lower amount of debt and
hence its Interest Cover ratio is very high which is also partially due to high
profitability of the group. In spite of high debt in capital structure of Group C
companies as compared to Group B companies, the interest cover is healthier than
that of Group B companies. Group C companies have managed to service debt
effectively and have justified the use of debt.
5.3.2
Financial Charges Coverage Ratio:
A barometer of how many times a companys Earnings Before Interest and Taxes
covers not only interest on debt but also other financial charges such as preference
dividend and even lease rentals etc. . Overall trend in the industry shows
improvement. But only Group A companies have shown consistent and marked
improvement in their debt-servicing capacity. Group B companies have shown mild
improvement over the years. The cover ratios for Group A, B and C companies are
and 3.14respectively.Group A companies have employed lower amount of debt and
hence its cover ratio is very high which can be attributed partially to high profitability
of the group. In spite of high debt in capital structure of Group C companies, the
charges cover ratio is the highest. Group C companies have managed to service debt
effectively and have justified the use of debt and there is a possibility that such
companies may be able to increase the use of debt.
5.3.3
Debt-Equity Ratio:
This ratio is a barometer of how solvent a business unit is and the type of liabilities it
carries. The higher the ratio, the higher is proportion of total borrowings as compared
173
to equity funds. The Debt-Equity ratios for Group A, B and C companies are 0.82,
1.09 and 3.14 respectively. Group A companies have comparatively lower debt-equity
ratio and Group C companies have comparatively higher Debt-equity ratio.
5.3.4
Long Term Debt-Equity Ratio:
In Group A companies the prominence of Long-term debt comes to the fore. But it is
the Group C companies which are highly levered in terms of long term debt. The
long-term liabilities normally entail fixed charges which heap a very heavy burden on
low profit earning companies as is evident in Group C companies. Group A
companies seem to have done away with long-term debt towards the latter years
rhyming with financial wisdom. For Group A, B and C companies, ratios are 0.81,
0.86 and 3.12 respectively.
174
TABLE 5.4
AGROCHEMICALS: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2009
2010
2011
2012

1.57 1.78 1.58
1.34
1.46 1.07 0.78 1.22
1.83
3.31
6.26
Investments Turnover Ratio
1.39
1.28
1.43
1.07
1.38
1.30
1.75
1.19
1.94
2.14
1.50
Asset Turnover Ratio
1.78
1.23
1.52
1.43
1.45
1.13
0.75
0.35
0.69
3.1
13.44
Inventory Turnover Ratio
2002
2003
2004
2005
2006
2007
2008

3.22
3.34
3.66
4.1
4.00
5.34
5.98
7.22
6.59
6.99
7.3
3.78
3.97
4.47
5.03
4.95
6.52
7.08
7.12
6.10
6.49
6.12
1.01
1.01
0.91
1.04
1.21
1.28
1.17
1.41
1.48
1.83
1.91

5.26
7.26
5.5
3.97
4.20
4.20
6.99
5.06
5.35
5.3
4.89
5.86
8.55
6.55
4.66
4.80
4.80
5.09
5.19
5.35
4.31
4.79
2.34
3.09
2.61
2.14
2.35
2.35
3.04
3.43
3.69
3.99
2.88

6.30
6.3
4.5
6.1
6.83
3.97
5.7
7.35
8.64
6.37
4.69
3.78
3.97
4.47
5.03
4.95
6.52
5.98
7.22
6.59
6.99
7.30
6.45
6.87
9.93
1.26
1.5
1.19
0.99
1.16
1.02
1.11
1.03
5.79
6.64
6.38
5.60

4.50
4.50
6.11
5.42
175
5.17
5.19
7.67
5.60
5.40
7.16
6.93
6.28
6.11
6.67
6.09
6.14
6.08
6.60
1.37
1.67
2.05
2.31
1.87
1.83
1.85
1.92
2.03
2.12
1.91
1.01
7.36
10.49
4.97

5.84
5.84
1.14
3.44
1.36
1.01
1.06
Investments Turnover Ratio 16.86 16.84 15.12 121.78 23.64 17.57 15.57 16.76 14.00 14.29 14.01
16.65 17.32
5.64
15.65
4.97
3.7
3.27
3.53
3.34
0.93
0.79

5.45
5.85
8.56
7.16
6.74
5.69
5.98
4.94
10.92
8.59
6.66
5.01
5.39
6.19
7.03
7.18
6.10
6.10
6.10
6.34
6.89
6.11
0.19
0.21
1.06
1.25
1.50
1.48
1.47
0.68
0.67
0.69
0.67
176
CHART 5.22
CHART 5.23
177
CHART 5.24
CHART 5.25
178
CHART 5.26
CHART 5.27
CHART 5.28
179
5.4.
EFFICIENCY ANALYSIS OF AGROCHEMICAL INDUSTRY:
5.4.1
Inventory Turnover Ratio:
A barometer of how efficient a company is in selling its products. In Group A

companies the Inventory Ratio has been high in the initial years but in the last 3 years
it shows a decline which is indicative of mild stock glut with the group of companies.
These companies could improve their profitability by selling their products more
effectively thereby reducing the cost of inventory pile-up and minimizing loss in
profit. In Group B companies it is very high all through the years. There is a chance
that the companies in this group could also be facing intermittent stock out situations.
As can be expected the ratio is abysmally low all through the years which explains
why the companies in this group are experiencing dwindling profits and poor liquidity
too. The average Inventory Turnover ratios for Group A, B and C companies are
6.17, 5.65 and 3.88 (times) respectively and the Debt-Equity ratios are 0.82, 1.09 and
3.14 respectively. It can be seen that Group A companies have the highest turnover
ratio and is least levered. There is a potential for these companies to employ and
efficiently service greater amount of debt. The same can be used to invest in
productive assets to further accelerate earnings. Group C companies have the lowest
turnover ratio but have a very high Debt-Equity ratio which could be because of
sluggish movement of inventory.
5.4.2
Investments Turnover Ratio:
A barometer of how many times the net worth of a company is covered by its net
sales. The Group A and Group B companies have enjoyed a very high Investments
Turnover Ratio which is par for the course for such companies. But the companies in
Group C have suffered a very low Investments Turnover Ratio. This brings home the
point that these companies have solvency issues and that their sales are so low as
compared to the amount invested. Such companies with the given track record may
find it difficult to raise money from the financial markets as prospective investors
would be wary of them. The average Investments Turnover ratios for Group A,B and
C companies are 7.21, 6.15 and 16.28 (times) respectively and the Debt-Equity ratios
are 0.82, 1.09 and 3.14 respectively .Group C companies cover their investments
many more times than the Group A and B companies despite having a high Total Debt
180
to Owners Fund ratio. Group A companies on an average have a greater amount of

owners funds and hence its sales cover the net worth fewer no. of times.
5.4.3
Assets Turnover Ratio:
Assets are used to generate sales and this establishes a relationship between sales and
assets of a company. On an average the Assets Turnover Ratio of Group A companies
is higher which shows that these companies have utilised their assets very efficiently
to generate high sales volume. The average Assets Turnover ratios for Group A,B and
are 0.82, 1.09 and 3.14 respectively .Group C companies cover their assets more
times than the Group A and B companies despite having a high Debt-Equity ratio.
This could be because of high volume of sales and less investment in assets. Group A
and B companies, because of high value of assets acquired, may have posted a lower
turnover ratio. Group C companies have put the debt to judicious and gainful use or
have invested in productive assets to generate a healthy sales volume.
181
TABLE 5.5
AUTO PARTS &EQUIPMENT: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
BOSCH LTD. (500530) : GROUP-A

16.79 21.29 23.55 18.91 18.72 17.73 16.19 13.52 16.09 17.39 17.12
Profit Before Interest And Tax Margin(%)
9.67
15.52 18.72 11.89 11.87 11.38
9.29
6.94
11.92 13.73 13.76
18.77
23.4
9.68
7.23
12.3
14.19 14.27
8.3
11.88 15.34 11.04 13.95 13.66 13.11 11.72
12.4
13.5
25.94 12.31 12.25 11.82
13.09
EXIDE INDUSTRIES LTD. (500086) : GROUP-A

18.78 18.87 18.72 12.57 14.48

8.41
14.8
14.89 14.63 21.21 17.38 13.66
10.87 12.17 12.84 12.81 19.24 15.42 11.54
15.56 15.61 17.89 11.78 13.35 13.64 12.86 12.82 19.29 15.74 11.69
5.90
5.93
7.41
182
5.92
6.49
7.43
7.92
7.55
12.7
12.86
8.89
JAY USHIN LTD. (513252) : GROUP-C

10.87 10.87
8.3
7.82
4.98
3.92
5.06
5.52
4.72
5.33
2.82
7.59
7.07
5.01
4.6
1.93
1.21
2.99
3.04
2.42
3.31
0.64
6.61
6.62
6.62
7.97
4.71
3.93
3.03
3.09
2.46
3.36
0.65
2.93
2.72
3.05
2.88
1.16
0.42
1.86
0.79
1.66
2.27
0.49
18.96 15.94 15.08 13.59 14.03
8.1
11.37 11.44 14.36
KALYANI FORGE LTD. (513509) : GROUP-C

18.87
18.1
Profit Before Interest And Tax Margin(%) 11.59 11.83 14.45 12.18 11.19
9.61
9.57
2.5
4.91
6.63
10.04
15.61 16.91 19.03 15.97 14.74
9.64
9.64
2.53
4.97
6.68
10.08
5.93
6.03
4.91
0.56
1.99
2.72
4.8
6.74
10.01
7.99
6.93
MOTHERSON SUMI SYSTEMS LTD. (517334) : GROUP-A

19.37 19.53 20.97 19.14 17.07 17.39 15.96 14.67 16.61 15.45 15.99
Profit Before Interest And Tax Margin(%) 13.59 12.37 14.98 14.23 11.85 12.95 12.03 10.36 12.67 12.35 12.41
183

17.71 18.95 20.77 19.52 16.53 16.99 12.15 10.52
12.9
7.63
8.5
10.49 11.08 10.66 10.31
12.52 12.71
9.66
5.21
10.07 10.01
8.67
OMAX AUTOS LTD. (520021) : GROUP-B

9.87
9.69
9.07
9.4
8.6
9.89
8.18
7.6
7.45
6.82
6.79
6.59
6.69
6.11
6.09
5.75
6.72
4.34
4.03
4.03
4.25
4.44
9.61
9.71
9.11
9.24
8.18
6.81
4.44
4.09
4.08
4.29
4.48
3.93
3.86
4.2
3.78
3.23
3.38
2.2
0.82
1.62
1.83
2.16
7.80
8.21
10.47
12.6
11.55
Profit Before Interest And Tax Margin(%) 13.59 13.59 12.37 14.98 14.23 13.31 12.95 12.03
7.71
10.73
9.88
PRADEEP METALS LTD. (513532) : GROUP-B


4.87
3.5
5.49
8.08
7.66
7.09
15.61 15.89 15.81 16.77 16.91 11.02
9.81
9.90
10.03 11.77 10.04
5.93
5.28
10.33
0.62
-5.32
0.20
184
4.08
3.23
4.52
2.46
5.18
TRITON VALVES LTD. (505978) : GROUP-B

19.1
10.58
6.98
9.81
11.98 13.44 12.27
9.18
Profit Before Interest And Tax Margin(%) 23.53 22.60 21.20 16.86
8.15
5.19
6.89
8.41
9.75
9.03
5.49
26.61 24.75 23.96 19.59 11.27
5.22
6.91
8.43
9.77
9.04
5.52
11.08 12.15 12.17 11.32
3.09
3.21
3.61
5.25
4.83
1.43

20.87 25.08 23.63
185
5.81
CHART 5.29
186
CHART 5.30
CHART 5.31
187
CHART 5.32
CHART 5.33
188
CHART 5.34
CHART 5.35
189
5.5
PROFITABILITY ANALYSIS OF AUTO PARTS & EQUIPMENT

INDUSTRY:
5.5.1
It is observed that in the operating profit margin ratio is on the decline as far as Group
A companies are concerned. This implies that in these companies the operating
efficiency has suffered a little which will have an adverse impact on their overall
profitability. In Group C companies it has always been on the decline which is a
sinister indication of inadequate profitability. In Group A, B and C companies the
average operating profit ratios are 17.05, 11.50 and 10.02(%) respectively and the
average Debt-Equity ratios are 0.48, 0.53 and 0.51. Group A companies have the
highest operating profit margin ratio but has the lowest Debt-Equity ratio and both
Group A and Group B companies can make use of their good operating efficiency to
increase the amount of debt whereas Group C companies have comparatively lower
operating profit margin ratio and yet has the highest Debt-Equity ratio which means
they have the highest amount of leverage.
5.5.2
The ratio is fairly consistent in Group A companies but it is steadily declining in

Group B and fluctuating in Group C companies. Group A dominates and comes out
on top amongst all the companies which shows that those companies in this group are
highly profitable irrespective of the capital structure related advantages or
disadvantages. In Group A, B and C companies the average Profit before Interest and
Tax ratios are 12.38,8.63 and 6.26(%) respectively and Debt-Equity ratios are 0.48,
0.53 and 0.51. Group A companies have enjoyed much higher profit ratio and they
have a choice of opting for greater amount of debt to accelerate their profitability
because they are least levered. Group C companies have the lowest profit ratio and in
that context it has a marginally higher amount of leverage when compared with
Group B companies. Group B companies have the highest Debt-Equity ratio and yet
their Profit ratio is higher than that of Group C companies.
5.5.3
This ratio which is a barometer of how efficiently a business unit carries out its
manufacturing activities was the highest, on an average, in the year 2004 for all the
190
automobile companies. But in the recent years it can be seen to be slightly on the
lower side. Group A companies outperform the rest of Group companies. It has been
declining in the last few years which shows that supply of raw materials is either
shrinking or cost or raw material is rising or inefficient or underutilization
of
productive resources. In Group A, B and C companies the average Gross Profit ratios
are 15.03, 9.77 and 7.63 (%) respectively and Debt-Equity ratios are 0.48, 0.53 and
0.51. Group A companies have the highest profit margin ratio and they are least
levered. In this context it can be seen that both Group A and Group B companies have
the potential to opt for more leverage and use greater profits to service greater
amount of debt which if put to judicious and gainful use can further augment
profitability of Group A companies. Group C companies have comparatively greater
amount of leverage even though the profit ratio is low in comparison with Group B
companies.
5.5.4
Net Profit Margin:
Group B and Group C companies clearly have dwindling net profit margins which
does not augur too well for their financial health. This shows that the companies in
that particular group are precariously poised in the market and Group C companies
are struggling to show noticeable return. Group A companies have fared remarkably
well. In Group A, B and C companies the average Net Profit ratios are 9.94, 4.02 and
3.50 (%) respectively and Debt-Equity ratios are 0.48, 0.53 and 0.51. Group A
companies have the highest profit margin ratio and as such Group A and Group B
companies can use the augmented profitability to service greater amount of debt
which can further lead to greater profits, whereas Group C companies have the
lowest profit ratio and still have opted for a much greater amount of leverage. Group
C companies seem to have been impacted by the slightly high use of debt.
TABLE 5.6
AUTO PARTS &EQUIPMENT: LIQUIDITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
1.81
1.96
2.44
2.15
2.12
2.09
2.10

Current
1.5
1.71
1.66
1.64
191
Ratio
Quick Ratio
1.14
1.23
1.17
1.19
1.28
1.43
1.86
1.67
1.58
1.46
1.67

Current
Ratio
0.94
0.83
0.95
0.82
0.99
0.94
1.14
1.08
1.39
1.53
1.48
Quick Ratio
0.38
0.81
0.56
0.82
0.59
0.38
0.48
0.55
0.46
0.54
0.54

Current
Ratio
0.59
0.65
0.6
0.51
0.6
0.61
0.72
0.61
0.58
0.69
1.15
Quick Ratio
0.43
0.56
0.85
0.74
0.67
0.45
0.55
0.57
0.51
0.61
0.69

Current
Ratio
1.04
1.16
1.36
1.38
1.25
1.08
1.11
0.87
0.88
0.73
2.11
Quick Ratio
1.08
1.07
1.09
1.31
1.23
1.32
1.66
1.29
1.27
1.34
1.58

Current
Ratio
0.84
0.84
0.84
0.78
1.18
1.08
0.9
0.79
0.82
0.73
0.73
Quick Ratio
0.92
0.92
0.84
0.72
1.37
1.2
1.14
0.75
0.81
0.96
0.9

Current
Ratio
0.5
0.6
0.81
0.71
0.6
0.51
0.52
0.62
0.59
0.83
0.8
Quick Ratio
1.67
1.48
1.25
1.33
1.62
1.62
1.4
1.6
1.27
0.96

Current
Ratio
0.5
0.4
0.41
0.44
0.47
0.55
0.67
0.76
0.74
0.68
0.72
Quick Ratio
0.67
0.92
1.08
1.88
2.5
1.61
1.8
2.08
1.99
1.85
1.57

Current
Ratio
2.15
3.16
2.59
3.42
1.3
1.19
0.88
0.79
0.79
1.02
1.98
Quick Ratio
1.73
1.97
1.62
2.05
2.34
2.66
2.34
2.52
1.92
1.17
1.15
192
CHART 5.36
CHART 5.37
193
CHART 5.38
CHART 5.39
194
CHART 5.40
CHART 5.41
CHART 5.42
195
5.6
LIQUIDITY
ANALYSIS
OF
AUTO
PARTS
&EQUIPMENT
INDUSTRY:
5.6.1
Current Ratio:
This shows the level of fund sufficiency or insufficiency of a particular business unit.
In Group A companies, however, the current ratio has been satisfactorily high and it
reveals a healthy liquidity position enjoyed by them. As can be expected, the Group C
companies have been ill-liquid over the years but 2011 afterwards there is a marked
improvement in this regard. Here the Group B companies have a rather low Current
Ratio and it shows early signs of cash crunch. In Group A, B and C companies the
average Current ratios are 1.30, 0.98 and 0.93 respectively and Debt-Equity ratios
are 0.48, 0.53 and 0.51. Group C companies have comparatively higher Debt-Equity
ratio and yet their average Current Ratio is the lowest of all. Group A companies also
enjoy a good working capital position and these companies have sufficient liquidity.
So they can use these financial circumstances to opt for greater leverage and the debt
so raised will not adversely affect the companies liquidity position. Group B and C
companies have lower Current Asset ratios and they have higher Debt-Equity ratios.
5.6.2
Quick Ratio:
Even when the quick ratios are considered the story remains largely the same. On the
one hand the Group A companies have been adequately liquid and on the other Group
C companies have turned in a rather dismal performance on this count. Such
companies cannot and will not contract debt, unless made feasible by change of
fortune. Group B companies are running neck and neck with Group A companies
which augurs well for them. In Group A, B and C companies the average Quick ratios
are 0.98, 1.71 and 0.97respectively and Debt-Equity ratios are 0.48, 0.53 and 0.51.
Group B companies have the highest debt ratio and yet their average Quick Ratio is
the highest. Hence these companies have sufficient liquidity and it follows that the
debt raised has not hampered the companies liquidity position. The Group A and C
companies have comparatively much lower Quick ratio and also have lower DebtEquity ratio.
196
TABLE 5.7
AUTO PARTS &EQUIPMENT: SOLVENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
127.6 34.99 91.41 178.8 73.58 469.6 264.3
3299
4067

Interest Cover
29.4
73.4
Financial Charges Coverage Ratio 45.00
93.8
151
49.6
129.9 246.4 108.2 725.4 328.8
3903
3708
Debt Equity Ratio
0.11
0.11
0.12
0.11
0.10
0.10
0.09
0.08
0.08
0.08
0.13
0.06
0.09
0.10
0.10
0.09
0.09
0.08
0.07
0.08
0.08
0.08

Interest Cover
8.98
3.98
12.2
8.73
7.26
9.08
10.72 14.11 117.1 149.9 125.6
5.18
5.18
15.04 11.67
8.92
10.31
11.6
14.63 91.06 113.6 101.6
Debt Equity Ratio
0.52
0.95
0.59
0.68
0.57
0.52
0.35
0.26
0.40
0.36
0.36
0.39
0.59
0.42
0.29
0.46
0.39
0.28
0.20
0.40
0.30
0.30

Interest Cover
2.18
1.53
2.18
3.75
1.94
2.88
1.9
2.21
2.68
1.16
1.18
1.89
2.79
4.67
3.54
3.86
4.24
2.81
3.38
3.68
2.17
197
Debt Equity Ratio
2.32
2.13
1.33
1.43
1.99
1.64
2.37
2.66
2.13
2.10
2.42
1.39
1.62
0.71
0.68
1.24
1.07
1.72
1.56
1.20
1.20
2.42

Interest Cover
5.98
7.67
76.83 64.01 17.15
9.7
5.61
1.13
2.25
2.81
3.10
9.08
11.2
76.87 70.58
22.5
13.6
7.99
2.88
4.22
3.92
4.36
Debt Equity Ratio
0.52
0.47
0.34
0.52
0.56
0.66
0.98
0.86
0.8
0.93
0.70
0.29
0.36
0.28
0.41
0.46
0.41
0.59
0.56
0.4
0.28
0.70

Interest Cover
6.75
6.75
18.61
35.6
5.9
6.61
6.52
5.13
9.67
12.33
9.04
8.58
8.57
20.62 38.91
7.45
8.34
8.34
6.77
11.91 14.72
9.45
Debt Equity Ratio
0.70
0.65
0.48
0.41
1.69
1.33
1.15
1.30
0.58
0.79
0.68
0.37
0.41
0.29
0.20
1.42
1.12
0.81
1.09
0.38
0.39
0.34

Interest Cover
8.58
10.5
8.04
6.23
4.84
3.69
1.94
1.43
1.94
2.06
2.17
6.54
7.5
7.56
6.95
5.23
3.81
2.43
1.94
3.06
2.93
3.11
Debt Equity Ratio
1.08
1.02
1.2
1.23
1.52
1.86
1.98
1.92
1.92
1.47
0.75
0.38
0.38
0.67
0.58
0.76
0.52
0.69
1.13
0.9
0.96
0.48
198

Interest Cover
1.18
1.53
1.67
1.75
1.01
1.03
1.32
1.9
1.42
2.88
2.67
1.18
1.09
1.98
2.18
1.89
1.93
2.27
2.4
1.69
2.93
3.08
Debt Equity Ratio
2.08
2.15
2.67
2.04
2.57
2.57
2.65
2.03
2.07
2.45
1.80
0.92
1.02
1.08
0.32
0.45
0.55
0.72
0.45
0.41
0.43
0.16

Interest Cover
42.2
47.2
474.2
172
54.01
5.81
3.86
3.10
4.70
4.79
1.60
25.8
31.1
116.1
93.4
37.84
6.27
4.9
3.96
6.08
6.11
2.62
Debt Equity Ratio
0.80
0.10
0.10
0.36
0.48
0.70
0.79
0.64
0.72
1.16
1.36
0.17
0.03
0.03
0.36
0.27
0.32
0.26
0.15
0.12
0.62
1.36
199
CHART 5.43
CHART 5.44
200
CHART 5.45
CHART 5.46
201
CHART 5.47
CHART 5.48
CHART 5.49
202
5.7
SOLVENCY ANALYSIS OF AUTO PARTS & EQUIPMENT

INDUSTRY:
5.7.1
As can be seen from the above diagrams that the interest coverage ratio on an average
has almost remained constant with minor fluctuations over the number of years which
is a good indicator of the industrys earning capacity and debt-repayment capacity.
The year 2011 seems to be an aberration for a dramatic jump which could be because
of exceptionally superlative all round performance. The average Interest Cover ratios
for Group A,B and C companies are 128.14, 77.12 and 11.64 (times) respectively and
the Debt-Equity ratios are 0.48, 0.53 and 0.51 respectively. Group A companies have
employed lower amount of debt and hence its Interest Cover ratio is very high which
is also partially due to high profitability of the group. There is high amount of debt in
capital structure of Group C companies and as a corollary the interest cover is much
lower. The high cost of servicing the debt coupled with inability to use debt to
augment profitability can turn in these results. Group B companies have managed to
service high amount of when compared with Group B companies yet they have a very
good Interest Cover ratio of 77.12 which justifies the use of debt.
5.7.2
A barometer of how many times a companys Earnings Before Interest and Taxes
covers not only interest on debt but also other financial charges such as preference
dividend and even lease rentals etc. But only Group A companies have shown
consistent and marked improvement in their debt-servicing capacity. The cover ratios
for Group A, B and C companies are 192.45, 16.49 and 12.87 (times) respectively and
the Debt-Equity ratios are 0.48, 0.53 and 0.51 respectively. Group A companies have
opted for a lower amount of debt and that explains very high cover ratio which can be
because of partially profitability of the group. In spite of high debt in capital structure
of Group B and C companies, the charges cover ratio is not really diabolical
although much lower in comparison with Group A companies.
5.7.3
Debt-Equity Ratio:
203
to equity funds. For the Group A ,B and C, the Debt-Equity ratios are 0.48, 0.53 and
0.51 respectively .The Group A companies seem to have an aversion for debt as can
be seen in the above diagrams whereas Group B and Group C companies have
employed debt in their capital structure with both arms. Group C companies with
less-than-desirable liquidity position should manage debt very cautiously, to remain
not only afloat but turn profitable in a humongous way in the long run.
5.7.4
It is the Group C companies which are highly levered in terms of long term debt. The
low profit earning companies as is evident in Group C companies. The Long Term
Debt-Equity ratios for Group A, B and C companies are 0.33, 0.40 and 0.37. On this
parameter also Group B companies have higher element of debt and Group A
companies being the least levered.
204
TABLE 5.8
AUTO PARTS &EQUIPMENT: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

10.62
8.94
8.59
9.14
8.97
10.36
9.99
9.55
9.14
7.76
8.07
Investments Turnover Ratio 11.88
9.87
9.46
9.14
8.97
10.31 10.31
9.14
7.94
7.24
8.37
1.34
1.59
1.65
1.82
1.84
1.68
2.22
2.35
2.35
1.10
1.70

4.76
4.89
4.63
5.73
6.42
5.26
6.45
9.93
7.66
6.61
6.43
6.53
6.04
6.85
7.63
5.19
6.35
8.93
9.06
6.34
7.14
1.35
1.17
1.21
1.52
1.75
2.2
2.88
2.56
2.17
2.01
1.76
12.12 11.08 13.61 11.27
9.81

8.67
10.12 23.04 21.69 12.97
205
9.21
Investments Turnover Ratio 10.76 12.01 27.57 26.24 14.96 11.88

1.35
1.93
2.67
2.13
2.08
2.76
9.87
9.46
9.14
8.97
10.31
3.25
2.73
3.24
3.75
4.39

7.76
8.2
7.18
8.09
10.62 11.76
7.76
9.19
7.56
9.5
9.25
9.56
10.6
9.97
10.3
14.03 11.68 10.87
9.56
9.04
8.07
9.31
1.02
1.31
1.74
1.75
1.72
1.19
1.05
1.40
1.81
1.63
1.55

8.86
8.19
9.19
10.31
9.14
7.94
7.24
8.37
Investments Turnover Ratio 11.76 12.53 11.21 10.14
9.14
10.31
9.31
8.14
8.64
6.04
7.27
1.78
1.94
1.93
1.44
1.67
1.93
1.81
10.24 11.06
2.35
1.53
9.81
1.77
1.76

50.04 59.64 67.78 30.74 28.43
28.6
30.22 27.75 31.66 26.94 31.87
52.5
38.4
31.02 26.00 30.11 30.04 30.57
70.5
79.69 37.56
206
37.8
1.91
2.91
2.72
2.36
2.08
1.96
1.85
2.01
1.83
2.54
3.23

1.38
1.54
1.46
2.16
2.43
2.41
2.41
2.43
3.43
3.53
3.12
1.47
1.57
2.94
4.12
4.53
4.16
2.91
4.27
3.83
3.80
3.80
0.67
0.75
0.8
1.44
1.78
1.87
2.34
2.68
1.65
2.47
1.69

4.13
5.18
6.06
5.49
4.64
5.68
6.96
8.52
5.89
5.75
5.39
6.03
7.98
8.83
7.82
6.33
5.03
7.18
7.93
5.03
5.98
8.03
2.00
2.14
2.39
2.52
2.33
2.70
2.04
1.78
1.91
2.04
1.45
207
CHART 5.50
CHART 5.51
208
CHART 5.52
CHART 5.53
209
CHART 5.54
CHART 5.55
CHART 5.56
210
5.8
EFFICIENCY ANALYSIS OF AUTO PARTS AND EQUIPMENT

INDUSTRY:
5.8.1
A barometer of how efficient a company is in selling its products. In Group A

companies the Inventory Ratio has been high in the initial years but in the last 3 years
it shows a decline which is indicative of mild stock glut with the group of companies.
These companies could improve their profitability by selling their products more
effectively thereby reducing the cost of inventory pile-up and minimizing loss in
profit. The average Inventory Turnover ratios for Group A, B and C companies are
8.40, 5.96 and 18.10(times) respectively and the Debt-Equity ratios are 0.48, 0.53 and
0.51 respectively. It can be seen that Group C companies have the highest turnover
ratio and have comparatively high amount of leverage too. Such turnover together
with profitability can help a company service its debt effectively. These companies
have mitigated the impact of leverage through their selling efficiency also. Group A
companies have the lowest Debt-Equity ratio and their Inventory Turnover ratio is
still healthy at 8.40.There is a potential for these companies to employ and efficiently
service greater amount of debt. The same can be used to invest in productive assets to
further accelerate earnings. Group B companies have the lowest turnover ratio have
a very high Debt-Equity ratio which could be because of sluggish movement of
inventory.
5.8.2
A barometer of how many times the net worth of a company is covered by its net
sales. The Group A and Group B companies have enjoyed a very high Investments
Turnover Ratio which is par for the course for such companies. But the companies in
Group C have suffered a very low Investments Turnover Ratio. This brings home the
point that these companies have solvency issues and that their sales are so low as
compared to the amount invested. Such companies with the given track record may
find it difficult to raise money from the financial markets as prospective investors
would be wary of them. The average Investments Turnover ratios for Group A,B and
are 0.48, 0.53 and 0.51 respectively. Group A companies cover their investments
many more times than the Group B and C companies. Group A companies on an
211
average have a greater amount of owners funds and yet its sales cover the net worth
more no. of times. But Group C companies have a cover ratio of 9.81 despite having a
high amount of leverage. Group B companies have the highest amount of leverage
and still the coverage ratio is lowest of all. Such companies can bank more upon debt
fund and also improve their sales turnover to improve performance.
5.8.3
Assets are used to generate sales and this establishes a relationship between sales and
assets of a company. On an average the Assets Turnover Ratio of Group C companies
is higher which shows that these companies have utilised their assets very efficiently
to generate high sales volume. In Group B companies the ratio has been low. This is
an indication of the fact that these companies have under-utilised their assets. The
potential for greater profitability and liquidity is not fully utilised. The average Assets
Turnover ratios for Group A,B and C companies are 1.96, 1.94 and 2.05 (times)
respectively and the Debt-Equity ratios are 0.48, 0.53 and 0.51 respectively. Group C
companies cover their assets many more times than the Group A and B companies
despite having a high Debt-Equity ratio. This could be because of high volume of
sales and less investment in assets or exploitation of assets to their fullest to generate
superior sales revenue. Group A and B companies, because of high value of assets
acquired, may have posted a slightly lower turnover ratio. Group C companies have
put the debt to judicious and gainful use or have invested in productive assets to
generate a healthy sales volume.
212
TABLE 5.9
CEMENT: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
11.73 13.25 17.02 18.21 29.17 28.15
24.66
31.95 21.42 18.42 16.02
ACC LTD (500410) : GROUP-A

Profit Before Interest And Tax
Margin(%)
5.94
7.65 12.09 12.86 24.35 23.24
20.01
27.22 15.86 12.97 12.27
8.75 12.28 15.54 17.32 28.97 23.72
20.59
27.68 16.29 13.33 11.64
3.52
9.59 16.85 21.16 20.44
16.29
19.69 14.26 13.78 11.01
25.34 26.00 26.17 26.94 33.99 35.47
28.79
27.05 24.55 22.88 21.94

Margin(%)
17.87 16.88 15.88 17.08 28.51 30.71
24.05
22.3 18.97 17.21 17.88
18.01 28.11 28.71 28.31 28.84 31.36
24.61
22.85
13.07 14.13 14.44 14.71 25.88 31.33
21.82
16.76 16.83 14.12 14.64
31.69
30.36 21.94 19.92 21.05
5.93
AMBUJA CEMENTS LTD (500425) : GROUP-A
19.3 17.62 18.31
ANJANI PORTLAND CEMENT LTD. (518091) : GROUP-C

18.13 18.53 17.78 16.06 14.43

213
27.6

Margin(%)
13.25 13.65 11.71 10.25
8.56 24.18
28.64
27.46 18.23 12.26 16.19

29.48 20.69 22.62 26.38
9.29
8.98
8.72
8.66
7.89 23.17
28.36
0.35
0.32
0.13
0.3
0.04 18.53
15.8
12.88
9.27
0.32
5.27
CENTURY TEXTILE & INDUSTRIES LTD. (500040) : GROUP-A

9.69 11.79
9.84 10.53 12.08 18.48
20.24
17.08 20.41 14.92
8.32

Margin(%)
4.58
5.58
4.15
5.48
6.9 14.07
15.28
11.69 15.05
9.75
2.97
8.21
9.62
8.06
9.97 11.49 17.57
15.42
11.79
15.2
9.83
2.98
3.07
3.68
3.32
8.77
8.58
6.75
7.83
5.05
0.45
11.72 12.99 14.17 12.57 12.22 27.81
36.72
35.58 25.28 19.17 19.75
4.3
4.07
DECCAN CEMENTS LTD. (502137) : GROUP-C

Margin(%)
7.18
7.51
8.08 24.43
33.67
31.73 17.38 11.92 15.44
8.62
8.51 11.11 11.15 11.61 27.95
32.96
31.83 17.08 12.07 15.53
1.68
1.51
22.67
18.31
1.45
0.58
8.11
7.8
10.24
10
9.04
10.2
9.69
5.08
4.75
7.2 16.37
EVEREST INDUSTRIES LTD. (508906) : GROUP-B

11.01
12.3 13.61 15.75 17.03

214
9.38

Margin(%)
8.38
8.77 10.65 13.17 14.05
6.44
4.38
6.97
7.15
6.41
7.88
11.2
11.7 13.58 16.01 16.65
8.56
4.41
7.00
7.19
6.43
7.93
4.81
4.52 29.79
3.84
5.00
2.71
4.57
5.61
5.91
17.3 33.04
35.88
27.94 20.54 10.26 21.49
5.4 12.13 28.45
31.26
21.16 13.82
3.02 15.44
8.36
12.3
INDIA CEMENTS LTD. (530005) : GROUP-B

4.79

Margin(%)
3.23
2.13
4.67 11.77 12.24

4.84
3.74
4.03
3.11
2.43
8.52 26.82
31.68
21.89 14.22
3.11 15.51
20.23 22.52
-9.39
0.39
2.92
21.2
20.66
12.44
1.94
5 14.11 20.81 30.32
31.62
25.34 29.56
13.9 19.08
4.05 11.66 24.82
25.72
19.24 23.64
7.38 11.12
-0.4 13.38 17.45 25.87
26.35
19.71 24.19
7.48 11.53
19.64
14.22 15.81
4.42
9.33
6.93
JK LAKSHMI CEMENT LTD. (500380) : GROUP-B

Margin(%)
9.79
9.93
-4.58
-3.45
0.62
0.06
-3.68
-5.42
-8.16
-5.56
MADRAS CEMENTS LTD. (500260) : GROUP-A
215
5.28
9.43 20.88
6.1
21.6 24.54 23.82
20.5 20.75 35.25
37.26
30.75 30.88 24.12 29.52

Margin(%)
14.58
30.4
32.38
25.14 23.81 15.55 21.68
14.23 14.27 17.01 16.95 18.06 34.35
32.61
25.31
7.79 19.48
20.21
14.27 12.55
16.09 16.03 20.49 22.91 26.52 43.17
38.58
27.23 17.78
9.6
6.2
38.9
34.4
23.07 14.53
6.19
2.92
5.14 15.14 18.64 23.56 42.81
34.94
23.37 14.61
6.24
2.93
5.84 10.83 25.02
27.09
15.09
2.82
-0.66
14.3 14.69 11.68 14.14
2.68
2.05
4.77
7.5
23.9 15.69 21.77

7.97 11.71
PRISM CEMENT LTD. (500338) : GROUP-B

Margin(%)
6.08
5.12
-5.34
6.7
-9.58
12.8
-1.54
16.1 21.14
8.8
SAGAR CEMENTS LTD. (502090) : GROUP-C

0.72
11.1
1.41
5.86 19.08
22.66
19.27

Margin(%)
-5.49
6.71
-2.34
3.58 17.49
20.95
13.12 11.51
9.36 16.16
-6.31
4.52
-3.15
4.38 18.68
21.03
13.16 11.58
9.39 16.18
-11.7
0.76
2.11
2.11 12.23
12.15
SANGHI INDUSTRIES LTD. (526521) : GROUP-B

216
5.35
17.3 15.06 20.45
3.93
3.56
7.26
7.96
8.49 20.62 20.88 29.15 37.07
31.73
25.76 26.35 16.56 19.14

Margin(%)
3.25
4.25
8.58 20.46 27.56
21.86
15.76 14.03
4.58
8.99
5.90
5.74
5.2
8.66 23.08 28.67
22.26
15.9 14.17
4.62
9.07
1.01
1.22
-4.84
1.34 13.76 17.33
12.32
6.37 13.19
-3.25
8.32
SHREE DIGVIJAY CEMENT CO. LTD. (502180) : GROUP-C

-1.79
-2.76 10.55
6.64 19.32 22.73
14.99
15.92
7.44
5.07
5.49

Margin(%)
-7.15
-8.62
5.58
2.74 15.81 20.15
12.44
13.49
4.23
2.04
2.25
20.2
23.25
0.54
-1.96 18.22 22.75
12.51
13.57
4.26
2.06
2.74
20.31
-23.4
2.47
- 22.42 21.04
11.06
-5.47
13.4
0.33
2.79
2.22

ULTRA TECH CEMENT LTD. (532538) : GROUP-A

Margin(%)
12.75 12.71 15.14 13.84 17.02

5.38
4.58
6.27
5.52
11.28 11.28 11.37 10.58

0.98
1.78
1.69
217
0.1
29
31.33
27.29 28.08 19.33 22.47
24.1
26.61
21.9 22.24 13.28 17.41
14.9 28.07
27.03
22.24 22.56 13.53 17.53
6.91 15.75
17.99
15.06
10.4
15.3 10.43
13.3
CHART 5.57
CHART 5.58
218
CHART 5.59
CHART 5.60
219
CHART 5.61
CHART 5.62
CHART 5.63
220
5.9
PROFITABILITY ANALYSIS OF CEMENT INDUSTRY:
5.9.1
It is observed that in the operating profit margin ratio is on the decline as far as Group
A companies are concerned. In the year 2012, Group C companies are witnessing
some improvement in operation efficiency. In Group A, B and C companies the
average operating profit ratios are 21.35, 19.49 and 17.25 (%) respectively and the
average Debt-Equity ratios are 1.01, 2.18 and 1.11. On the average Group A
companies have the highest operating profit margin ratio and are least levered. As
such both Group A and Group C companies can increase the amount of debt because
their operating efficiency will help them service the debt effortlessly and without
straining their financial resources. Group B companies have the highest Debt-Equity
ratio and the Operating Profit ratio is quite close to that of Group A or C companies
which speaks volumes about Group B companies efficiency and the deft with which
they have utilised their leverage gainfully.
5.9.2
The ratio is fairly inconsistent in Group A. Group B and Group C companies have a
fluctuating ratio too. This may be due to the entire industry facing high costs of
operations or declining sales or other adverse factors impacting profits and revenue.
The industry as whole saw superlative performances in the years 2007 and 2008. This
is attributed to construction boom in the country. In Group A, B and C companies the
average Profit before Interest and Tax ratios are 15.33, 12.85 and 12.83 (%)
respectively and Debt-Equity ratios are 1.01, 2.18 and 1.11. Group A companies have
the highest profit ratio and have the lowest Debt-Equity ratio. Group A companies
whereas Group C companies have the lowest profit ratio and in that context it has a
higher amount of leverage. Group B companies have the highest level of leverage and
still their Profit Before Interest and Tax is higher than that of Group C companies.
5.9.3
cement companies. But in the recent years it has been sliding consistently which
221
shows that supply of raw materials is either shrinking or cost or raw material is rising
or inefficient or underutilization
of
productive resources. Group A companies
outperform the rest of Group companies although Group B and Group C companies
have a stable Gross Profit ratio in the recent years. In Group A, B and C companies
the average Gross Profit ratios are 17.24, 13.34 and 12.42 (%) respectively and
Debt-Equity ratios are 1.01, 2.18 and 1.11. Group A companies have the highest
profit margin ratio but is least levered. These companies have the profitability to opt
for greater leverage. Group B companies have the highest leverage and their Gross
Profit ratio is even higher than that of Group C companies. As far as debt is
concerned Group C companies have used less amount of debt and also have a low
average Gross Profit ratio.
5.9.4
Net Profit Margin:
Group B and Group C companies clearly have lower net profit margins and in case
Group A companies, it has marginally declined in the year 2012. When flagship
companies suffer in the industry it suggests intense rivalry to snare the market that
may have shrunken slightly. In Group A, B and C companies the average Net Profit
ratios are 10.66, 7.22 and 5.40 (%) respectively and Debt-Equity ratios are 1.01, 2.18
and 1.11. Group A companies have reported the highest profit margin ratio and as
such Group A and Group B companies can use the augmented profitability to service
greater amount of debt which can lead to greater profits, whereas Group C
companies have the lowest profit ratio and even then they have opted for slightly
higher amount of leverage as compared to Group A companies.
222
TABLE 5.10
CEMENT: LIQUIDITY RATIOS
RATIOS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Current Ratio
0.38
0.43
0.54
0.58
0.77
0.86
0.89
0.67
0.68
0.87
0.89
Quick Ratio
0.49
0.49
0.43
0.42
0.61
0.55
0.61
0.42
0.43
0.58
0.57

Current Ratio
0.87
0.90
0.94
1.02
1.08
1.01
1.26
0.89
1.07
1.14
1.16
Quick Ratio
0.41
0.50
0.41
0.61
0.7
0.64
0.74
0.57
0.75
0.87
0.44

Current Ratio
0.68
0.67
0.77
0.75
0.9
0.99
1.11
1.13
0.9
0.87
0.73
Quick Ratio
1.34
1.16
1.33
1.16
1.64
1.44
1.2
1.23
1.27
1.18
0.88

Current Ratio
0.9
0.6
0.58
0.62
0.55
0.85
0.71
0.82
0.65
0.66
0.54
Quick Ratio
0.41
0.5
0.54
0.61
0.65
0.74
0.58
0.67
0.61
0.68
0.49
223
Current Ratio
1.00
1.08
1.18
1.21
1.61
1.2
1.03
0.8
0.66
0.88
0.85
Quick Ratio
1.23
1.29
1.17
0.95
1.4
1.63
1.24
0.92
0.87
0.93
0.91

Current Ratio
0.77
0.92
1.27
1.02
0.96
0.8
0.89
0.9
1.07
1.33
0.86
Quick Ratio
0.41
0.41
0.81
0.77
0.8
0.74
0.7
0.67
0.7
0.63
0.66

Current Ratio
0.96
1.05
1.1
1.53
1.43
1.13
1.46
1.28
0.95
Quick Ratio
1.21
1.64
2.53
2.16
2.62
2.97
1.49
1.23
1.54
1.69
1.35

Current Ratio
0.76
0.74
1.06
1.44
2.01
1.93
2.3
1.76
1.35
1.06
1.02
Quick Ratio
0.40
0.70
0.76
0.8
0.98
1.25
1.79
1.45
1.22
0.82
0.85

Current Ratio
0.36
0.44
0.59
0.44
0.45
0.74
0.56
0.6
0.7
0.69
0.38
Quick Ratio
0.51
0.54
0.56
0.51
0.53
0.78
0.70
0.63
0.64
0.60
0.34

Current Ratio
0.86
0.92
0.97
0.87
0.94
0.61
0.79
0.8
0.87
0.93
0.77
Quick Ratio
0.21
0.31
0.32
0.30
0.32
0.25
0.35
0.42
0.61
0.63
0.54
224

Current Ratio
0.59
0.67
0.79
0.57
1.00
0.43
0.79
0.56
0.6
0.56
Quick Ratio
0.90
0.97
1.14
0.77
1.30
1.19
1.07
0.79
0.84
0.57

Current Ratio
0.46
0.46
0.42
0.66
2.08
2.72
2.83
1.49
1.32
1.74
1.17
Quick Ratio
0.31
0.33
0.36
0.67
2.04
2.21
2.40
1.42
0.99
1.52
0.61

Current Ratio
0.46
0.36
0.24
0.26
0.3
1.27
0.53
1.27
1.5
1.00
0.86
Quick Ratio
0.51
0.17
0.21
0.51
0.63
1.10
0.85
0.54
0.3
0.41
0.41

Current Ratio
9.46
9.43
0.6
0.68
0.67
0.71
0.58
0.59
0.67
0.67
0.67
Quick Ratio
9.31
9.43
0.46
0.54
0.34
0.40
0.38
0.34
0.30
0.34
0.36
225
CHART 5.64
CHART 5.65
226
CHART 5.66
CHART 5.67
227
CHART 5.68
CHART 5.69
CHART 5.70
228
5.10
LIQUIDITY ANALYSIS OF CEMENT INDUSTRY:
5.10.1
Current Ratio:
It is found that in majority of the companies, the current ratio was at its peak in the
year 2003 and at its lowest in the year 2009. This shows the level of fund sufficiency
or insufficiency in those years. In Group A companies, however, the current ratio has
been declining below the ideal bench mark. These companies have grown
inadequately liquid. Even Group C companies have been inadequately liquid over the
years consistently barring 2007 and 2009. Cash crunch is a direct fall out of high
investments and low returns scenario and negative market sentiments. Group B
companies are faring well on this parameter. In Group A, B and C companies the
average Current ratios are 0.86, 1.22 and 0.83 respectively and Debt-Equity ratios
are 1.01, 2.18 and 1.11. Group C companies have higher Debt-Equity ratio than that
of Group A companies and yet their average Current Ratio is lower than that of
Group A companies. Group B companies working capital position is good which
remains unaffected by the slightly higher use of debt. Group B companies have higher
Current Ratio which shows they have managed debt well and still have an appetite for
a higher debt.
5.10.2
Quick Ratio:
In Group A, B and C companies the average Quick ratios are 0.74, 1.07 and0.97
respectively and Debt-Equity ratios are 1.01, 2.18 and 1.11. Group B companies have
the highest debt ratio and yet their average Quick Ratio is the highest. Hence these
companies have sufficient liquidity and it follows that the debt raised has not
adversely affected the companies liquidity position. The Group A and B companies
have comparatively lower Quick ratio and also have lower Debt-Equity ratio. Such
companies can use debt to to augment profitability which can improve their ability to
meet short-term debt.
229
TABLE 5.11
CEMENT: SOLVENCY RATIOS
RATIOS
2002 2003 2004 2005 2006
Interest Cover
1.48 2.85 5.27 6.87 19.97
4.7
7.44 9.45 23.43
Debt Equity Ratio
1.30 0.98 0.88 0.50 0.25
0.76 0.70 0.70 0.39 0.25
Interest Cover
3.95 4.05 5.57 10.05 17.21
Financial Charges Coverage Ratio 6.46 6.86 7.88 20.46 19.26
Debt Equity Ratio
0.83 0.83 0.83 0.83 0.22
0.83 0.83 0.83 0.83 0.22
Interest Cover
1.25 1.16 1.12 1.19 1.27
Debt Equity Ratio
1.63 1.62 1.51 1.31 1.47
1.33 1.27 1.19 1.01 1.15
Interest Cover
1.75 1.69 1.67 3.32 4.36
Debt Equity Ratio
1.83 1.35 1.39 1.18 1.12
0.78
0.8
0.62 0.56 0.34
230
2007
2008
2009
2010
2011
2012
24.05
28.21
0.07
0.07
42.56
49.92
0.10
0.10
27.96
32.02
0.09
0.09
25.57 15.58 15.12

32.48 20.49 19.11
0.08 0.07 0.08
0.08 0.07 0.08
25.62
28.14
0.07
0.07
51.73
59.38
0.05
0.05
80.08
93.26
0.03
0.03
31.86 32.05
32
39.82 40.46 38.11
0.01 0.01 0.01
0.01 0.01 0.01
5.31
5.13
1.25
0.96
5.12
4.99
1.1
0.96
6.45
6.26
0.9
0.8
5.32
5.64
3.04
2.75
1.09
1.54
3.77
3.2
1.59
1.95
2.66
2.19
8.33
9.66
1.23
0.92
6.26
7.99
1.1
0.8
4.74
6.78
1.19
0.96
5.29
6.87
1.35
0.78
3.11
3.69
1.55
0.87
1.25
3.16
1.8
1.07
Interest Cover
1.55 1.62 2.93
2.7
4.2
Debt Equity Ratio
0.80 0.70 0.45
0.71 0.61 0.41
Interest Cover
11.75 11.69 44.1
Financial Charges Coverage Ratio 18.46 19.62 62.71
Debt Equity Ratio
0.14 0.16 0.02
0.83 1.73 1.22
Interest Cover
0.05 0.19 0.19
Debt Equity Ratio
4.53 4.58 5.88
3.53 3.57
4.5
Interest Cover
0.12 -0.16 -1.09
-0.99 -0.94
Debt Equity Ratio
5.24 5.82 7.33
5.31 5.38 7.01
Interest Cover
1.97 1.39 2.13
Financial Charges Coverage Ratio 2.18 2.31
3.3
Debt Equity Ratio
2.51 2.62
2.1
2.13 2.16 1.95
Interest Cover
0.90 0.50 2.07
4.56
6.97
0.26
0.26
8.6 56.36 128.12

12.77 63.43 138.37
0.27 0.28
1.16
0.27 0.17
1.08
13.09
14.62
1.9
1.77
1.55
2.25
1.93
1.73
1.14
1.75
1.8
1.67
2.33
2.94
1.17
1.02
56.11 25.13 6.93

70.64 31.71 10.55
0.1
0.16 0.51
0.43 1.73 0.26
2.97
5.02
0.94
0.68
2.39
3.43
1.13
0.77
5.06
6.91
0.69
0.55
9.06 17.18
12.56 21.7
0.53 0.28
0.45 0.45
0.56
1.16
5.95
4.65
1.34
1.84
1.8
1.46
4.46
5
1.48
1.33
9.63
10.31
0.7
0.64
8.03
9.4
0.67
0.59
4.58
6.06
0.6
0.5
1.51
3.15
0.69
0.53
2.34
3.22
0.56
0.37
-3.26
-10.1
5.46
5.35
3.22
5.6
3.8
3.79
5.02
6.03
1.84
1.82
5.94
7.02
1.09
1.09
5.48
6.88
0.88
0.87
7.19
8.64
0.91
0.9
1.94
3.36
0.97
0.95
3.28
4.91
0.78
0.78
2.77
4.35
2.06
1.29
4.43
5.99
1.53
1.07
21.64
22.17
1.02
0.76
12.93
14.52
1.71
1.14
5.97
7.18
1.95
1.67
4.52
5.79
1.65
1.47
3.12
4.69
1.61
1.47
4.58
6.16
1.03
0.73
3.54
6.93
74.57 218.05 102.79
8.92
2.35
0.84
231

Debt Equity Ratio
1.73 1.87 1.73 1.22 0.43
1.42 1.63 1.56 1.04 0.39
Interest Cover
0.69 1.02 0.28 2.09
0.15 1.67 0.42 3.25
Debt Equity Ratio
2.27 2.19 1.34
0.8
1.73 1.69 0.91
0.4
Interest Cover
1.19 1.28 0.54 0.72 3.26
1.6
4.38
Debt Equity Ratio
6.63 6.68 7.06 6.98 3.29
6.23 6.57 6.91 6.84 3.26
Interest Cover
-0.79 -0.23 0.61 0.37 11.15
Financial Charges Coverage Ratio -0.18 -0.02 1.03 0.77 12.66
Debt Equity Ratio
0.83 0.86 0.86 0.86 0.86
0.83 0.86 0.86 0.86 0.86
Interest Cover
1.30 1.39 1.41
1.6
4.11
Debt Equity Ratio
1.31 1.31 1.45 1.44
1.4
1.21 1.21 1.34
1.3
1.38
232
50.5
1.73
1.73
92.03
1.22
1.22
50.71
0.43
0.43
9.91
0.69
0.63
3.32
0.97
0.9
1.67
0.9
0.81
25.22
27.35
0.34
0.21
15.99
17.21
2.08
1.59
2.59
3.77
1.32
1.1
2.03
2.99
1.1
0.78
1.53
2.42
1.15
0.8
2.89
3.65
0.61
0.31
3.18
4.17
2.15
2.15
2.34
3.23
1.81
1.81
1.83
2.82
1.63
1.58
1.28
2.29
1.38
1.34
0.52
1.62
1.47
1.47
3.94
7.88
1.07
1.03
44.63
41.96
1.7
0.96
44.29
36.83
3.5
0.98
21.3
22.5
1.02
1.01
44.74 34.44 33.79

43.39 19.9 19.18
1.02 1.15 1.83
1.1
1.15 1.83
14.45
15.99
0.9
0.88
20.85
22.15
0.65
0.53
12.75
13.74
0.59
0.51
14.97
16.75
0.35
0.34
7.53
9.75
0.39
0.36
14.85
18.88
0.36
0.28
CHART 5.71
CHART 5.72
233
CHART 5.73
CHART 5.74
234
CHART 5.75
CHART 5.76
CHART 5.77
235
5.11
SOLVENCY ANALYSIS OF CEMENT INDUSTRY:
5.11.1
The interest coverage ratio for the cement industry has been at its peak in the year
2008 and shows a downward slide, on an average. This shows that the earnings on an
average in the industry cover the fixed charges fewer and fewer times which is
because of lower profits or higher cost of production and cost of operations. The
meteoric fall is seen in Group A companies as well as all other groups of companies.
This has encouraged the companies to lower the debt component vis--vis owners
fund. The average Interest Cover ratios for Group A,B and C companies are 11.08,
13.25 and 12.49 (times) respectively and the Debt-Equity ratios are 1.01, 2.18 and
1.11 respectively. Group A companies have employed lower amount of debt and have
lower Interest Cover ratio. In spite of high debt in capital structure of Group B
companies the interest cover is the best among other groups. This shows that these
companies have used the debt very gainfully and that has improved their profitability
significantly. They are therefore able to cover the interest on debt many more times.
Group C companies have managed to post a good cover ratio and also have a higher
Debt-Equity ratio. These companies can absorb more debt because of their good
solvency position.
5.11.2
Overall trend in the industry shows improvement accompanied by dramatic

improvement in 2008.A barometer of how many times a companys Earnings Before
Interest and Taxes covers not only interest on debt but also other financial charges
such as preference dividend and even lease rentals etc.. But only Group A companies
have shown intermittent improvement in their debt-servicing capacity. The cover
ratios for Group A, B and C companies are 13.52, 11.13 and 13.00(times)
respectively and the Debt-Equity ratios are 1.01, 2.18 and 1.11 respectively. Group A
companies have employed lower amount of debt and its cover ratio is very high which
reveals the additional debt-contracting capacity of these companies. In spite of high
debt in capital structure of Group C companies, the charges cover ratio is higher than
that of Group B companies. Group B companies have the highest Debt-Equity ratio
236
and have the lowest cover ratio. This means generally speaking, if these companies
opt for higher amount of leverage they have to use it very profitably to ensure that
their solvency is not adversely affected.
5.11.3
Debt-Equity Ratio:
to owners funds. The Debt-Equity ratios for Group A, B and C companies are 1.01,
2.18 and 1.11 respectively. Group A companies have comparatively lower debt-equity
ratio and Group B companies have comparatively higher Debt-equity ratio.
5.11.4
For Group A, B and C companies the Long Term Debt-Equity ratios are 0.74, 2.17
and 1.09 respectively. In Group B companies the prominence of Long-term debt
comes to the fore. But it is the Group A companies which have the least amount of
long-term liabilities. The long-term liabilities also normally entail fixed charges
which heap a very heavy burden on low profit earning companies and hence
companies show a certain amount of aversion for it. Group A companies seem to have
done away with long-term debt towards the latter years rhyming with financial
wisdom.
237
TABLE 5.12
CEMENT: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
8.53
8.93
7.27
5.37
9.33 24.85 27.51 25.22 19.04 18.59 17.39
17.32 19.41 17.69 12.29
22.4 24.85 25.56 23.02 16.54 17.89 18.02

0.80
0.87
0.96
0.69
1.19
1.26
1.25
1.34
1.13
1.27
1.74

6.80
6.70
6.80
7.20
0.85 0.88
7.31
7.31
10.43
7.81
0.56 0.75
17.19 11.18
7.59 11.36
9.19 10.38 10.67
15.09 14.08
8.29
9.36
9.36 10.00 10.11
1.10
1.15
0.85
1.40
1.10
6.24
6.47 18.52 40.57 26.18
0.88
0.67

5.93
6.04
6.37
6.69
7.19
8.09
8.76 10.12 10.13 10.01 10.11
9.17 10.50 10.13 11.09
0.59
0.79
0.81
0.86
0.85
8.53 21.99
1.22
1.41
1.33
0.66
0.61
1.00

6.04
6.31
4.90
5.76
5.45
6.78
9.12
9.46
7.43
6.02
6.27
8.69
9.26
6.96
8.63
8.25
7.06
8.19
8.54
8.02
8.12
8.13
0.82
0.77
0.79
0.85
0.86
0.9
0.95
0.85
0.96
0.98
0.94
238

16.12 17.00 20.23 17.14 23.77 31.12 47.55 13.03 22.06 22.65 13.25
30.09 34.17 41.41 41.54
0.70
0.80
1.04
86.9 77.76 77.05
40.0 40.06 44.32 33.05
0.98
1.07
1.35
1.53
0.40
0.56
0.63
1.21

4.00
4.29
4.25
4.89
4.85
5.24
4.19
4.54
5.92
5.22
6.25
3.23
4.47
4.45
5.19
5.25
6.06
6.11
5.53
5.54
5.52
5.85
1.60
1.66
1.70
1.89
1.53
1.70
1.43
1.78
2.13
2.10
2.77
6.42
5.83
7.24
9.09 27.47 26.36 25.93 23.24
8.98

4.29
5.59
11.49 13.78 15.85 14.97 24.76 29.09 29.40 27.16 27.97 26.00 20.21
0.47
0.50
0.35
0.39
0.51
0.58
0.70
0.62
0.62
0.53
0.65

6.98
7.14 16.92 15.04 16.04 15.28 64.12 87.02 77.26 24.83 16.00
50.03 54.55 67.24 39.96 72.82 45.00 29.12 29.46 37.43 36.02 36.27
0.27
0.34
0.51
0.46
0.5
0.63
0.75
0.86
0.87
0.66
0.83

9.59
9.01 13.27
13.78 19.14
0.51
0.43
5.68 10.04 12.33 37.03
23 23.84 18.18 16.82
28.3 19.95 25.75
47.1 41.16 46.06 40.81 42.95
43.9
0.48
0.87
0.75
239
0.47
0.61
0.74
0.65
0.58
0.5

6.39
7.79
8.44
7.22
9.28
9.04 31.66 26.28 14.81 12.95
21.78 24.44 22.94 20.31 25.27 23.93 30.16 30.41

0.34
0.57
0.66
0.74
0.95
1.19
1.25
13.9
34.1 31.11
40.3
2.15
1.55
1.97
11.2 16.45 12.47
7.94
0.98

8.35
- 26.37 21.54 25.21 57.14 66.73 60.32
50.4 47.02 51.37 44.11
0.80
0.64
9.14 10.68 20.14 34.07 93.32

0.86
1.19
1.75
2.68
1.79
1.10
1.04
1.36

1.97
1.54
5.22 12.56 13.41 15.85 26.36 29.85 14.75 9.87
2.38
2.94
8.53 19.58 25.75
47.1 37.03 23.00 23.84 18.18 16.82
0.84
0.87
0.16
0.53
0.39
0.42
0.55
0.52
0.42
0.47
5.45
0.57

4.40
5.35
4.9
15.12 16.72 15.35

0.79
0.74
0.83
3.21 13.94
7.61 13.66 12.15
8.7 13.03 13.03
9.65 32.62 20.03 20.11 22.17 22.17 23.13 23.03

0.49
1.19
1.42
1.40
1.16
1.21
1.38
1.38
9.53
8.75 11.46 31.16 22.89 22.65 17.69 15.73
12.22 12.31 12.12 11.04
21.2 34.61 31.16 21.73 23.61 22.00 23.41

9.35
0.40
9.03 10.29
0.74
0.55
240
0.62
0.72
1.03
1.11
1.25
1.18
1.26
1.16
CHART 5.78
CHART 5.79
241
CHART 5.80
CHART 5.81
242
CHART 5.82
CHART 5.83
CHART 5.84
243
5.12
EFFICIENCY ANALYSIS OF CEMENT INDUSTRY:
5.12.1
A barometer of how efficient a company is in selling its products and how fast the
goods are moving off the shelves. In Group A companies the Inventory Ratio has
been high in the initial years but in the last 3 years it shows a decline which is
indicative of mild stock glut with the group of companies. These companies could
improve their profitability by selling their products more effectively thereby reducing
the cost of inventory pile-up and minimizing loss in profit. In Group B and C
companies it is very high all through the years. There is a chance that the companies
that these companies could also be facing intermittent stock out situations. The
average Inventory Turnover ratios for Group A,B and C companies are 12.70, 16.37
and 17.40 (times) respectively and the Debt-Equity ratios are 1.01, 2.18 and 1.11
respectively. As can be seen from the above data and diagrams, Group C companies
have the highest turnover ratio and has lower Debt-Equity ratio. There is a potential
for these companies to employ and efficiently service greater amount of debt if
greater sales could translate into enhanced profitability. Group B companies have a
very high turnover ratio and also have a very high Debt-Equity ratio which shows
that leverage has had a positive impact on the solvency of these companies and that
such companies given the turnover rate can increase the amount of leverage in their
capital structures.
5.12.2
The Group B and Group C companies have enjoyed a very high Investments Turnover
Ratio. But the companies in Group A have comparatively a low Investments Turnover
Ratio. The average Investments Turnover ratios for Group A,B and C companies are
and 1.11 respectively .Group C companies cover their investments many more times
than the Group A companies. Group B companies on an average have a greater
amount of debt and yet they have posted a very healthy Investments Turnover Ratio
and it again points to the fact that these companies can absorb still greater amount of
leverage reducing the portion of owners funds thereby. That will also further
improve the ratio. Group A companies have low Debt-Equity ratio and also have a
comparatively lower Investments Turnover Ratio.
244
5.12.3
On an average the Assets Turnover Ratio of Group B and C companies is higher

which shows that these companies have utilised their assets very efficiently to
generate high sales volume. Assets are used to generate sales and this establishes a
relationship between sales and assets of a company. The average Assets Turnover
ratios for Group A,B and C companies are 0.89, 0.95 and 1.08(times) respectively
and the Debt-Equity ratios are 1.01, 2.18 and 1.11 respectively .Group C companies
cover their assets more times than the Group A and B companies despite having a
high Debt-Equity ratio. This could be because of high volume of sales and lower
investment in assets or acquisition of asset at lower rates. Group A companies,
because of high value of assets or sagging sales volumes may have posted a lower
turnover ratio. Group C companies have made a judicious and gainful use of debt or
have invested the funds raised in productive assets to generate a healthy sales volume.
Group B companies have the highest Debt-Equity ratio and have an Assets Turnover
Ratio of 0.95 which is admirable and shows that the debt has been profitably used or
invested in productive assets to garner greater sales revenues.
245
TABLE 5.13
HEAVY ELECTRICAL EQUIPMENTS: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
10.06 11.00 12.01 11.98 12.24 12.46 11.49
12.61
12.9
12.34 13.53
Profit Before Interest And Tax Margin(%) 11.23 11.10 11.05 12.60 11.25 11.13 12.10
12.05
12.46
11.95 12.97
10.13 10.13 12.87 12.70 12.00 11.83 11.13
12.22
12.57
11.98 13.02
5.13
5.89
6.49
6.78
6.47
15.71
18.04
20.3
20.53
BGR ENERGY SYSTEMS LTD (532930) : GROUP-B

5.62
5.18
6.91
6.81
6.23
5.72
BHARAT HEAVY ELECTRICALS LTD. (500103) : GROUP-A

12.15 13.65 10.62 13.52 16.54 20.41 19.17
Profit Before Interest And Tax Margin(%) 10.00 10.64

7.88
10.9
14.36 18.47 16.73
13.93
16.13
18.76 18.37
14.12 15.74
12.9
15.38 18.11 22.41 17.65
14.45
16.66
19.17 18.86
6.03
7.91
9.58
11.36
12.55
13.99 14.36
6.14
12.19 13.51 13.87
CROMPTON GREAVES LTD. (500093) : GROUP-A

11.7
11.6
9.19
8.52
9.75
10.07
12.3
16.14
15.9
15.32 10.97
8.66
8.62
6.55
6.43
7.96
8.86
11.18
15.02
14.79
13.91
9.48
8.70
8.05
7.69
8.14
9.53
9.67
11.27
15.17
14.94
13.99
9.59
1.32
1.80
4.09
5.5
6.26
5.62
7.92
8.40
11.32
11.33
7.60
246
EMCO LTD. (504008) : GROUP-C

16.01 17.05
14.7
12.67 14.41 15.02
15.94
12.07
0.61
9.81
12.21 13.63 12.45 11.25 13.41 13.85
14.22
10.18
-1.16
7.03
8.31
9.13
8.94
9.76
11.34 13.99
14.30
10.24
-1.16
7.30
1.98
2.6
4.06
4.69
6.14
5.29
13.59
-4.19
0.99
11.28 12.76 12.80 12.19 12.52 14.83 13.80
13.44
11.68
12.87 11.01
12.78
12.84
11.97 10.13
12.11 12.90 12.16 12.71 12.73 13.22 13.27
13.90
13.84
10.90 10.16
4.19
4.61
3.90
4.14
3.41
6.75
JYOTI STRUCTURES LIMITED (513250) : GROUP-B

4.32
4.41
3.61
3.7
5.69
5.41
KALPATARU POWER TRANSMISSION LTD. (522287) : GROUP-B

10.21 10.04 10.14 10.75 11.73 16.01 15.49
10.86
11.06
11.38
9.44
9.02
9.15
9.28
7.53
17.08 16.14 15.18 15.20 15.61 15.88 11.04
9.08
9.2
9.36
7.58
10.43
3.39
4.42
4.55
3.53

9.93
9.01
4.62
4.55
10.02
6.13
STERLITE TECHNOLOGIES LTD (532374) : GROUP-B

10.00 11.98 10.02
13.2
11.14 12.14 12.28
10.23
15.66
11.76
7.19
9.18
10.71
9.61
9.91
10.06
8.35
13.6
9.22
4.41
9.31
7.23
9.23
10.08
8.37
13.67
9.28
4.46
9.03
9.9
12.65 10.46 10.15
247
9.06
8.88
5.89
8.12
5.51
7.51
5.96
3.84
10.06
6.21
1.49
24.75 23.14 23.09
11.92
-5.57
6.16
12.55
14.02 16.98 21.91 23.12 21.44 21.51
10.35
-8.62
2.38
9.41
12.65 17.03 17.31 23.45 25.00 22.72 21.85
10.55
-9.18
2.56
9.89
9.06
-6.34
-37.89 -3.95
-7.00
SUZLON ENERGY LTD. (532667) : GROUP-A

10.29 16.56 18.48

8.18
12.5
24.2
18.14 18.62 21.28 19.41 20.09
THERMAX LTD. (500411) : GROUP-A

9.91
10.29
9.99
9.02
13.2
12.5
15.93
11.12
10.79 10.96
9.88
8.18
8.03
7.90
12.01 12.41 11.62
14.59
9.47
9.68
9.88
12.95 12.65 14.55 10.31 14.35 15.71 11.81
14.89
9.80
9.88
10.07
9.62
9.09
4.46
7.87
7.58

9.06
8.88
5.89
8.12
13.63
8.80
8.69
TRANSFORMERS & RECTIFIERS (INDIA) LTD. (532928) : GROUP-B

16.90 16.20 16.70 15.91 15.89 16.84 20.66
17.30
16.31
10.97
4.64
16.41
15.24
9.58
3.33
16.75 16.84 16.05 16.01 15.93 16.08 19.95
16.65
15.4
9.82
3.37
10.06 10.14 10.01 10.01 10.72
11.20
10.27
9.80
7.53
1.91

7.95
TRIVENI TURBINE LTD. (533655) : GROUP-C

0.48
3.16
6.99
2.87
10.0
-22.3
-2.5
22.72 24.38
-1.75
1.35
6.52
1.35
6.52
-23.37
-7.2
20.88 22.48
248
-1.75
1.35
6.54
1.35
6.71
-23.42 -10.26 21.02 22.55
-1.47
0.22
2.13
0.22
0.45
-24.77
-3.99
-2.36 14.34
VOLTAMP TRANSFORMERS LTD. (532757) : GROUP-C

15.93
9.84
13.98 13.34 13.87 16.01 21.26
23.33
19.52
9.78
7.32
8.44
12.66 12.21 12.87 15.29 20.29
21.87
17.66
7.67
5.71
14.89 13.49 15.69 14.44 14.99 16.73 20.69
22.64
18.42
10.14
5.87
9.09
17.24
14.6
9.51
5.68

7.64
8.80
249
8.43
9.10
9.63
14.10
CHART 5.85
CHART 5.86
250
CHART 5.87
CHART 5.88
251
CHART 5.89
CHART 5.90
CHART 5.91
252
5.13
PROFITABILITY
ANALYSIS
OF
HEAVY
ELECTRICAL
EQUIPMENTS INDUSTRY:
5.13.1
It is observed that the operating profit margin ratio is on the rise as far as Group A
companies are concerned. This implies that in these companies the operating
efficiency has improved a little which will have a positive impact on their overall
profitability. In Group C companies it shows a slight dip in the recent years. In the
year 2010 there has been loss in Group C companies. This implies that in these
companies, on an average the proportion of a company's revenue left over after paying
for variable costs of production such as wages, raw materials, etc. is unacceptably
low. Group B companies have shown encouraging Operating Profit ratios. In Group
A, B and C companies the average operating profit ratios are 14.02, 12.55 and 8.82
(%) respectively and the average Debt-Equity ratios are 0.63, 0.38 and 0.28. Group A
companies have the highest operating profit margin ratio and also the highest DebtEquity ratio. These companies have efficiently used the debt to enhance their
profitability and can raise even more debt given the fact they have the profits to
service the additional debt. As such Group A and Group B companies can increase
the amount of debt further. Group C companies have the lowest operating profit
margin ratio and also the lowest Debt-Equity ratio.
5.13.2
The ratio is fairly consistent in Group A companies but it is steadily declining in

Group B and fluctuating in Group C companies. Group A dominates and comes out
on top amongst all the companies which shows that those companies in this group are
highly profitable irrespective of the capital structure related advantages or
disadvantages. There is marginal improvement of the ratio in Group C companies
after a major dip in the year 2010, which means such companies have a potential to
contract debt in the right set of financial circumstances and after a proper financial
feasibility analysis. In Group A, B and C companies the average Profit before Interest
and Tax ratios are 12.13, 11.07 and 7.16(%) respectively and Debt-Equity ratios are
0.63, 0.38 and 0.28. Group A and B companies have a high profit ratio and therefore
Group A and Group B companies have a choice of opting for greater amount of debt
to accelerate their profitability whereas Group C companies have the lowest profit
253
ratio but if additional debt can improve the profitability of the companies , the same
should be moderately further contracted.
5.13.3
companies. But in the recent years it can be seen to be slightly on the lower side.
Group A companies outperform the rest of Group companies. It has become steady in
the last few years but in Group C companies it is dwindling which is not a good
comment on their profitability. In Group A, B and C companies the average Gross
Profit ratios are 13.61, 11.14 and 7.11(%) respectively and Debt-Equity ratios are
0.63, 0.38 and 0.28. Group A companies have the highest profit margin ratio and also
the highest Debt-Equity ratio. There is clearly a possibility for both Group A and
Group B companies to opt for more leverage and use greater profits to pay for fix
charges on greater amount of debt for higher profitability. Group C companies have
a low profit ratio and are also least levered.
5.13.4
Net Profit Margin:
Group A companies clearly have posted positive Net Profit Margin but Group B
companies are marginally dwindling on net profit margins which does not augur too
well for their financial health. In Group A, B and C companies the average Net Profit
ratios are 7.97, 5.38 and 1.20 (%) respectively and Debt-Equity ratios are 0.63, 0.38
and 0.28. Group A companies have reported the highest profit margin ratio and also
have contracted the highest amount of debt. This shows these companies have
gainfully used the debt to enhance their profitability and there companies can use the
augmented profitability to service greater amount of debt. Group C companies have
least debt and yet their profit ratio is also the lowest. Group B companies have
managed debt ina much more prudent way than the Group C companies.
254
TABLE 5.14
HEAVY ELECTRICAL EQUIPMENTS: LIQUIDITY RATIOS
RATIOS
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Current Ratio 0.88 0.98 0.78 0.81 0.89 0.78 0.88 0.98 1.03
Quick Ratio
1.68 1.34 1.40 1.37 1.71 1.88 2.36 1.83 1.64
Current Ratio 1.80 1.81 1.71 1.63 1.53 1.43 1.38 1.36 1.37
Quick Ratio
1.21 1.29 1.28 1.22 1.17 1.13 1.09 1.02 1.04
Current Ratio 0.70 0.87 0.75 0.97 1.21 1.09 1.18 1.29 1.28
Quick Ratio
1.17 1.14 1.09 1.22 1.12 1.11 1.02 1.12 1.12
Current Ratio
0.90 0.99 1.01 1.2 1.19 1.06 1.04 1.34
Quick Ratio
2.11 1.74 1.66 1.41 1.67 2.04 1.88 2.21
Current Ratio 1.00 1.00 1.15 1.09 1.02 1.15 1.2 1.08 1.13
Quick Ratio
1.53 1.81 1.62 1.25 1.3 1.97 2.23 1.74 1.61
Current Ratio 1.09 1.31 1.14 1.09 1.02 1.04 1.1 1.05 1.08
Quick Ratio
1.51 1.37 1.96 1.45 1.30 1.65 1.58 1.74 1.47
255
0.99
1.66
0.93
1.84
1.32
1.03
1.47
1.11
1.3
1.09
1.52
1.28
1.06
1.96
0.97
2.03
1.40
1.81
1.82
1.58
1.21
1.43
1.3
1.31

Current Ratio 1.00 0.92 0.94 0.93 0.75 1.09 0.70 1.2 1.51
Quick Ratio
0.78 0.88 0.97 1.25 1.43 1.25 2.02 1.45 1.38
Current Ratio 1.81 1.74 1.40 1.43 2.47 1.49 1.46 0.82 1.14
Quick Ratio
1.59 1.87 1.57 1.59 2.05 2.4 2.12 2.19 2.01
Current Ratio 1.78 1.25 1.12 0.98 0.87 0.82 0.85 1.23 1.08
Quick Ratio
0.75 0.92 0.8 0.68 0.6 0.57 0.67 1.01 0.95
Current Ratio 1.80 1.71 1.77 1.73 1.63 1.12 1.44 1.13 1.49
Quick Ratio
1.11 1.12 1.28 1.28 1.17 1.11 1.73 1.94 3.12
Current Ratio
1.43 1.06 0.95 0.90 1.81 2.64 4.8
Quick Ratio
1.15 0.81 0.47 0.61 0.79 0.93 2.84
Current Ratio 3.71 3.70 3.08 2.59 1.59 1.87 1.94 2.39 3.21
Quick Ratio
2.99 2.58 2.30 1.95 1.50 0.84 1.08 1.63 2.26
256
0.9
1.43
0.86
1.20
1.31
1.91
0.87
1.07
1.11
1.03
1.19
1.14
1.51
2.13
1.67
2.00
0.83
0.51
0.75
0.40
4.83
3.27
5.02
3.24
CHART 5.92
CHART 5.93
257
CHART 5.94
CHART 5.95
258
CHART 5.96
CHART 5.97
CHART 5.98
259
5.14
LIQUIDITY ANALYSIS OF HEAVY ELECTRICAL EQUIPMENTS
INDUSTRY:
5.14.1
Current Ratio:
In Group A companies the current ratio on an average has been fairly high to show
them up to be properly liquid, still below commonly accepted 2:1. The Group C
companies have enjoyed a better liquidity position over the years consistently barring
the year 2006. Group B companies reveal the same scenario as that of Group A
companies. Highly liquid firms can resort to debt funds if required. In Group A, B and
C companies the average Current ratios are 1.28, 1.11 and 1.96respectively and
Debt-Equity ratios are 0.63, 0.38 and 0.28. Group C companies have comparatively
lower Debt-Equity ratio and yet their average Current Ratio is the highest of all. Such
companies have the potential to raise more debt if required. Group A companies also
enjoy a good working capital position and also have the highest Debt-equity ratio.
Group A and B companies have sufficient liquidity. So they can use these financial
circumstances to opt for greater leverage and the additional debt will not adversely
affect the companies liquidity position..
5.14.2
Quick Ratio:
On an average all the companies seem to be on the over-drive when it comes to quick
ratio. In Group A, B and C companies the average Quick ratios are 1.25, 1.64 and
1.72respectively and Debt-Equity ratios are 0.63, 0.38 and 0.28. Group C companies
have the lowest debt ratio and yet their average Quick ratio is the highest. Hence
these companies have sufficient liquidity and it follows that the debt raised has not
hampered the companies liquidity position and that there may be a scope for more
debt. The Group A and B companies have comparatively lower Quick ratio but have
higher Debt-Equity ratio. Group A companies have lowest Quick ratio and the highest
Debt-Equity ratio which may not necessarily be due to leverage but the other possible
causes are huge pile-up of inventory from excessive production or easy availability of
short-term credit etc..
260
TABLE 5.15
HEAVY ELECTRICAL EQUIPMENTS: SOLVENCY RATIOS
RATIOS
2002 2003 2004 2005 2006

2007
2008
2009
Interest Cover
4.08
5.8
5.7
6.95
6.12
6.98
6.81
4.54
4.91
5.51
6.01
5.75
5.68
3.15
Debt Equity Ratio
1.07 1.06
1.01
1.11
1.4
2.97
1.06
1.26
0.16 0.15
0.72
0.91
0.52
0.26
0.05
0.17
Interest Cover
17.51 18.42 15.57 17.11 39.28 87.78 127.55 157.51
Financial Charges Coverage Ratio 19.08 21.81 18.87 19.8 43.46 93.42 135.94 168.4
Debt Equity Ratio
0.11 0.11
0.1
0.09
0.08
0.01
0.01
0.01
0.11 0.11
0.1
0.09
0.08
0.01
0.01
0.01
Interest Cover
1.42 1.77
2.79
5.7
8.16
10.14 15.11 26.49
2.9
4.36
7.9
9.71
11.37
16.4
28.07
Debt Equity Ratio
1.11 1.08
1.03
0.8
0.48
0.41
0.10
0.04
0.39 0.62
0.47
0.52
0.40
0.25
0.08
0.04
Interest Cover
1.49
1.66
2.12
3.69
3.86
4.27
3.14
1.56
1.64
1.98
2.88
3.1
3.33
2.77
Debt Equity Ratio
1.16
1.17
1.6
0.8
0.62
0.82
0.85
0.39
0.49
0.75
0.34
0.18
0.27
0.26
261
2010
2011
2012
7.65
4.12
1.32
0.07
9.62
5.41
1.40
0.06
3.42
3.55
1.56
0.04
198.19
211.86
0.01
0.01
164.27
172.96
0.01
0.01
200.25
215.85
0.01
0.01
43.12
45.72
0.02
0.02
42.96
46.87
0.01
0.01
25.46
28.74
0.01
0.01
2.51
2.52
0.45
0.14
-0.15
-0.20
0.65
0.13
1.18
1.58
0.71
0.10

Interest Cover
2.19 2.08
2.27
2.34
3.18
4.2
3.93
3.52
2.97
1.33
1.79
2.31
3.15
3.28
2.76
2.27
Debt Equity Ratio
1.41 1.41
1.49
1.27
1.41
0.59
0.67
0.75
0.75
0.58 0.58
0.57
0.58
0.51
0.07
0.14
0.16
0.23
Interest Cover
5.13 5.65
5.35
4.03
3.71
9.3
6.45
3.35
4.32
4.3
4.81
3.32
6.43
5.21
3.31
3.68
Debt Equity Ratio
1.37 1.41
0.89
1.97
1.41
0.62
0.57
1.09
0.88
0.51 0.99
0.87
0.87
0.51
0.16
0.13
0.33
0.37
Interest Cover
4.13
5
4.43
4.31
7.98
9.3
4.54
4.17
11.84
5.21
3.01
3.98
4.34
6.43
4.8
4.31
10.31
Debt Equity Ratio
1.27 1.41
0.59
1.27
0.73
1.27
1.24
0.81
0.41
0.58 0.51
0.07
0.58
0.07
0.58
0.21
0.63
0.37
Interest Cover
9.18 10.06 7.53 14.04 22.61 14.09 12.97
2.39
-0.14
6.17 11.16 17.69
12.8
12.05
2.31
-0.04
Debt Equity Ratio
1.31 0.31
0.59
0.54
0.12
0.31
0.44
1.13
1.36
0.43 0.19
0.3
0.27
0.07
0.04
0.29
0.53
1.02
Interest Cover
88
86.83 198.98 135.2 215.96 244.35 336.36 160.51 266.86
Financial Charges Coverage Ratio 14.85 24.5 33.09 24.81 41.04 45.29 68.46 55.04
39.2
Debt Equity Ratio
0.29 0.29
0.14
0.13
0.13
0.13
0.13
0.13
0.13
0.25 0.25
0.14
0.13
0.13
0.13
0.13
0.13
0.13
262
3.06
2.28
0.83
0.49
1.95
2.11
1.14
1.14
3.71
3.32
0.51
0.25
2.76
3.39
0.62
0.42
6.15
6.22
0.76
0.37
1.56
2.33
0.91
0.37
0.78
0.96
0.99
0.81
1.29
1.4
1.17
0.82
260.21
54.02
0.04
0.02
210.62
57.64
0.04
0.02

Interest Cover
5.71 5.92
6.13
5.65
6.35
6.55
8.01
10.53
20.57
14.36
2.65
4.43
5.41
5.3
5.09
5.98
7.58
10.24
9.98
3.38
Debt Equity Ratio
0.11 0.11
0.10
0.09
0.08
0.76
0.18
0.25
0.25
0.21
0.13
0.11 0.11
0.10
0.09
0.08
0.32
0.03
0.02
0.01
0.21
0.13
Interest Cover
-1.57 1.27
2.14
3.56
15.45 -19.50 -1171.0 15.30
16.61
-0.91 2.88
3.28
5.67
14.31 -18.56 -1114.0 15.95
14.69
Debt Equity Ratio
3.59
3.59
3.59
4.01
4.01
4.01
4.01
4.01
4.01
3.59
3.59
3.59
3.59
3.59
3.59
3.59
3.59
3.59
Interest Cover
12.14 15.95 29.18 33.91 42.39 56.33 204.72 286.04 4766.29 1000.45 102.44
Financial Charges Coverage Ratio 17.03 17.03 31.03 36.11 38.44 55.54 157.85 265.95 174.49 109.98 119.77
Debt Equity Ratio
0.56 0.50
0.29
0.28
0.27
0.27
0.27
0.27
0.27
0.27
0.27
0.56 0.50
0.29
0.28
0.27
0.27
0.27
0.27
0.27
0.27
0.27
263
CHART 5.99
CHART 5.100
264
CHART 5.101
CHART 5.102
265
CHART 5.103
CHART 5.104
CHART 5.105
266
5.15
SOLVENCY ANALYSIS OF HEAVY ELECTRICAL EQUIPMENTS

INDUSTRY:
5.15.1
been almost constant over the number of years except for the year 2010. This ratio is a
good indicator of the industrys earning capacity and debt-repayment capacity. The
meteoric rise from an average of 29.27 to 109.41 in Group A companies substantiates
the point the companies in Group A always show their prowess in earnings capacity
and robust debt-repayment capacity. The average Interest Cover ratios for Group A, B
and C companies are 85.23, 5.28 and 152.66 (times) respectively and the Debt-Equity
ratios are 0.63, 0.38 and 0.28 respectively. Group A companies have employed higher
amount of debt and yet its Interest Cover ratio. In the capital structure of Group C
companies, as compared to Group B companies, the debt is lower and as a corollary
the interest cover is the highest among all Groups of companies. Group C companies
have managed to service debt effectively that is also because of the fact that they have
very low amount of debt to manage. Group B companies have a very low Interest
cover ratio despite higher element of debt. The burden of debt is weighing heavy on
the cover ratio of Group B companies.
5.15.2
Group A companies have shown consistent and marked improvement in their debtservicing capacity. Group B companies have shown intermittent improvement over
the years, whereas Group C companies have shown a dismal deterioration in the year
2010 which may well be treated as an aberration. The cover ratios for Group A, B and
C companies are 45.51, 4.14 and 28.57 (times) respectively and the Debt-Equity
ratios are 0.63, 0.38 and 0.28 respectively. Group A companies have employed much
higher amount of debt and even then its cover ratio is very high which can be
attributed partially to high profitability of the group. There is a high amount of debt
in the capital structure of Group B companies and the charges cover ratio is a modest
4.14. Group C companies have managed to service debt effectively and have justified
the use of moderate amount of debt employed. It also reveals a possibility that such
companies may be able to increase the use of debt.
267
5.15.3
Debt-Equity Ratio:
The Debt-Equity ratios for Group A, B and C companies are 0.63, 0.38 and 0.28
respectively. Group A companies have comparatively higher debt-equity ratio and
Group C companies have comparatively lower Debt-equity ratio. As can be expected,
the Group A companies are highly levered and Group C companies are least levered.
5.15.4
In Group A companies the prominence of Long-term debt comes to the fore. The
long-term liabilities also require the companies to pay fixed charges which lay a very
heavy burden on low profit earning companies. For Group A, B and C companies,
Long Term Debt-Equity ratios are 0.41, 0.29 and 0.27 respectively.
268
TABLE 5.16
HEAVY ELECTRICAL EQUIPMENTS: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

47.04 50.81 80.00 80.00 97.96 77.17 103.21 139.0 190.45 115.96 112.9
Investments Turnover Ratio 27.17 52.49 59.05 59.58 70.05

80.1
86.81
82.2
90.04
95.07
92.1
12.99 22.38 16.77 18.06 12.38 12.99
22.38
16.77
18.06
16.38
14.3

3.38
3.62
3.95
3.41
3.68
4.24
3.88
3.7
3.77
4.11
3.74
4.71
4.02
4.41
3.79
4.15
4.64
4.80
4.18
4.97
5.08
5.24
2.14
2.09
2.33
2.67
3.54
4.27
4.48
2.22
2.28
2.31
2.08

3.61
3.88
9.92
11.77 13.56 13.85
16.47
17.88
18.82
16.00
15.42
4.67
4.80
10.9
12.89 14.73 15.13
17.17
18.18
19.42
18.01
14.12
4.23
4.48
2.17
2.56
3.74
4.04
3.5
2.96
2.62
3.04
3.72

3.1
3.57
3.74
3.79
4.2
7.75
6.04
6.8
7.36
5.22
3.4
3.98
4.14
4.16
4.66
8.75
7.31
7.08
7.91
6.97
1.53
1.85
2.35
3.76
5.33
4.22
1.33
1.19
1.19
0.86
269

4.9
4.89
4.73
4.96
13.56
19.46
14.55
11.16
15.54
9.28
17.9
17.80 16.72 15.76 15.14 14.15
15.62
15.85
15.92
15.01
15.08
10.9
12.89 14.73
12.06
9.67
8.91
8.69
2.17
5.59
6.4
7.71
9.93

4.2
7.75
6.04
11.88
19.88
16.43
17.23
18.12
7.48
10.9
12.89 14.73 11.98 11.70 11.71
18.00
18.31
18.71
18.91
20.02
4.32
4.76
4.88
4.59
4.31
4.16
1.85
4.80
6.90
4.82
7.93
4.31
4.08

8.74
8.96
8.02
8.75
7.15
6.14
8.93
27.21
16.09
13.53
9.92
4.14
4.16
4.66
8.75
7.5
4.71
4.90
4.85
4.71
4.98
4.71
4.14
4.16
4.66
8.75
0.89
4.14
1.83
2.35
2.24
1.47
1.31

4.07
4.05
3.99
3.92
3.49
3.98
4.71
5.45
4.67
4.5
4.87
3.19
3.96
3.94
3.96
3.56
3.99
4.99
4.71
4.09
4.66
4.71
4.70
4.23
5.04
9.44
10.53 10.36
9.65
0.61
0.26
0.33
0.54

11.79 11.33
8.57
8.89
9.35
7.74
16.81
12.2
12.95
17.77
19.83
9.91
9.05
9.58
9.05
8.10
9.72
8.3
9.02
9.43
7.81
9.49
270
3.19
3.12
3.49
5.25
6.24
7.57
7.78
3.65
3.04
3.98
3.39

7.90
7.19
7.87
9.79
9.79
8.12
6.21
7.30
7.28
7.11
7.30
8.75
7.31
7.08
7.91
7.90
6.20
5.42
8.43
10.18
5.27
5.41
8.90
8.19
8.19
8.20
8.9
9.32
10.1
5.02
1.42
1.32

6.71
6.51
5.67
5.00
7.31
8.20
7.11
7.11
7.57
3.05
3.58
3.81
4.3
4.02
4.43
4.81
3.33
4.51
1.24
1.03
1.62
2.9
2.9
2.99
3.46
3.58
3.16

4.93
5.62
8.17
8.5
5.46
8.25
14.19
10.2
11.20
6.06
5.10
5.34
6.96
5.36
4.96
4.54
4.17
4.00
5.01
5.04
5.07
3.24
3.17
3.00
3.13
3.70
3.01
3.02
3.57
3.99
3.06
4.48
271
CHART 5.106
CHART 5.107
272
CHART 5.108
CHART 5.109
273
CHART 5.110
CHART 5.111
CHART 5.112
274
5.16
EFFICIENCY
ANALYSIS
OF
HEAVY
ELECTRICAL
EQUIPMENTS INDUSTRY:
5.16.1
In Group A companies the Inventory Ratio has been high in the initial years but in the
last 2 years it shows a decline which is indicative of mild stock pile-up with the group
of companies. These companies could improve their profitability by ensuring that
their products move faster off the shelves, thereby reducing the cost of inventory pileup and minimizing loss in profit. The average Inventory Turnover ratios for Group A
,B and C companies are 8.72,26.35 and 7.48 (times) respectively and the Debt-Equity
ratios are 0.63, 0.38 and 0.28 respectively. It can be seen that Group C companies
have the lowest turnover ratio and have comparatively least amount of leverage too.
If greater turnover ratio is achieved accompanied by improved profitability, such
companies may be able to raise the amount of debt. Group B companies have
minimized the impact of leverage through their selling efficiency. Group A companies
have the highest Debt-Equity ratio and their Inventory Turnover ratio is still healthy
at 8.72.There is a potential for these companies to employ and efficiently service
greater amount of debt. The same can be used to invest in productive assets to
improve earnings.
5.16.2
The Group B companies have enjoyed a very high Investments Turnover Ratio which
is an indicator of how many times the net worth of a company is covered by its net
sales. A very low turnover ratio points to a fact that such companies have solvency
issues and that their sales are so low as compared to the amount invested. Such
companies with the given track record may find it difficult to raise money from the
financial markets as prospective investors would avoid them. The average
Investments Turnover ratios for Group A,B and C companies are 8.99, 24.01 and 7.68
(times) respectively and the Debt-Equity ratios are 0.63, 0.38 and 0.28 respectively.
Group A companies cover their investments more number of times than the Group C
companies. Group A companies on an average have a greater amount of debt funds
and so its sales cover the net worth 8.99 times which is superlatively better than that
of Group C companies. But Group B companies have a cover ratio of 24.01 despite
having a Debt-Equity ratio of 0.38. Group B companies have owners stake is pegged
275
at 62 %. Group C companies have moderate element of debt and the cover ratio is
7.68 times.
5.16.3
On an average the Assets Turnover ratio of Group C companies is higher which

shows that these companies have utilised their assets very efficiently to generate high
sales volume. In Group A companies the ratio has been low. This indicates that these
companies have under-utilised their assets and still the potential for greater
profitability and liquidity is there. The average Assets Turnover ratios for Group A, B
and C companies are 3.93, 6.30 and 39.97(times) respectively and the Debt-Equity
ratios are 0.63, 0.38 and 0.28 respectively. Group C companies cover their assets
many more times than the Group A and B companies despite having a high DebtEquity ratio. This could be because of high volume of sales and less investment in
assets or use of assets to their fullest to generate superior sales revenue. Group A and
B companies, may be because of acquisition of high value assets, have posted
comparatively much lower turnover ratio. Group C companies have used the debt for
maximum benefit and have invested in productive assets to generate a healthy sales
volume. Group A and B companies should follow suit.
276
TABLE 5.17
IRON AND STEEL: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
ADITYA ISPAT LTD. (513513) : GROUP-B

0.73
0.77
0.90
-0.69
3.12
3.72
3.92
3.61
4.24
6.1
6.26
Profit Before Interest And Tax Margin(%) -1.23
-1.73
-1.81
-2.23
-1.50
1.03
2.76
2.56
3.2
5.12
5.34
2.67
3.65
2.81
2.23
2.45
2.51
2.77
2.58
3.21
5.12
5.35
-0.24
-0.14
-0.53
2.9
0.34
0.86
1.16
1.58
1.4
1.59
1.31
BHUSHAN STEEL LTD (500055) : GROUP-A

14.21 17.54 16.76 15.15 14.18

8.97
8.21
16.4
19.98 21.93 25.84 29.24 30.21
10.89 14.86 17.16 22.00 25.15 23.91
12.31 12.17
13.1
12.98 12.43 15.12 14.92 17.22 22.12 25.23 23.98
4.79
5.76
5.71
4.86
5.5
8.14
10.09
8.42
14.96 14.42 10.26
BHUWALKA STEEL INDUSTRIES LTD. (513333) : GROUP-C

5.42
5.51
5.42
3.75
3.11
3.23
4.42
1.32
4.22
4.92
3.96
4.31
4.17
4.2
2.81
2.26
2.6
3.72
0.41
3.53
4.33
3.01
1.17
1.37
2.08
1.9
1.44
1.2
3.72
0.41
3.54
4.33
3.02
0.50
0.10
0.47
0.48
0.45
0.43
0.69
-1.64
0.46
0.62
-0.34
JSW STEEL LTD. (500228) : GROUP-A
277
19.17 28.15 31.69 34.83 27.79 32.79 29.46 20.42 23.52 20.08 17.42
16.9
22.08 29.39 21.07 26.92 23.05 14.32 17.28 14.01 12.02

20.06 28.26 22.41 28.55 23.43 14.51 17.33 14.11 12.09
5.64
7.31
-4.03
-4.41 16.05
13
14.14 14.98 14.92
3.23
11.09
8.64
5.04
KALYANI STEELS LTD. (500235) : GROUP-B

6.70
6.18
9.97
12.01 21.14 16.34 13.46
4.09
9.39
8.2
5.13
4.45
4.48
6.77
9.52
11.4
0.87
6.4
5.76
2.45
4.30
4.28
7.39
11.09 20.53 15.53 11.52
0.89
6.45
5.81
2.5
1.32
1.7
2.57
0.32
4.06
4.39
2.18
5.6
17.96 14.24
17.83
9.77
8.01
NATIONAL STEEL AND AGRO INDUSTRIES LTD. (513179) : GROUP-B

3.80
3.95
3.78
3.56
3.42
3.94
4.11
-1.61
5.44
5.27
5.41
2.42
2.5
2.54
2.38
2.37
2.86
3.15
-2.41
4.63
4.57
4.78
2.99
3.01
3.04
2.98
2.81
3.05
3.15
-2.42
4.64
4.57
4.78
1.11
1.16
1.2
1.22
1.17
1.23
1.16
-4.18
1.11
1.26
1.03
RATHI STEEL & POWER LTD (504903) : GROUP-C

2.71
2.82
2.26
2.46
5.64
4.61
5.5
6.84
7.14
8.28
9.09
1.71
1.82
1.57
2.02
4.88
3.76
4.60
4.19
4.73
5.88
6.67
2.21
2.23
1.77
2.13
4.92
3.64
4.62
4.79
4.76
6.99
6.99
1.05
1.1
0.84
1.05
2.54
1.81
1.65
1.44
0.57
1.7
1.32
278
SAL STEEL LTD (532604) : GROUP-B

4.16
4.36
4.14
5.17
9.3
17.16
18.6
3.11
2.53
2.08
-0.56
-0.67 10.11 13.53
9.08
9.33
6.99
5.42
4.13
3.57
3.12
1.03
1.93
10.13 13.57
9.12
9.35
5.52
0.42
2.19
0.54
-0.41
-5.98
0.32
0.5
0.27
0.08
0.12
2.89
13.94 15.82 12.92 11.04
SESA GOA LTD. (500295) : GROUP-A

13.38 28.44 57.79 58.41 57.74 69.92 62.32 56.42 57.32 47.07
9.56
13.43 27.95 57.98 58.97 58.61 68.73 61.45 55.34 56.31 45.88
3.07
25.74 55.53 56.16 55.02 67.43 59.18 53.13 53.44 43.95

15.08 30.54 29.98 29.43 40.98 36.86 38.35 39.62 22.96
SOUTHERN ISPAT & ENERGY LTD (531645) : GROUP-C

14.23 12.95 22.66 17.26 -6.07
2.82
4.3
4.14
-2.23
-4.67
8.36
1.19
3.62
3.78
-2.10
-4.99
13.34 11.99 30.24 16.72
0.89
2.19
4.12
4.61
-2.67
-5.26
0.03
0.06
1.87
2.5
-2.48
-0.15
-2.2
8.94
6.31
18.64 15.19 -5.63

0.8
4.52
STEEL AUTHORITY OF INDIA LTD. (500113) : GROUP-A

10.21 11.86 20.71 36.53 23.24 28.09 28.19 20.41 22.69 16.37 13.15
5.39
5.06
15.27 31.85 18.38 23.63 24.17 16.61 18.35 12.33
9.41
6.23
6.04
17.89 36.09 24.12 29.94
9.74
279
25.1
17.48
19.4
12.88
-1.44
-1.73 11.39 23.19 13.79 17.38 18.16
13.4
15.73 11.03
7.44
TATA STEEL LTD. (500470) : GROUP-A

23.22 23.71 32.47

17.2
41.1
38.88 39.61 41.94 37.68
38.11 35.49
26.12 36.44 33.19 33.97 37.04 33.27 30.95 33.82 31.58
19.42 20.38 31.65 40.17 38.81 39.84
35.7
37.7
33.69 31.36
34.2
32.09
10.52 11.52 16.00 23.72 22.78 23.53 23.43 21.09 19.96 23.16 19.47
VALLABH STEELS LTD. (513397) : GROUP-C
3.15
3.09
2.59
3.39
4.23
4.47
4.79
3.21
3.49
3.14
4.43
1.72
1.82
1.56
2.27
3.28
3.62
3.93
2.29
2.43
2.24
3.82
2.81
2.69
2.88
2.92
3.19
3.62
3.93
2.29
2.43
2.24
3.82
0.91
0.83
1.11
0.98
1.42
1.26
0.57
0.36
0.64
0.24
0.66
280
CHART 5.113
CHART 5.114
281
CHART 5.115
CHART 5.116
282
CHART 5.117
CHART 5.118
CHART 5.119
283
5.17
PROFITABILITY ANALYSIS OF IRON AND STEEL INDUSTRY:
5.17.1
It is observed that the operating profit margin ratio is the highest as far as Group A
efficiency is at its peak which will have a significantly positive impact on their overall
profitability. In Group C companies it reveals that it is on the decline in the last few
years which is a sinister indication of inadequate profitability. This implies that in
these companies, on an average the proportion of a company's revenue left over after
paying for variable costs of production such as wages, raw materials, etc. is very low.
In Group A, B and C companies the average operating profit ratios are 31.36, 7.57
and 5.11(%) respectively and the average Debt-Equity ratios are 1.41, 2.99 and 2.03.
Group A companies have the highest operating profit margin ratio and also the
lowest Debt-Equity ratio. These companies can make use of their profitability to
service the increased the amount of borrowed funds if they choose to do so. Group B
companies have the highest Debt-Equity ratio and yet their profit ratio is higher than
that of Group C companies. Group C companies have the lowest operating profit
ratio and still have opted for a much greater amount of leverage than that of Group A
companies.
5.17.2
The ratio is fairly consistent in Group A and B companies and fluctuating in Group C
companies. Group A dominates and comes out on top amongst all the companies
which shows that those companies in this group are highly profitable irrespective of
the capital structure related advantages or disadvantages.
Since 2009, there is
marginal improvement of the ratio in Group C companies which means such

companies have a potential to contract debt in the right set of financial circumstances
and after a proper feasibility analysis. In Group A, B and C companies the average
Profit before Interest and Tax ratios are 26.35, 4.93 and 3.81(%) respectively and
Debt-Equity ratios are 1.41, 2.99 and 2.03. Group A companies have the highest
profit ratio along with the lowest Debt-Equity ratio and can afford to opt for greater
leverage in future. Group B companies have the highest leverage and yet their profit
ratio is very close to that Group C companies lowest of 3.81. Group B companies
should utilise the debt very prudently to enhance profitability and if the fixed charges
284
burden is difficult to carry then the debt should be repaid as early as possible. Group
C companies have the lowest profit ratio and in consonance with that, it has a higher
amount of leverage.
5.17.3
Group A companies outperform the rest of Group companies by a huge margin. On

the whole it has been declining in the last few years which shows that supply of raw
materials is either shrinking or cost or raw material is rising or inefficient or
underutilisation of productive resources or rising wage rates. In Group A, B and C
companies the average Gross Profit ratios are 28.01, 5.79 and 4.38 (%) respectively
and Debt-Equity ratios are 1.41, 2.99 and 2.03. Group A companies have the highest
profit margin ratio and as analysed earlier these companies have the profitability to
back a much higher amount of debt for future financial requirements. Group B
companies have the potential to opt for more leverage and use the debt to enhance
profitability which can further help to service greater amount of debt. Group C
companies have a greater amount of leverage than Group B companies even though
their profit ratio is lower than that of Group B companies. This may be an allusion to
some kind of financial stress in the Group C companies.
5.17.4
Net Profit Margin:
Group B and Group C companies clearly have dwindling net profit margins which
does not augur too well for their financial health. This shows that the companies in
those particular groups are precariously poised in the market and Group C companies
are struggling to show noticeable return. Group A companies have fared remarkably
well. In Group A, B and C companies the average Net Profit ratios are 16.12, 3.40
and 1.01(%) respectively and Debt-Equity ratios are 1.41, 2.99 and 2.03. Group A
companies have reported the highest profit margin ratio and as such Group A
companies can use the augmented profitability to service greater amount of debt
which can lead to greater profits, whereas Group C companies have the lowest profit
ratio and still have opted for a greater amount of debt. Group B companies have the
highest Debt-Equity ratio and a very modest Net Profit ratio but they are better off
than Group C companies. Group B companies must use debt to enhance profitability
and show up tangible benefits of use of leverage. If the debt is a burden for these
companies, the same should be gotten rid of.
285
TABLE 5.18
IRON AND STEEL: LIQUIDITY RATIOS
RATIOS
2002 2003 2004
2005
2006 2007 2008 2009 2010
2011
2012

Current Ratio
Quick Ratio
2.80
4.71
2.74 4.17 16.36 3.42 1.98 1.77 1.37 1.46 13.94

4.95 6.88 11.24 9.06 7.55 4.83 5.96 8.26 7.44
Current Ratio 0.86 0.88 0.79 0.70 0.83 0.81 0.76 1.06 1.23 1.04
Quick Ratio 1.20 1.23 1.10 1.03 1.20 1.07 0.88 0.92 0.93 0.67
Current Ratio 0.82 0.72 0.81 0.72 0.74 0.93 0.80 0.76 0.67 2.40
Quick Ratio 1.65 1.50 1.24 1.33 0.80 1.47 0.74 0.77 0.8
0.83
Current Ratio 0.46 0.47 0.65 0.67 0.68 0.64 0.51 0.44 0.58 0.78
Quick Ratio 0.54 0.58 0.80 0.60 0.59 0.43 0.28 0.28 0.31 0.49
Current Ratio 1.57 1.68 1.32 1.12 1.52 1.3 0.76 0.89 0.91 0.96
Quick Ratio 2.18 2.19 0.92 1.06 1.14 1.06 1.16 0.98 1.09 1.33
Current Ratio 1.00 1.12 1.13 1.06 1.09 1.16 1.16 1.04 1.08 1.69
Quick Ratio
0.5 0.68 0.7
0.85 0.72 0.68 0.66 0.79 0.74 0.81
286
12.29
6.69
0.64
0.86
1.53
0.65
0.76
0.54
1.38
1.35
1.46
0.70
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
Current Ratio
Quick Ratio
0.81
1.11
0.92 0.97 0.88 1.01 0.92 1.1 0.84 0.82

1.29 1.12
2.0
1.20 0.83 1.32 1.27 1.47
0.28 0.28 0.21 1.68 0.59 0.64 0.60 0.40 0.44
0.70 0.70 0.04 3.89 1.03 0.72 0.64 0.55 0.38
1.52 1.77 1.45 1.80 1.82 1.95 2.60 3.63
1.61 1.45 0.77 0.89 0.93 1.27 2.22 3.33
1.33 1.68 1.75 1.46 1.31 1.3
1.3 1.64
2.15 2.12 1.51 0.89 1.47 1.32 1.98 2.97
0.42 0.55 0.70 1.13 1.17 1.52 1.68 1.61 1.6
0.48 0.49 0.57 0.77 0.73 1.01 1.23 1.24 1.53
0.72 0.73 0.66 0.69 0.71 1.69 3.81 0.91 1.12
0.41 0.43 0.39 0.33 0.30 1.37 3.52 0.57 0.76
0.80 0.92 0.90 0.83 0.88 0.74 2.95 0.89 0.83
1.06 1.57 1.52 1.64 1.24 0.69 1.70 2.36 2.13
287
0.85
1.78
0.76
1.22
0.52
0.59
1.29
0.82
2.01
1.62
0.42
0.64
2.35
2.46
2.93
3.11
1.21
1.35
1.22
0.82
1.78
1.45
0.79
0.52
2.61
1.63
2.26
1.42
CHART 5.120
CHART 5.121
288
CHART 5.122
CHART 5.123
289
CHART 5.124
CHART 5.125
CHART 5.126
290
5.18
LIQUIDITY ANALYSIS OF IRON AND STEEL INDUSTRY:
5.18.1
Current Ratio:
In Group A, B and C companies the average Current ratios are 1.18, 2.28 and
1.25respectively and Debt-Equity ratios are 1.41, 2.99 and 2.03. Group C companies
have comparatively higher Debt-Equity ratio than Group A companies and their
average Current Ratio is also higher than that of Group A companies. Group B
companies also enjoy a good working capital position and these companies have
sufficient liquidity. So they can use these financial circumstances to increase the
amount of leverage and the debt so raised will not adversely affect the companies
liquidity position. The ratio is lower than the theoretical standard of 2:1 in case of
Group A and C companies even with lower Debt-Equity ratios in tow.
5.18.2
Quick Ratio:
Group B companies have been adequately liquid and also have posted a very high
quick ratio, on an average A look at the above diagrams will quickly substantiate
what has been diagnosed. In Group A, B and C companies the average Quick ratios
are 0.98, 2.59 and 1.49respectively and Debt-Equity ratios are 1.41, 2.99 and 2.03.
Group B companies have the best Quick ratio which even alludes to their being over
liquid and Group B and C companies can be said to have at least sufficient liquidity.
So they can use these financial circumstances to increase the amount of leverage and
the increased debt will not adversely affect the companies liquidity position. The
ratio is just marginally lower than the theoretical standard of 1:1 in case of Group A
companies even though the Debt-Equity ratio is among the lowest.
291
TABLE 5.19
IRON AND STEEL: SOLVENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Interest Cover
-1.23 -1.09
0.77
4.01
3.87
3.89
3.27
2.86
1.79
1.54
Financial Charges Coverage Ratio -3.62 -4.55
3.44
11
9.44
10.42
4.33
3.23
3.14
2.13
1.8
Debt Equity Ratio
0.08
0.09
0.06
0.13
0.13
0.20
0.25
0.34
0.34
0.80
0.82
0.05
0.01
0.01
0.13
0.13
0.13
0.10
0.10
0.10
0.80
0.82

Interest Cover
2.06
2.07
2.69
3.88
4.09
6.81
10.95
15.02
9.2
10.94
2.3
3.03
3.98
5.19
5.42
7.53
7.9
9.47
7.06
5.8
2.9
Debt Equity Ratio
1.17
1.55
1.58
1.8
2.29
2.67
3.52
3.98
2.89
2.86
2.72
1.01
1.14
1.04
1.1
1.75
2.15
2.84
3.75
2.76
2.72
2.14

Interest Cover
1.03
1.02
1.24
1.43
1.33
1.27
1.5
0.16
1.25
1.28
0.86
1.11
1.26
1.55
1.71
1.64
1.41
1.69
0.45
1.41
1.44
1.1
Debt Equity Ratio
4.16
5.06
4.35
3.73
3.61
3.32
3.51
5.43
5.63
6.01
5.22
3.9
3.8
2.82
2.07
1.88
1.97
2.03
2.03
2.30
2.30
3.11
292

Interest Cover
-0.70 -0.69
1.73
4.28
3.65
5.85
6.13
3.81
4.44
3.43
2.57
4.93
4.68
6.99
7.16
3.64
4.81
5.64
4.87
Debt Equity Ratio
7.39
8.59
4.15
1.43
1.07
0.84
1.06
1.51
1.26
0.74
0.69
6.71
7.17
3.73
1.30
0.97
0.79
1.01
1.34
1.25
0.72
0.65

Interest Cover
2.89
2.07
2.48
9.58
22.24
8.39
6.6
0.92
2.86
4.52
2.13
2.34
2.75
3.43
11.55
26.17
9.44
7.65
2.04
4.04
6.15
3.35
Debt Equity Ratio
0.59
0.35
0.65
0.57
0.29
0.18
0.44
0.48
0.75
0.70
0.57
0.27
0.29
0.64
0.46
0.29
0.18
0.17
0.34
0.51
0.44
0.33

Interest Cover
2.01
2.39
3.08
3.37
2.99
2.87
2.61
-1.37
1.34
1.51
1.34
2.94
3.38
4.03
4.5
3.99
3.71
3.14
-0.82
1.56
1.74
1.52
Debt Equity Ratio
0.71
0.71
1.46
1.71
1.63
1.49
1.43
2.68
2.45
1.92
1.62
0.44
0.44
1.06
1.19
1.09
1.04
0.97
1.84
1.62
1.50
1.50

Interest Cover
2.77
2.82
2.99
5.43
6.57
3.79
2.55
1.35
1.29
1.35
1.19
3.07
3.13
3.56
5.72
6.26
4.34
3.2
1.75
1.79
1.79
1.61
Debt Equity Ratio
0.70
0.70
0.79
1.41
2.34
1.07
1.92
2.20
2.09
2.04
1.74
293
0.16
0.16
0.22
0.54
1.45
0.91
1.57
1.58
1.42
1.37
1.01

Interest Cover
2.01
2.01
2.45
2.89
-0.14
1.04
1.79
1.06
1.05
1.01
1.06
3.01
2.5
2.03
2.89
-1.25
1.82
2.5
1.64
1.81
1.89
1.84
Debt Equity Ratio
1.10
1.70
2.27
0.78
2.09
2.39
2.08
2.00
1.77
1.98
1.57
1.09
1.61
1.01
0.72
1.00
1.24
0.99
0.80
0.67
1.07
1.07

Interest Cover
4.73
23.06 263.18 784.63 3565.28 84120.67 3346.99 62.13 143.83 14.79
2.35
6.40
5.02
4.70
4.30
8.08
6.12
4.50
7.19
4.61
Debt Equity Ratio
0.61
0.25
0.02
0.01
0.10
0.10
0.10
0.41
0.48
0.48
0.51
0.23
0.02
0.01
0.07
0.07
0.07
0.27
0.37
0.37

Interest Cover
8.99
8.61
105.09
19.59
-2.34
2.2
2.97
14.42 -10.11
-1.95
12.06 10.46
67.65
16.76
-1.22
2.55
3.46
15.79 -17.81
-6.94
Debt Equity Ratio
0.44
0.23
0.19
0.23
0.26
0.34
0.30
0.28
0.30
0.19
0.01
0.01
0.12
0.12
0.14
0.14
0.14
0.15
0.15
0.15

Interest Cover
-0.64 -0.68
3.73
17.64
14.10
30.64
48.48
40.02
26.26
15.86
9.01
5.10
18.45
15.92
33.12
51.04
44.31
28.71
18.66
11.31
294
Debt Equity Ratio
4.17
5.14
1.72
0.56
0.34
0.24
0.13
0.27
0.50
0.54
0.40
3.83
3.86
1.41
0.51
0.31
0.22
0.12
0.21
0.39
0.32
0.29

Interest Cover
4.73
4.48
13.27
24.01
31.86
26.19
8.35
5.71
4.41
6.14
5.93
6.41
6.23
15.98
26.72
36.46
29.45
9.25
6.37
5.07
6.82
6.52
Debt Equity Ratio
1.31
1.33
0.75
0.39
0.26
0.69
1.08
1.34
0.68
0.69
0.55
1.13
1.28
0.72
0.37
0.25
0.68
1.07
1.31
0.68
0.68
0.52

Interest Cover
4.31
4.53
6.81
4.89
3.18
1.38
2.72
1.39
2.35
1.27
1.54
6.01
7.35
8.54
6.35
3.76
1.66
3.32
1.85
3.18
1.78
1.78
Debt Equity Ratio
1.37
1.55
1.55
2.15
3.15
1.16
2.68
1.18
1.28
1.06
1.06
0.61
0.55
0.64
1.19
1.93
0.38
2.68
0.25
0.22
1.01
1.01
295
CHART 5.127
CHART 5.128
296
CHART 5.129
CHART 5.130
297
CHART 5.131
CHART 5.132
CHART 5.133
298
5.19.
SOLVENCY ANALYSIS OF IRON AND STEEL INDUSTRY:
5.19.1
remained constant with the year 2008 as an exception which again can be attributed to
Group A companies which have posted mammoth earnings to showcase such
impressive figures. This is prominent only in Group A companies. Group B and
Group C companies have posted a very poor Interest Cover Ratio which shows that
these companies may have so far remained afloat but a little shuffle in the financial
performance of these companies can easily upset the proverbial apple cart full of
financial uncertainties. The average Interest Cover ratios for Group A,B and C
companies are 1855.42, 3.25 and 5.95 (times) respectively and the Debt-Equity ratios
are 1.41, 2.99 and 2.03 respectively. Group A companies have, on an average,
employed comparatively lower amount of debt and hence its average Interest Cover
ratio is very high which is also partially due to high profitability of the group and of
course because of existence of lower interest outgo owing to low debt. Group A
companies have the capacity to absorb more debt given their solvency position. In
spite of high debt in capital structure of Group C companies, the Cover ratio is
comparatively much healthier than that of Group B companies. Group B companies
have the highest Debt Equity ratio and yet they managed to service debt effectively
and have a Cover ratio of 3.25.
5.19.2
As all the leading companies have contracted little amount of debt, the Financial
Charges Coverage Ratio is miniscule and is noteworthy in Group C companies. Group
B companies have shown mild improvement in the initial years only to relapse into
lower performance in the recent years which shows that the companies in this group if
pitchforked into debt may not consistently and assuredly service debt. The cover
ratios for Group A, B and C companies are 10.70, 4.64and 6.03(times) respectively
and the Debt-Equity ratios are 1.41, 2.99 and 2.03 respectively. Group A companies
have comparatively used the lowest amount of debt and hence its cover ratio is very
high thanks to inherent profitability and low debt. There is a high debt in capital
structure of Group B companies and the same may have brought down their Cover
ratio. Group C companies have a Debt-Equity ratio of 2.03 and their Cover ratio is
299
6.03- better than that of Group B companies and which spawns the possibility that
such companies may be able to increase the use of debt with their current level of
solvency.
5.19.3
Debt-Equity Ratio:
The Group A companies had on an average, debt-equity ratio of 1.41 and surprisingly
Group B companies have the highest debt-equity ratio. The Debt-Equity ratios for
Group A, B and C companies are 1.41, 2.99 and 2.03 respectively. Group A
companies have comparatively lower debt-equity ratio and Group B companies have
comparatively higher Debt-equity ratio.
5.19.4
In Group C companies have inculcated greater amount of Long-term debt. But it is

the Group B companies which are least levered in terms of long term debt. The longterm liabilities normally entail fixed charges which place a very heavy burden on low
profit earning companies and in times of recession the same can take its toll on the
financial health of such companies and can jeopardize their survival. Group B
companies seem to have largely kept away with long-term debt. For Group A, B and C
companies, ratios are 1.21, 0.89and 1.60 respectively.
300
TABLE 5.20
IRON AND STEEL: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

3.71
5.25
7.53
3.49
4.77
5.16
3.25
3.97
8.27
3.13
3.55
5.11
5.63
8.05
3.44
4.64
5.86
3.89
3.99
5.97
4.00
4.17
1.78
1.53
1.7
2.01
2.41
3.17
3.08
2.89
3.21
3.32
1.36

4.00
4.4
3.97
4.61
5.91
5.09
4.84
4.75
3.35
2.58
3.26
5.87
5.36
4.75
5.33
6.96
5.84
4.42
4.21
4.70
4.19
3.74
1.01
1.27
1.17
1.61
1.56
1.43
1.44
0.56
0.43
0.37
0.4

6.17
6.72
8.72
9.57
11.39
8.67
9.77
6.53
5.19
6.71
7.08
7.89
10.47 16.69 11.96
14.2
8.44
13.51
8.16
8.99
8.91
2.77
3.85
7.1
7.26
3.65
3.08
3.1
3.79
8.75
8.95
7.10
7.97
4.7
13.4
5.92
7.16

9.35
9.41
11.44
9.08
301
6.61
8.52
9.26

0.39
0.40
0.53
0.89
8.55
11.04
9.00
9.02
9.05
9.10
8.99
0.73
0.82
0.82
0.81
0.90
0.92
1.07

15.65 20.62 12.96 13.07
5.67
10.04
8.16
7.96
10.46
11.77
11.24
8.44
13.51
8.00
7.89
7.44
9.03
9.10
1.95
3.07
2.47
1.33
2.47
2.83
1.83
2.08
2.75
1.85
2.72

5.61
5.49
4.33
6.03
5.94
4.79
4.92
7.34
5.66
5.52
5.68
5.72
5.82
4.57
6.45
6.32
5.08
5.12
6.14
6.98
6.00
5.78
3.49
4.24
3.91
4.31
5.68
5.3
5.87
5.45
5.93
6.43
4.98

13.86 14.38 24.47
8.64
9.57
6.14
7.07
6.94
7.06
6.83
9.39
10.12
8.03
8.09
8.11
8.03
7.99
4.21
4.73
1.72
2.17
1.95
1.99
1.77
9.12
4.18
4.14
5.89
6.68

1.01
1.05
1.25
1.06
1.48
4.87
5.93
7.27
5.56
8.80
4.92
5.00
5.17
5.50
5.25
4.77
4.77
4.11
6.19
6.23
7.09
7.99
0.50
0.43
0.33
1.00
1.07
1.03
1.45
1.45
1.14
1.19
0.93
302
6.09
10.4
9.50
6.44
8.08
15.38 25.66
14.18
13.92
9.94
8.12
14.81 11.21
7.02
8.44
13.51
8.16
11.10
11.99
10.34
1.43
2.22
3.76
3.38
5.6
1.39
0.78
0.76
0.48
3.39

24.96 26.64
8.2
2.71
6.47
6.31
10.16 293.15 200.11 127.84
8.94
8.68
7.37
6.44
6.71
6.22
7.11
7.73
7.08
7.31
1.57
1.93
3.55
3.4
4.31
6.51
4.47
11.25
4.06
1.74

4.00
4.67
7.15
6.96
4.68
5.36
8.62
5.86
6.02
5.13
3.71
5.01
6.81
11.23
9.69
6.57
7.50
7.01
6.01
5.79
5.43
4.37
0.75
0.62
0.78
1.03
0.97
1.16
1.31
1.42
0.95
0.79
0.81

7.82
7.08
7.69
10.84
9.36
10.90
9.85
9.40
9.89
10.81
9.01
9.11
9.75
9.13
9.02
0.98
1.09
1.20
0.48
0.42
0.42
0.44
6.25
0.63
7.62
0.71
8.73
0.86
1.11

10.11 11.64 10.38 13.15
6.58
8.47
5.34
18.1
10.32
6.12
6.37
7.51
7.00
7.54
7.04
7.77
7.84
6.11
3.52
3.54
3.69
5.79
2.90
4.39
2.99
7.20
7.28
6.32
7.58
303
CHART 5.134
CHART 5.135
304
CHART 5.136
CHART 5.137
305
CHART 5.138
CHART 5.139
CHART 5.140
306
5.20
5.20.1
EFFICIENCY ANALYSIS OF IRON AND STEEL INDUSTRY:

In Group A companies the Inventory turnover ratio has been high in the initial years
but in the last 3 years it shows a decline which is indicative of mild stock glut or
sluggish stock movement with the group of companies. These companies could
improve their profitability by selling their products more effectively thereby reducing
the cost of inventory pile-up and minimizing loss in profit. In Group B companies it is
on the rise since 2008. There is a chance that the companies in this group could also
be facing intermittent stock pile-up situations. The average Inventory Turnover ratios
for Group A,B and C companies are 7.93, 6.87 and 20.02 (times) respectively and the
Debt-Equity ratios are 1.41, 2.99 and 2.03 respectively. It can be seen that Group C
companies have the highest turnover ratio and have lower leverage. There is a
potential for these companies to employ and efficiently service greater amount of
debt. The same can be used to invest in productive assets to further accelerate
earnings. Group A companies have the lowest turnover ratio accompanied by a low
Debt-Equity ratio. Group B companies are highly levered and have the lowest
Inventory turnover ratio. Group A and B companies have to improve their selling
efficiency which will result in improved profitability and the enhanced profitability
can be used to embrace higher leverage.
5.20.2
The Group C companies have enjoyed a very high Investments Turnover Ratio - a
barometer of how many times the net worth of a company is covered by its net sales.
The average Investments Turnover ratios for Group A,B and C companies are 9.10,
7.74 and 34.84 (times) respectively and the Debt-Equity ratios are 1.41, 2.99 and 2.03
respectively .Group C companies cover their investments many more times than the
Group A and B companies despite having a high Debt-Equity
ratio. Group B
companies have the highest Debt-Equity ratio and also have the lowest Investments
turnover ratio. Group A companies outperform Group B companies in that they have
the lowest Debt-Equity ratio and the turnover ratio is better than that of Group B
companies. As such all the companies are solvent enough to cover their net worth
several times over with their sales revenue.
307
5.20.3
On an average the Assets Turnover Ratio of Group A companies is on the decline in

the recent years which is possible either because these companies have been acquiring
more and more assets over the years or because their sales are dwindling due to
internal as well as external reasons. In Group C companies the ratio has been pathetic
between 2006 and 2012. This is an indication of the fact that these companies have
under-utilised their assets or have assets of excessive value when compared with sales
achieved. The potential to achieve and sustain greater profitability and liquidity is not
fully utilised. The average Assets Turnover ratios for Group A,B and C companies
are 1.18, 2.89 and 4.39 (times) respectively and the Debt-Equity ratios are 1.41, 2.99
and 2.03 respectively .Group C companies cover their assets more times than the
Group A and B companies do and this despite having a high Debt-Equity ratio. This
could be because of high volume of sales and less investment in assets. Group A
companies, because of assets of high value acquired, may have posted a lower
turnover ratio. Group C companies have put the debt to judicious and gainful use or
have invested in productive assets to generate a healthy sales volume. Group B
companies have the highest Debt-Equity ratio and have the Assets turnover ratio of
2.89 times which is better than Group A companies (least levered) and it pales in
comparison with Group C companies (comparatively less levered with the best
turnover ratio).
308
TABLE 5.21
PHARMACEUTICAL: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
ABBOTT INDIA LTD. (500488) : GROUP-B

18.62 19.19 19.65 15.05 13.39
13.11
10.96
12.3
6.74
9.78
9.90
11.76
9.65
10.77
5.47
8.51
9.03
16.23
16.22
9.95
11.17
5.66
8.79
8.00
15.52 21.45 11.33 10.86
10.6
8.62
9.46
5.68
7.67
7.70
20.48 20.25 21.05
1.33
17.4
BAL PHARMA LTD. (524824) : GROUP-C

10.46 12.22 11.43 10.87 11.46
12.33
10.55
10.8
5.54
9.27
10.60
9.03
10.6
10.05
9.19
9.69
10.32
8.69
9.02
2.88
6.73
7.58
7.23
8.19
7.79
6.79
7.91
8.6
8.7
9.03
2.88
6.77
7.64
5.01
5.03
3.71
2.9
4.93
2.84
3.25
2.89
-1.26
0.41
2.66
CADILA HEALTHCARE LTD. (532321) : GROUP-A

17.46 18.74 16.21 17.22 18.61
17.91
16.19
14.34
16.08 -1.52 20.52
12.66
11.09
8.38
9.00
15.71 17.34 19.16 19.47 20.31
20.23
11.83
9.60
11.31 -5.97 12.41
7.89
13.42
13.17
13.31
20.39 20.57 19.41

7.91
12.3
11.49 12.43
309
-4.38 11.84
CAPLIN POINT LABORATORIES LTD. (524742) : GROUP-C

4.41
-36.3
4.00
4.84
5.28
9.92
6.60
8.46
4.04
7.8
9.73
2.05
-27.7
3.01
3.28
3.65
6.34
2.67
5.05
0.4
4.7
8.47
4.17
20.5
4.79
4.88
10.13
9.2
2.7
5.17
0.44
4.95
8.66
3.17
13.8
3.66
3.4
4.98
5.72
3.62
3.57
5.4
7.75
7.44
CIPLA LTD. (500087) : GROUP-A

19.11 21.87 21.96 22.41 23.27
23.07
20.27
23.78
24.63 20.27 22.89
19.8
16.9
20.52
21.32 16.41 18.94
22.69 23.86
24.27
17.16
20.88
21.68 16.65 19.15
14.77 16.81 15.76 18.02 20.12
18.41
16.43
14.58
18.97 14.98 15.92
20.53 22.45
22.3
DR. REDDY`S LABORATORIES LTD. (500124) : GROUP-A

28.01 30.03 20.87 10.53 15.82
35.08
17.42
18.95
24.76
9.82
29.43
12.01
13.28
18.92 18.31 23.11
35.01 32.05 23.48 13.63 18.65
38.66
12.58
14.11
19.7
23.99 24.81 16.47
29.01
13.57
13.2
18.48 16.84 13.51

4.39
4.06
10.08
23.5
27.84
18.72 23.34
ELDER HEALTH CARE LTD. (524830) : GROUP-B

8.56
10.21 -6.39
-14.0
-5.17
3.06
3.84
3.69
6.02
8.51
7.34
9.05
-7.41
-14.5
-5.75
2.49
2.37
2.59
5.22
7.89
5.01
5.64
-9.26
-16.2
-6.22
2.53
2.42
2.62
5.26
7.93
310
2.82
2.89
-13.7
-0.74
0.47
0.71
-1.07
0.06
1.40
2.91
IND-SWIFT LTD. (524652) : GROUP-B

10.11 11.32 11.48
12.5
13.82
14.18
15.33
15.28
13.64 13.47
6.31
13.23
14.09
13.56
11.72 11.43
4.76
9.33
9.2
9.5
14.29 10.38
9.79
14.23
13.98
11.85
11.7
4.85
5.03
5.85
6.16
10.01
5.50
6.04
6.37
5.33
4.84
-1.29
6.27
KAPPAC PHARMA LIMITED (506938) : GROUP-C

1.42
0.39
-2.38
6.22
-1.32
-400.18
-3.71
-1.82
-1.92
-1.72
0.22
-0.98
-5.69
-0.82
-0.90
-567.80
-4.79
-0.77
-0.76
-0.74
1.75
1.43
-2.18
9.20
-9.12
-271.22
-19.02 -9.41
-9.47
-9.40
-0.03
0.22
-4.43
-85.1 -321.96 -33206.65
-5.87
-0.70
-0.72
-0.71
NOVARTIS INDIA LTD. (500672) : GROUP-B

12.31 13.34 15.07 15.47 16.81
16.45
17.97
18.72
20.67 20.98 17.33
9.42
12.07 13.59 15.88
14.74
16.11
16.57
19.03 19.03 15.52
17.6
19.89 20.41
22.7
17.45
18.28
20.33 20.66 17.02
12.63 12.69 21.77 13.03 19.49
15.11
16.21
15.64
16.58 18.19 16.43
9.45
16.34 16.07
RANBAXY LABORATORIES LTD. (500359) : GROUP-A

23.54 23.98 16.58
5.01
15.17
9.31
5.39
13.62
22.35 16.66 16.82
2.21
12.52
6.52
2.03
10.31
17.77 12.90 12.43
311
23.09 24.14
16.9
4.9
14.39
7.51
2.07
10.52
18.31 13.10 13.02
20.43 20.72 13.81
5.78
9.07
14.33
-22.02
11.72
19.74 -39.1
-2.71
SAMRAT PHARMACHEM LTD. (530125) : GROUP-C

1.73
2.01
3.91
4.32
4.61
4.90
5.73
5.13
5.16
5.05
8.95
1.70
1.79
2.79
2.68
3.23
4.61
5.37
0.79
4.85
4.71
8.65
7.91
5.67
6.22
4.33
4.37
4.01
5.39
0.79
4.86
4.71
8.68
0.37
0.29
3.8
2.09
0.73
1.09
3.46
-0.26
2.35
2.89
5.30
SUN PHARMACEUTICAL INDUSTRIES LTD. (524715) : GROUP-A

17.12 19.32 20.25 21.07 21.16
20.28
18.38
12.91
13.63 17.90 23.32
11.88
14.35
13.54
16.88 12.72 20.72
26.11 33.67 33.42 33.03 27.81
28.73
26.01
20.79
21.86 20.58 23.63
24.09 17.98 15.29 10.78
16.69
21.01
21.43
23.99 29.46 31.23

312
9.85
CHART 5.141
CHART 5.142
313
CHART 5.143
CHART 5.144
314
CHART 5.145
CHART 5.146
CHART 5.147
315
5.21
PROFITABILITY ANALYSIS OF PHARMACEUTICAL INDUSTRY:
5.21.1
It is observed that in the operating profit margin ratio is fluctuating as far as Group A
efficiency has suffered a little for the lack of consistency and may have an adverse
impact on their overall profitability. In Group C companies it has always been on the
decline which is a sinister indication of inadequate profitability. Some companies are
literally bleeding and marring the overall profitability for Group C companies. Again
the operating profit margin ratio is the highest in Group A companies and the lowest
and almost miniscule in Group C companies. In Group A, B and C companies the
average operating profit ratios are 17.91, 11.90 and 5.41 (%) respectively and the
average Debt-Equity ratios are 0.44, 2.21 and 0.60. Group A companies have the
highest operating profit margin ratio and are least levered. This speaks volumes
about their current profitability and at the same time the capacity to embrace more
debt also can be seen in these companies. Group B companies have the highest DebtEquity ratio and have still managed to post a healthy Profit ratio of 11.90%. Such
companies can explore the possibility of employing more debt and use leverage to
enhance profitability further. Group C companies have the lowest Profit ratio and a
perusal of the financial data would reveal that some companies have poorest
profitability (negative) and seem to have problems managing to remain afloat.
5.21.2
Before Interest and Tax Margin:
The ratio is on the rise in Group A companies but it is steadily declining in Group B
and abysmally low in Group C companies. Group A dominates and returns the highest
Profit Before Interest and Tax ratio amongst all the companies which shows that those
companies in this group are highly profitable irrespective of the capital structure
related advantages or disadvantages. There is marginal recovery of the ratio in Group
B companies followed by consistent decline which means such companies have a
potential to contract debt if financial circumstances permit so. Group C companies
post lowest ratios on the whole. In Group A, B and C companies the average Profit
before Interest and Tax ratios are 14.05, 10.50 and 3.96(%) respectively and DebtEquity ratios are 0.44, 2.21 and 0.60. Group A companies have the highest profit
ratio and are least levered too. Group A and Group B companies have a choice given
316
their profitability to opt for greater amount of debt to accelerate their profitability
whereas Group C companies have the lowest profit ratio and in that context it has a
higher amount of leverage than the Group A companies. Such companies normally
shun leverage and if they wish to increase leverage, that is after a very meticulous
scrutiny of their financial status.
5.21.3
Group A companies as expected have turned in a stellar performance. In Group B

companies it is dwindling since 2005 but still averages a healthy figure of 11.77 %.In
Group A, B and C companies the average Gross Profit ratios are 17.64, 11.77 and
5.82 (%) respectively and Debt-Equity ratios are 0.44, 2.21 and 0.60. Group A
companies have the highest profit margin ratio and have the lowest debt element in
the capital structure. Thus it follows that give their profitability, both Group A and
Group B companies have the potential to opt for more leverage and use greater
profits to service greater amount of debt for higher profitability whereas Group C
companies have a greater amount of leverage when compared with Group A
companies even though the profit ratio is significantly lower.
5.21.4
Net Profit Margin:
Group C companies clearly have dwindling net profit margins which does not augur
too well for their financial health and some of the companies are clearly struggling to
survive. These companies are precariously poised in the market. Group A and Group
B companies have fared remarkably well. In Group A, B and C companies the
average Net Profit ratios are 17.25, 7.47 and -837.56 (%) respectively and DebtEquity ratios are 0.44, 2.21 and 0.60. Group A companies have reported the highest
profit margin ratio and because they low leverage it can be said that they can use
their current profitability to service greater amount of debt which is also true for
Group B companies. Group C companies have the lowest average profit ratio (a very
high negative) and still have opted for a much greater amount of leverage as
compared to Group A companies. In case of Group C companies the abominable
performance may be because of a very sloppy performance of a particular company
(an aberration) but even otherwise the performance of other companies is not
encouraging and the companies are also struggling to show noticeable returns.
317
TABLE 5.22
PHARMACEUTICAL: LIQUIDITY RATIOS
RATIOS
2002 2003 2004 2005 2006 2007 2008 2009
2010
2011
2012

Current Ratio
0.92
0.64
0.58
0.93
1.12
1.47
2.31
2.95
2.68
2.81
3.01
Quick Ratio
0.44
0.35
0.32
0.45
0.52
0.59
1.59
2.03
1.80
1.77
2.01

Current Ratio
0.73
0.72
0.74
0.79
0.82
0.86
0.86
0.71
0.7
1.97
1.74
Quick Ratio
1.11
1.21
1.02
1.07
1.72
1.42
1.16
1.01
1.19
1.19
1.07

Current Ratio
0.87
0.92
0.94
0.97
1.06
1.02
1.01
0.93
1.4
1.63
1.22
Quick Ratio
0.83
0.78
0.8
0.76
1.02
0.82
1.23
1.16
1.16
1.23
1.31

Current Ratio
0.31
0.23
0.33
0.42
0.86
0.8
0.85
0.94
0.87
0.92
1.01
Quick Ratio
1.72
1.78
1.55
1.09
1.15
1.19
1.38
1.20
1.40
1.27
0.92

Current Ratio
1.81
1.82
1.78
1.85
2.07
2.65
2.62
1.81
2.17
1.94
3.12
Quick Ratio
1.06
1.08
1.16
1.16
1.33
1.76
1.88
1.93
1.57
1.56
1.89
318

Current Ratio
3.20
4.28
2.73
2.23
1.29
2.56
1.82
1.85
1.49
1.66
1.70
Quick Ratio
3.42
3.72
2.57
2.59
2.43
2.81
1.94
2.13
1.45
1.91
1.84

Current Ratio
0.66
0.64
0.59
0.54
0.54
0.63
0.6
0.72
0.92
1.91
Quick Ratio
1.28
1.28
0.50
0.71
0.60
0.66
0.58
0.93
1.1
1.37

Current Ratio
1.17
0.97
1.21
1.12
0.95
0.9
0.9
0.89
0.95
0.9
2.04
Quick Ratio
1.27
1.47
1.71
2.93
2.10
1.49
1.38
1.2
1.34
1.09
1.35

Current Ratio
0.97
0.96
0.90
0.76
0.68
0.03
0.11
23.06 567.74 1001.94
Quick Ratio
0.76
0.80
0.80
0.69
0.57
0.02
0.11
13.11 301.34 893.010

Current Ratio
1.65
1.73
2.11
2.74
3.34
4.78
4.1
4.13
4.41
4.84
1.83
Quick Ratio
1.20
1.21
1.56
2.23
2.92
4.37
3.55
3.72
4.01
4.46
1.73

Current Ratio
1.93
1.89
1.31
0.92
0.96
0.83
1.16
1.18
1.40
0.80
0.95
Quick Ratio
1.23
1.40
0.92
0.98
1.03
0.97
0.86
0.89
1.60
0.90
0.99
319
Current Ratio
1.33
1.42
1.69
2.28
2.37
2.01
1.79
1.58
2.11
1.85
1.27
Quick Ratio
1.73
2.08
2.06
2.11
1.9
1.69
1.5
1.28
1.88
1.49
1.14

Current Ratio
2.73
2.78
1.13
4.78
5.23
5.57
2.52
2.53
2.14
3.04
3.12
Quick Ratio
1.91
1.89
1.21
5.07
5.04
5.25
2.27
2.17
1.52
2.68
2.68
320
CHART 5.148
CHART 5.149
321
CHART 5.150
CHART 5.151
322
CHART 5.152
CHART 5.153
CHART 5.154
323
5.22
5.22.1
LIQUIDITY ANALYSIS OF PHARMACEUTICAL INDUSTRY:

Current Ratio:
In Group A companies the current ratio has been fairly ideal i.e. 2:1 in several years.
In accordance with what is to be expected of such companies, the Group A companies
have enjoyed judicious amount of liquidity. In Group A, B and C companies the
average Current ratios are 2.00, 1.67 and 40.82respectively and Debt-Equity ratios
are 0.44, 2.21 and 0.60. Group C companies have the highest Current ratio but it
does not signify great liquidity. It seems these companies are heavily blocked in the
current assets and to peddle their goods may also be offering goods on unfavourable
terms to increase sales. On the contrary, Group A companies also enjoy a good
working capital position. So they can use such financial circumstances to opt for
greater leverage and the debt so raised will not adversely affect the companies
liquidity position. Group B have lower Current Asset ratio and they have the highest
Debt-Equity ratio. These companies should invest the debt into more productive
channels and generate greater amount of sales fetching greater amount of
profitability. Stock pile up or collectibles should not be the reason for a high current
ratio, rather healthy cash and bank balances should trigger better Current ratio.
5.22.2
Quick Ratio:
Group A and Group B companies also posted healthy quick ratios of 1.75 and 1.53
respectively. Group C companies have a very high Quick ratio. In Group A, B and C
companies the average Quick ratios are 1.75, 1.53 and 40.97 respectively and DebtEquity ratios are 0.44, 2.21 and 0.60. Group C companies have the highest Quick
ratio but it is not necessarily an indication of great liquidity. Stock pile up or old
Debtors alone should not be the reason for a high quick ratio, rather healthy cash and
bank balances should also trigger better quick ratio. On the contrary, Group A and B
companies also enjoy a good liquidity (may be even excess). Group C companies
again have a very high Quick ratio (again an aberration) but have low leverage. This
over liquidity if generalized for all the Group C companies can adversely impact the
overall profitability of the companies and can result in loss of an alternative business
opportunity or interest loss. Rather the same should be used to service a greater
amount of debt and invest the debt so raised in the business avenues which fetch
greater returns than the cost of borrowing to positively change the bottom line and
324
justify the use of leverage. What has been discussed is reflected in the fact that in
Group A, B and C companies the average Quick ratios are 1.75, 1.53 and 40.97
respectively and Debt-Equity ratios are 0.44, 2.21 and 0.60.
325
TABLE 5.23
PHARMACEUTICAL: SOLVENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Interest Cover
640.62
844
566.71
4344.5
711.17
4953.5
4556.5
580.53
2432.26
6129.83
8561.62
887.9
591.24
4544
748.17
5236.5
4905.5
625.04
2722.97
6629.67
9376.97
Debt Equity Ratio
0.01
0.02
0.01
0.01
0.01
0.01
0.01
0.01
0.02
0.02
0.02
0.01
0.02
0.01
0.01
0.01
0.01
0.01
0.01
0.02
0.02
0.02

Interest Cover
2.32
2.45
2.62
2.15
2.41
2.47
2.62
2.26
0.57
1.16
1.61
2.31
2.52
2.62
2.35
2.74
2.75
2.72
2.4
0.95
1.67
2.18
Debt Equity Ratio
1.33
1.33
1.55
1.56
1.11
1.06
1.28
1.26
1.51
1.58
1.26
0.35
0.35
0.48
0.6
0.34
0.43
0.71
0.61
0.59
1.58
1.26

Interest Cover
4.45
4.21
7.98
9.94
12.87
10.3
7.96
6.54
16.02
19.21
12.42
4.07
4.71
8.63
11.02
13.34
11.19
8.82
6.91
16.18
19.08
13.21
Debt Equity Ratio
0.91
0.96
0.75
0.60
0.59
0.51
0.7
0.67
0.37
0.27
0.43
0.72
0.77
0.61
0.46
0.40
0.35
0.42
0.39
0.31
0.25
0.27
326

Interest Cover
42.05
43.44
151.76
281.85
12.12
4.4
2.65
4.71
4.78
8.27
13.36
51.73
56.38
87.25
63.26
12.55
5.62
3.93
5.54
5.92
8.8
14.68
Debt Equity Ratio
0.76
0.78
0.78
0.78
0.78
0.49
0.49
0.43
0.41
0.38
0.38
0.27
0.26
0.26
0.26
0.26
0.02
0.01
0.02
0.02
0.01
0.01

Interest Cover
171.72 177.12
38.85
61.35
57.07
112.84
67.27
35.92
57.08
222.4
116.74
74.25
74.15
32.96
44.86
45.54
79.53
50.81
25.56
52.13
126.22
138.27
Debt Equity Ratio
0.08
0.09
0.17
0.13
0.24
0.24
0.45
0.42
0.42
0.42
0.42
0.06
0.06
0.14
0.10
0.21
0.21
0.34
0.34
0.34
0.34
0.34

Interest Cover
734.01 800.64 565.99
33.36
16.13
45.49
85.79
53.32
250.76
220.9
25.22
84.13
83.82
95.46
17.52
16.58
30.8
50.33
36.78
79.36
134.85
27.86
Debt Equity Ratio
0.02
0.02
0.03
0.13
0.61
0.68
0.61
0.62
0.62
0.70
0.70
0.01
0.01
0.01
0.01
0.56
0.56
0.56
0.56
0.56
0.81
0.81

Interest Cover
1.69
1.83
-1.67
-4.70
-1.98
2.86
2.5
3.1
1.52
1.87
2.02
-1.39
-4.48
-1.70
1.87
1.44
1.25
1.74
1.63
Debt Equity Ratio
1.83
1.57
2.46
3.89
4.13
4.80
3.85
6.66
6.49
5.09
327
0.11
0.10
0.17
0.19
0.29
1.78
2.19
3.31
3.92
5.09

Interest Cover
4.17
4.10
4.07
5.41
3.26
2.61
2.37
2.44
2.08
2.01
0.80
3.85
3.82
3.37
4.66
3.41
2.93
2.63
2.56
2.35
1.94
1.07
Debt Equity Ratio
1.41
1.03
0.96
1.07
1.53
2.03
2.2
1.77
2.05
1.99
2.41
0.29
0.29
0.51
0.45
0.85
1.08
1.28
0.9
1.1
1.03
2.41

Interest Cover
-11.75
2.46
-131.03 -101.22 -198.82 -245.71 -673.72 -537.23 -1015.34
-752.1
-13.12
35.73
-51.53
-50.78
-775.00
-332.6
Debt Equity Ratio
0.20
0.20
0.20
0.20
0.20
0.20
0.20
0.14
0.16
0.13
0.09
0.08
0.08
0.10
0.10
0.11
0.11
0.11
0.13
0.13
-101.52 -145.10 -287.07 -267.04

Interest Cover
61.76
69.4
86.64
126.18
43.46
209.48
236.15
243.12
559.12
774.56
417.02
81.03
88.04
100.94
133.12
43.68
213.75
240.87
246.93
566.2
783.06
421.96
Debt Equity Ratio
0.03
0.04
0.11
0.11
0.15
0.15
0.15
0.10
0.12
0.12
0.12
0.01
0.01
0.01
0.01
0.07
0.07
0.07
0.05
0.05
0.05
0.05

Interest Cover
25.05
106.97
52.37
3.96
9.51
3.19
-1.29
15.24
22.22
16.05
16.04
34.91
115.59
59.82
7.8
11.33
4.46
-2.35
18.99
26.44
20.11
18.13
328
Debt Equity Ratio
0.10
0.10
0.05
0.43
1.35
1.38
1.05
0.85
0.83
2.25
2.31
0.03
0.03
0.04
0.07
0.93
0.90
0.80
0.82
0.82
0.82
1.04

Interest Cover
2.10
2.23
12.09
2.53
2.43
3.45
13.39
10.20
7.75
16.57
10.41
3.10
4.32
24.9
9.89
2.73
3.82
14.17
1.73
8.23
17.76
10.73
Debt Equity Ratio
0.21
0.21
0.14
0.09
0.10
0.22
0.38
0.25
0.22
0.24
0.27
0.06
0.06
0.05
0.05
0.05
0.10
0.32
0.32
0.20
0.20
0.20

Interest Cover
199.01 266.31
116
87.21
41.57
67.31
206.27
459.14
2228.18
2396.92
2401.67
99.5
32.06
45.2
72.57
217.36
480.39
2386.07
2505.78
2678.11
Debt Equity Ratio
0.02
0.02
0.39
1.64
1.19
0.44
0.32
0.32
0.32
0.32
0 .31
0.02
0.02
0.25
1.58
1.12
0.33
0.23
0.21
0.21
0.21
0.21
329
CHART 5.155
CHART 5.156
330
CHART 5.157
CHART 5.158
331
CHART 5.159
CHART 5.160
CHART 5.161
332
5.23
SOLVENCY ANALYSIS OF PHARMACEUTICAL INDUSTRY:
5.23.1
been rising over the number of years which is a good indicator of the industrys
earning capacity and debt-repayment capacity. In Group B companies the ratio is
averaging the best followed by Group B companies. The average Interest Cover
ratios for Group A,B and C companies are 172.18, 696.02 and -8.58 (times)
companies have employed lower amount of debt and hence its Interest Cover ratio is
very high which is also partially due to high profitability enjoyed by the companies in
Group A. There is a high amount of debt in capital structure of Group B companies
and yet they have the highest Interest cover ratio. This speaks volumes about the use
of debt that these companies have made and high levels of solvency. The high cost of
servicing the debt coupled with inability to use debt to augment profitability can turn
in these results drastically topsy-turvy. Group C companies have high amount of debt
when compared with Group A companies and also they have a very negative Interest
Cover ratio of -8.58 which questions their ability to use debt productively and hence
the debt-worthiness of such companies.
5.23.2
Overall trend in the industry shows improvement in the recent years. But only Group
A and Group B companies have shown consistent and marked improvement in their
debt-servicing capacity. On the other hand, Group C companies have shown a dismal
deterioration which shows that the companies in this group are not worthy of
contracting debt or not capable of servicing the debt effectively which further brings
home the point that such companies do not enjoy robust earnings capacity. The cover
ratios for Group A, B and C companies are 146.24, 741.73.and -115.73 (times)
companies have opted for a lower amount of debt and that explains a relatively higher
cover ratio which can be because of high profitability of the group. In spite of highest
debt in the capital structure of Group B companies, the charges cover ratio is sky
rocketing high at 741.73. This says a lot about the judicious and gainful way in which
these companies have used debt and achieve high levels of solvency. Such companies
333
can increase the amount of debt further as they have the solvency levels to service the
additional debt. Group C companies have a diabolical Cover ratio and it reveals their
inability to raise and use debt profitably thereby endangering their solvency.
5.23.3
Debt-Equity Ratio:
The higher the ratio, the higher is proportion of total borrowings as compared to
equity funds. For the Group A, B and C companies, the Debt-Equity ratios are 0.44,
2.21 and 0.60 respectively .The Group A companies have opted for a moderate debt
as can be seen in the above diagrams whereas Group B and Group C companies have
employed higher amount of debt in their capital structures. Group C companies with
less-than-desirable liquidity position should manage debt very cautiously, to achieve
convincing level of solvency and to post better profitability.
5.23.4
It is the Group B companies which are highly levered in terms of long term debt. The
low profit earning companies as is evident in Group C companies. The Long Term
Debt-Equity ratios for Group A, B and C companies are 0.37, 1.15 and 0.31. It should
be noted here that Group C companies have niggling solvency issues.
334
TABLE 5.24
PHARMACEUTICAL: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009

8.67 12.97 15.93 11.81 10.09 7.47 7.74 7.92
Investments Turnover Ratio 8.95 13.29 15.84 11.62 9.99 8.41 8.31 8.11
6.34 6.66 7.28 7.51 7.57 7.78 7.04 7.41
3.00 3.37 2.89 2.33 2.72 2.97 3.83 4.77
Investments Turnover Ratio 4.01 4.23 3.56
2.8
3.42 3.51 4.12 5.61
2.15 2.78 2.86 2.48 2.48 2.05 2.36 1.25
4.37 5.51 7.24
5.9
6.23 4.64 5.78 5.76
1.78 1.49 1.83 1.44 1.55 1.56 1.62 0.91
4.71 5.22 9.81 11.72 6.2 10.69 10.55 9.67
0.58 0.41 1.24 3.57 2.52 2.86 3.18 2.62
2.67
2.5
3.42 3.05 3.16 3.71 3.83 3.79
335
2010
2011
2012
8.18
7.00
8.76
6.09
6.29
8.88
6.40
6.95
8.61
4.09
5.13
1.21
3.62
4.42
1.24
4.23
4.11
1.51
5.48
5.92
0.88
5.17
5.90
0.89
6.99
5.97
1.01
13.98 15.5 19.36

13.11 19.67 19.36
2.23 2.14 2.71
4.18
3.73
3.88
2.41 2.82
2.6
2.28 2.18 1.98 1.91 1.09 1.02 0.97 0.95
5.31 6.58 6.66 5.29 4.73 8.32 5.90 6.09 5.39 5.36 5.54
2.00 2.13 2.13 1.59 2.01 3.06 1.97 0.72 0.71 0.74 0.85
2.90 2.81 2.21 4.40 4.36 7.09 6.59
7.2
6.26 5.91
3.35 3.28 2.69 5.08 5.09 5.34 5.81 5.01 5.81 5.11
3.67 3.63 3.54 6.22
5.8
8.54 2.76 4.33 6.07 2.71
3.77 3.19 2.85 3.61 3.00 2.21 2.34 2.11 1.85 1.87 4.37
9.17 10.14 8.78 7.73 5.43 3.89 3.32 3.65 3.01 3.76 1.62
8.24 9.66 8.51 8.01
8.3
8.02 11.01 11.09 11.82 10.99
8.53 9.98 8.85 8.69 8.30 8.53 8.17 8.76 8.31 8.80
4.07 2.89 1.50 0.22 1.69 1.43 2.01 1.83 1.00 1.02
6.34 6.79 10.29 7.58 9.02 8.69 8.43 12.20 12.88 14.09 10.82
2.99 3.06 3.27 3.11 24.6 24.43 24.76 27.88 29.6 31.03 31.11
336

5.00 5.44 4.26 4.11 4.39 4.42 4.07 4.05 3.95 4.82 4.56
3.18 3.57 2.98 2.21 2.12 2.08 2.14 0.64 0.67 0.98 0.79
Inventory Turnover Ratio 17.28 17.60 13.57 19.90 17.50 16.87 15.48 14.15 33.89 15.44 10.24
6.93 7.19 11.21 14.58 16.43 15.47 12.21 13.55 14.93 13.16 5.40
5.00 5.13 5.89 6.61 6.77 7.07 6.79 6.47 3.65 3.62 3.27
2.01 2.63 1.80 1.76 1.85 2.09 2.66 0.59 0.34 0.31 0.54
337
CHART 5.162
CHART 5.163
338
CHART 5.164
CHART 5.165
339
CHART 5.166
CHART 5.167
CHART 5.168
340
5.24.
EFFICIENCY ANALYSIS OF PHARMACEUTIICAL INDUSTRY:
5.24.1
In Group A companies the Inventory Ratio, on an average, has been high all through
the years. These companies enjoy great profitability because they are able to move the
stock at a very high velocity. Group C companies have posted a very high stock turnover meaning that they have their goods moving at a great velocity. This should have
positive impact on their profitability because the cost of maintaining inventory is
reduced and risk of obsolescence is also largely avoided. The average Inventory
Turnover ratios for Group A,B and C companies are 5.11, 7.00 and 10.31 (times)
respectively and the Debt-Equity ratios are 0.44, 2.21 and 0.60 respectively. It can be
seen that Group C companies have the highest turnover ratio and have as compared
to Group A companies higher amount of leverage too. Such turnover together with
robust profitability can help a company service its debt effectively which is missing in
Group C companies. Group A companies have the lowest Debt-Equity ratio and their
Inventory Turnover ratio is still healthy at 5.11.There is a potential for these
companies to employ and efficiently service greater amount of debt. The same can be
used to invest in productive assets to further accelerate earnings. Group B companies
have the lowest turnover ratio but have a very high Debt-Equity ratio which could be
because of slow movement of inventory.
5.24.2
Group B and Group C companies cover their net worth several times over. Group C
companies have a very high Investments Turnover Ratio. That means that on the
whole the pharmaceutical companies enjoy such robust and high levels of sales
volume that inventory and investments are covered by their sales several times in a
year. The average Investments Turnover ratios for Group A, B and C companies are
and 0.60 respectively. Group C companies cover their investments many more times
than the Group A and B companies. But Group B companies have a cover ratio of
7.07 despite having the Debt-Equity ratio. Group C companies have good turnover
ratios but their overall solvency is debatable which can be seen from their
performance in terms of profitability and liquidity.
341
5.24.3
In Group A companies the ratio has been on the downward journey since 2009.
Generally Group A companies perform much better here but there may be industry
specific trade cycles which may inevitably result in decline in sales or unavoidable
investment in assets acquisitions or purchase of assets at high value or funding of
costly research projects. The average Assets Turnover ratios for Group A, B and C
companies are 1.74, 8.35 and 5.25 (times) respectively and the Debt-Equity ratios are
0.44, 2.21 and 0.60 respectively. Group C companies cover their assets many more
times than the Group A companies despite having a higher Debt-Equity ratio in
comparison with Group A companies. This could be because of high volume of sales
and less investment in assets or exploitation of assets to their fullest to generate
superior sales revenue. Group A companies may have posted lower turnover ratio, for
the reasons as aforementioned. Group B companies have put the debt to judicious and
gainful use and have invested in productive assets to generate a healthy sales volume
and thus the highest Asset Turnover at 8.35.
342
TABLE 5.25
POWER/ ELECTRIC UTILITIES: PROFITABILITY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
ADANI POWER LIMITED (533096) : GROUP-A

26.75
29.11
27.00
27.07 23.73 24.45 29.93 36.08
56.24
57.71
31.38
26.33
26.00
24.11 26.15 26.57 30.73 35.77
45.41
47.20
16.22
20.02
20.9
17.08
16.41 17.03 17.97 25.67 30.14
48.11
49.15
17.42
18.10
19.11
19.13
17.56 20.13 23.02 29.81 34.00
37.07
23.87
-6.93
BF UTILITIES LTD. (532430) : GROUP-C

73.60
83.76
-12.22 78.49 41.65 68.93 59.05
53.6
35.47
61.54
36.75
45.6
-25.52 35.28 -5.14 46.29 23.93 18.27
-2.21
34.30
30.04
-2.22
34.34
21.73
-25.39
4.00
3.24
35.14
11.86
3.51
9.92
-12.38 -15.47 10.01 -9.04 40.62 20.66
343
25.01 27.18 62.22 27.56 18.84

1.63
ENERGY DEVELOPMENT CO. LTD. (532219) : GROUP-B

68.87
80.83
84.24
74.5
23.77 35.85 22.47
31.84
16.66
23.22
49.86
56.92
61.18 58.16
19.6
20.73
7.66
13.55
33.70
40.96
64.9
19.2
21.13
7.77
15.81
7.30
13.14
37.05 46.33 17.44 24.65 14.27
35.43
14.82
12.82
31.43 19.15
68.49 24.36 31.68
GUJARAT INDUSTRIES POWER CO. LTD. (517300) : GROUP-B

36.75
39.72
51.02
41.59 36.75 29.26 26.52 17.96
23.29
28.27
33.42
25.32
36.08
27.33 23.36 16.23 16.63 10.25
13.72
16.48
20.36
14.07
17.51
26.49
32.76 33.02 30.90 17.08 10.35
13.92
16.66
20.45
2.02
2.35
8.67
13.15 14.36 20.76 10.64
11.23
14.95
9.06
7.30
GVK POWER & INFRASTRUCTURE LTD. (532708) : GROUP-B

49.61
48.01
47.05
53.86 59.06 36.17 51.15 46.00
41.4
17.65
42.46
41.13
41.19
52.87 28.42
32.01
16.89
28.52
344
9.40
11.59 12.35
31.02
31.63
36.83
42.82 43.88 39.22 51.11 45.65
41.31
17.46
41.81
26.00
22.71
24.52
23.66 34.30 34.64 76.05 51.33
36.00
154.48 -20.44
INDOWIND ENERGY LTD. (532894) : GROUP-C

69.68
64.29
71.78 32.85
32.65 26.45
35.48
25.39
47.08
19.56
37.91
55.01 28.25 25.37 21.58 18.13
23.15
12.50
17.09
21.73
70.4
74.18
29.01 25.21 19.27
24.14
13.19
18.91
15.42
35.54
33.96 22.62 23.86 24.09 17.69
30.23
10.25
12.77
29.5
33.2
JAIPRAKASH POWER VENTURES LTD (532627) : GROUP-B

91.34
90.67
91.29
92.35 90.79 90.57 89.64 92.15
88.17
89.09
91.71
66.45
67.24
64.56 74.31 71.17 68.16 71.41
71.60
66.80
74.22
41.58
48.13
48.6
52.55 55.95 61.77 74.73 76.32
74.4
76.21
77.47
18.21
19.27
19.21
16.65 52.03 54.93 63.26 45.05
35.04
19.63
23.89
345
NTPC LTD. (532555) : GROUP-A

29.65
29.15
27.56
32.3
28.4
31.13 31.07 25.11
26.81
23.01
22.13
20.68
12.71
21.3
18.66 22.84 23.44 18.06
19.87
17.69
16.88
25.21
25.52
42.73
37.1
32.62 33.28 25.31 19.48
21.10
18.49
17.63
19.09
18.54
21.04
23.2
20.2
17.72
15.85
14.22
19.39 18.51 18.11
POWER GRID CORPORATION OF INDIA LTD. (532898) : GROUP-A

70.11
71.52
81.01
80.91 85.52 83.23 91.93 92.67
81.34
82.84
83.52
41.00
46.39
48.94 55.81
64.57 70.65
50.09
51.51
53.86
54.7
45.71
49.38
46.28
54.67 56.01 55.87 71.13 76.04
53.57
56.62
57.89
25.45
25.37
28.29
27.63 28.93 31.13 28.49 23.87
26.77
29.24
30.18
SURYACHAKRA POWER CORPORATION LTD. (532874) : GROUP-B

17.15
17.34
14.23 13.94 13.09
11.2
8.07
7.18
11.46
2.36
7.01
7.75
3.45
4.91
3.34
3.60
6.46
-2.21
346
6.23
6.16
9.21
10.14
6.3
8.51
8.91
5.19
3.44
3.65
6.67
-2.21
0.72
0.90
3.17
1.26
1.28
3.36
1.04
2.47
2.72
-12.36
TATA POWER CO. LTD. (500400) : GROUP-A

29.19
29.38
30.23
23.08 18.46 14.26 15.56 15.49
26.17
22.00
20.9
21.34
21.54
13.41
10.38 10.63
18.78
13.68
12.99
11.9
7.79
23.77
24.19
26.26
21.36 18.25 16.27 10.64 10.96
19.44
14.60
14.25
10.07
11.81
11.72
13.57 12.92 13.26 14.35 12.32
12.88
12.78
12.44
TORRENT POWER LTD. (532779) : GROUP-A

12.11
12.34
15.54
15.01 14.71 13.17 14.84 17.04
29.98
27.76
28.60
8.58
8.13
9.23
9.31
12.6
23.95
21.39
23.48
11.78
13.91
14.80
13.19 16.22 13.32 10.80 12.85
24.26
21.79
23.73
4.11
4.56
4.76
4.01
14.07
15.88
15.52
347
9.56
4.63
9.98
5.00
10.68
5.70
9.16
CHART 5.169
CHART 5.170
348
CHART 5.171
CHART 5.172
349
CHART 5.173
CHART 5.174
CHART 5.175
350
5.25
PROFITABILITY ANALYSIS OF POWER/ELECTRIC UTILITIES

INDUSTRY:
5.25.1
Group A companies have an average Operating Profit Margin of 40.76 % and the
ratio although fluctuating has touched several highs in the intervening years. In Group
B and Group C companies also the ratio is very healthy and suggesting upward
journey. The same is bound to be reflected in the respective companies liquidity and
efficiency levels. In Group A, B and C companies the average operating profit ratios
are 40.76, 45.29 and 50.15 (%) respectively and the average Debt-Equity ratios are
1.19, 1.40 and 0.86. Group B companies have a high operating profit margin ratio
and also have the highest Debt-Equity ratio which shows that the companies have the
potential to employ more debt. Group A and Group B companies can make use of
their good operating efficiency to increase the amount of debt whereas Group C
companies have comparatively lowest Debt-Equity ratio and yet their operating profit
margin ratio is the highest which means they have maximum potential to opt for debt
and given their operating efficiency the additional debt should not hamper their
overall profitability.
5.25.2
The ratio is fairly consistent in Group A and Group B companies but it is lower in
Group C companies. Group A and Group B companies are highly profitable
irrespective of the capital structure related advantages or disadvantages. In Group A,
B and C companies the average Profit before Interest and Tax ratios are 27.14, 31.47
and 24.07 (%) respectively and Debt-Equity ratios are 1.19, 1.40 and 0.86. Group B
companies have the highest profit margin ratio and also have the highest Debt-Equity
ratio which again reveals the potential of the companies to use more debt in the
capital structure. Group C companies have enjoyed much higher profit ratio and they
because they are least levered. Group A companies have lower profit ratio as
compared to that Of Group B companies and their Debt-Equity ratios are almost in
the same range. Given the profitability situation of all the companies, they can
gainfully contract debt and service it effectively.
351
5.25.3
This ratio shows how efficiently a company or any business unit carries out its
companies. But in the recent years it can be seen to stabilise slightly on the lower side.
Group A and Group B companies have posted a very healthy Gross Profit Ratio while
Group C companies have a slightly lower ratio. This explains the excellent
profitability figures reported in all the companies in the entire industry. In Group A, B
and C companies the average Gross Profit ratios are 32.05, 32.18 and 28.32 (%)
respectively and Debt-Equity ratios are 1.19, 1.40 and 0.86. Group B companies have
the highest profit margin ratio and they are most levered too which reveals their
greater debt-contracting capacity. In this context it can be seen that Group A and
Group B companies have the potential to opt for more leverage and use greater
profits to service greater amount of debt which if put to judicious and gainful use can
further augment profitability of the companies. Group C companies have
comparatively lower amount of leverage and also their profit ratio is low in
comparison with other companies. Group C companies can also cautiously opt for
more debt and use the same to accelerate profitability.
5.25.4
Net Profit Margin:
Here again the same story of success continues. Group A and Group B companies, on
an average, have posted a very impressive Net Profit Ratio. Group C companies have
turned in reasonably acceptable performance even when compared with Group A and
Group B companies. In 2012 however, the ratio plummeted drastically in Group B
companies and marginally in Group A and Group C companies. In Group A, B and C
companies the average Net Profit ratios are18.12, 24.43 and 12.44 (%) respectively
and Debt-Equity ratios are 1.19, 1.40 and 0.86. Group B companies have the highest
Net Profit margin ratio and they are most levered too which reveals their greater
potential to increase the amount of debt. Group A and Group B companies have the
potential to opt for more leverage and use greater their greater profitability to service
greater amount of debt which if put to judicious and gainful use can further augment
profitability of these companies. Group C companies have comparatively lower
amount of leverage and also their profit ratio is low in comparison with other
companies. Group C companies can also embrace more debt and use the same to
earn more profit.
352
TABLE 5.26
POWER/ ELECTRIC UTILITIES: LIQUIDITY RATIOS
RATIOS
2002
2003
2004
2005
2006 2007
2008
2009
2010
2011
2012

Current Ratio
0.98
0.89
0.70
0.70
0.47
0.22
1.10
1.78
1.61
1.06
0.69
Quick Ratio
1.02
1.09
1.00
1.23
0.97
0.83
0.99
1.78
2.04
1.44
1.66

Current Ratio
7.59
3.54
5.56
5.21
3.69
3.81
4.94
0.60
1.02
1.29
1.67
Quick Ratio
7.56
4.49
5.4
5.07
3.61
3.75
4.87
0.54
0.97
1.24
1.53

Current Ratio
10.95 34.14 24.08
6.74
1.29
1.16
0.91
1.47
4.26
1.91
Quick Ratio
8.61
6.62
1.27
1.13
1.04
2.06
4.19
2.75
29.89 22.13
353
Current Ratio
0.67
0.56
0.36
0.36
0.7
0.62
0.46
0.40
0.39
0.57
0.56
Quick Ratio
1.17
1.12
1.22
0.49
1.05
1.27
0.75
0.49
0.37
0.54
0.50

Current Ratio 13.66 14.59 12.45
Quick Ratio
13.47 14.39 12.24
0.29
9.2
0.26
266.99 223.04 268.52 246.83 246.71
1.68
9.19
2.96
266.75
222.9
268.38 246.74 338.51

Current Ratio
1.50
5.56
7.99
7.55
1.46
6.47
2.73
8.04
4.54
2.02
Quick Ratio
1.50
3.51
5.97
6.09
4.01
12.96
2.81
5.36
7.49
1.98

Current Ratio
0.16
0.28
1.08
1.64
0.50
0.87
1.04
0.80
3.93
2.27
0.65
Quick Ratio
0.16
0.28
1.30
2.29
3.21
5.19
3.48
2.90
2.58
3.08
0.64
2.89
2.81
2.59
2.12

Current Ratio
3.63
4.23
1.59
1.72
2.11
354
2.42
2.36
Quick Ratio
3.11
3.85
1.3
1.44
1.84
2.18
2.16
2.59
2.50
2.32
1.92

Current Ratio
1.58
1.69
1.23
0.78
0.51
0.49
0.68
0.60
0.65
0.69
0.90
Quick Ratio
1.51
1.60
1.14
0.86
0.53
0.51
0.71
0.61
0.68
0.73
0.96

Current Ratio
0.65
2.40
2.39
4.52
0.77
2.14
1.50
0.92
0.83
4.67
Quick Ratio
0.42
2.04
2.02
3.75
2.14
6.27
5.04
2.49
1.79
4.51

Current Ratio
1.08
1.58
1.34
1.86
2.18
2.22
1.78
1.64
2.39
1.55
1.48
Quick Ratio
1.05
1.36
1.10
1.64
1.85
2.01
1.75
1.77
2.17
1.74
1.53

Current Ratio
0.68
0.72
0.69
0.77
0.68
0.57
0.66
0.91
1.04
0.82
0.71
Quick Ratio
0.66
0.62
0.53
0.53
0.54
0.53
0.57
0.82
0.96
0.74
0.59
355
CHART 5.176
CHART 5.177
356
CHART 5.178
CHART 5.179
357
CHART 5.180
CHART 5.181
CHART 5.182
358
5.26
LIQUIDITY
ANALYSIS
OF
POWER/ELECTRIC
UTILITIES
INDUSTRY:
5.26.1
Current Ratio:
In Group A companies, the current ratio has been fairly high to show them up to have
very high liquidity and so funds lying idle is also indicated. In Group B companies,
the current ratio on an average is astoundingly high at 23.41 which shows that the
companies are over liquid many times over and that the excess funds should be
diverted to more gainful use or towards business expansion. In Group A, B and C
companies the average Current ratios are 3.54, 23.41 and 4.31 respectively and DebtEquity ratios are 1.19, 1.40 and 0.86. Group C companies have comparatively lower
Debt-Equity ratio and yet their average Current Ratio is higher than that of Group A
companies. Such companies can afford to have more debt. As such all the companies
and Group B companies in particular, can use excess liquidity and overall financial
circumstances to opt for greater leverage and the debt so raised will not adversely
affect the companies liquidity position but will enhance profitability.
5.26.2
Quick Ratio:
The quick ratio in Group B companies has averaged highest at 30.89: 1 which again is
an absolute waste in that the funds could be to put to alternative income generating
avenues. Group A companies have been slightly more than being adequately liquid.
The Group C companies have an average of 2.18 which is still high and that means
for business expansion such internal accruals fraught with debt can be utilised to
fulfill financial requirement. This is how excess funds can be made to work for
business growth and expansion. In Group A, B and C companies the average Quick
ratios are 3.48, 30.89 and 4.49 respectively and Debt-Equity ratios are 1.19, 1.40 and
0.86 respectively. Group B companies have the highest debt ratio and yet their
average Quick ratio is the highest. Hence these companies have sufficient liquidity
and it follows that the debt raised has not smothered the companies liquidity
position. There is all the more reason for these companies to go for higher leverage.
The Group A and C companies have comparatively much lower Quick ratios and also
have marginally lower Debt-Equity ratios. Over liquidity can mar the bottom line of
any business unit and all the power utilities companies should watch out for this.
359
TABLE 5.27
POWER/ ELECTRIC UTILITIES: SOLVENCY RATIOS
RATIOS
2002 2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

Interest Cover
3.04
3.06
3.71
4.91
4.00
4.11
5.22
5.41
6.24
3.77
1.24
3.04
2.16
3.09
3.00
4.65
3.99
3.56
3.73
7.18
4.11
1.94
Debt Equity Ratio
0.56
0.56
0.67
0 67
0.67
0.56
0.93
2.18
1.68
2.74
4.11
0.31
0.31
0.31
0 31
0.46
0.56
0.93
2.18
1.65
2.64
3.08

Interest Cover
1.11
-0.65 -0.61
0.85
-0.64
6.33
1.41
0.99
-0.8
2.67
3.17
1.74
-1.14 -1.11
1.36
-1.95
8.64
1.75
2.52
-2.81
3.98
3.73
Debt Equity Ratio
0.55
0.80
0.98
0.75
0.55
0.46
0.71
1.83
1.87
2.13
2.32
0.52
0.75
0.93
0.68
0.60
0.42
0.68
1.70
1.70
2.13
2.32
360

Interest Cover
1.35
1.37
3.24
9.47
14.4
19.68 18.56 14.87
8.36
2.57
1.72
1.92
3.42
9.01
13.83 15.81 15.04 14.77 16.52
3.16
Debt Equity Ratio
1.13
1.05
0.99
0.99
0.55
0.57
0.57
0.47
0.55
0.55
0.89
0.89
0.89
0.89
0.52
0.52
0.52
0.37
0.37
0.37

Interest Cover
1.04
1.15
1.51
2.73
4.04
4.99
4.09
5.37
8.91
2.7
2.26
3.04
1.75
1.99
3.69
5.61
6.84
5.94
8.66
20.74
4.42
3.70
Debt Equity Ratio
3.11
3.33
2.67
1.4
0.65
0.5
0.6
0.71
0.85
0.82
0.58
2.54
2.87
1.83
1.05
0.48
0.3
0.4
0.54
0.85
0.71
0.52

Interest Cover
3.31
3.97
3.17
3.91
2.21
1.89
2.28
2.01
2.17
0.62
0.98
5.61
6.84
5.94
4.61
2.21
1.89
16.28 12.79
10.1
0.6
0.99
361
Debt Equity Ratio
0.67
0.67
0.67
0.75
0.75
0.75
0.79
0.08
0.08
0.04
0.16
0.67
0.31
0.31
0.32
0.32
0.32
0.38
0.04
0.04
0.04
0.04

Interest Cover
1.24
33.16 17.95 18.54 30.29
5.22
6.85
3.6
1.66
1.74
1.32
2.91
2.70
2.47
3.15
4.45
6.44
5.35
3.16
3.40
Debt Equity Ratio
0.63
0.75
0.27
0.27
0.33
1.10
1.10
1.20
1.25
0.37
0.63
0.75
0.27
0.27
0.18
1.03
1.03
1.19
1.22
0.37

Interest Cover
1.19
1.47
1.51
1.5
1.92
2.67
2.67
3.08
2.45
1.62
1.54
1.90
1.89
1.98
2.21
2.50
3.01
3.07
3.58
2.68
1.69
1.81
Debt Equity Ratio
2.34
2.34
1.94
1.94
1.48
1.48
1.75
0.84
0.84
1.37
1.41
2.34
2.34
1.93
1.93
1.25
1.25
0.66
0.66
0.66
0.66
0.66
362

Interest Cover
4.65
4.46
14.33 16.79 11.59
9.49
10.28 11.91 12.18 10.65
8.02
5.11
6.01
3.36
5.73
5.04
6.29
7.31
7.97
8.22
7.46
9.65
Debt Equity Ratio
0.43
0.44
0.44
0.61
0.61
0.64
0.65
0.49
0.51
0.52
0.51
0.33
0.35
0.35
0.47
0.47
0.52
0.52
0.37
0.39
0.40
0.40

Interest Cover
2.11
2.09
1.61
2.12
2.11
2.2
2.07
1.74
3.25
3.78
3.38
2.49
2.76
2.19
2.84
2.75
2.86
2.56
2.06
3.97
4.36
4.70
Debt Equity Ratio
1.39
1.48
1.59
1.59
1.59
1.77
1.62
2.10
2.18
1.93
2.21
1.39
1.48
1.54
1.54
1.53
1.71
1.59
2.08
2.10
1.86
2.14
SURYACHAKRA POWER CORPORATIN LTD. (532874) : GROUP-B

Interest Cover
1.11
1.08
0.46
1.15
1.37
1.91
1.41
1.62
1.67
-0.27
2.20
2.36
1.77
2.23
2.38
2.45
2.7
2.49
2.31
-0.29
363
Debt Equity Ratio
2.33
2.46
2.05
0.87
0.72
0.44
0.57
0.47
0.62
0.29
2.11
2.11
2.11
0.70
0.52
0.33
0.37
0.30
0.28
0.29

Interest Cover
3.10
3.04
3.56
3.73
4.86
4.03
4.63
3.33
4.02
3.53
4.16
4.12
4.24
5.05
5.83
6.63
5.55
6.23
4.15
5.02
4.31
5.10
Debt Equity Ratio
0.52
0.52
0.35
0.57
0.61
0.61
0.60
0.61
0.57
0.63
0.78
0.51
0.51
0.34
0.34
0.59
0.59
0.53
0.53
0.55
0.56
0.71

Interest Cover
3.11
3.27
3.42
4.01
6.55
7.48
7.31
3.99
4.77
4.6
6.29
8.65
8.97
7.99
9.11
11.16 10.84
9.78
5.33
5.84
5.76
7.53
Debt Equity Ratio
0.52
0.52
0.52
0.22
0.24
0.60
0.88
1.01
1.07
0.99
0.95
0.41
0.41
0.41
0.11
0.24
0.60
0.42
0.42
0.81
0.81
0.81
364
CHART 5.183
CHART 5.184
365
CHART 5.185
CHART 5.186
366
CHART 5.187
CHART 5.188
CHART 5.189
367
5.27
SOLVENCY ANALYSIS OF IRON AND STEEL INDUSTRY:
5.27.1
As can be seen from the above diagrams, Group C companies have posted mammoth
earnings to showcase such impressive figures. Interest Cover Ratio which speaks
volumes about the solvency position enjoyed by a company. The average Interest
Cover ratios for Group A,B and C companies are 5.67, 27.66 and 351.25 (times)
respectively and the Debt-Equity ratios are 1.19, 1.40 and 0.86 respectively. Group B
companies have the Debt-Equity ratio and yet their Interest Cover ratio is very high
which speaks volumes about their profitability and solvency. There is a low amount of
debt in capital structure of Group C companies and also the interest cover is the
highest. Group B and C companies can increase the debt element in future if they
continue to enjoy these levels of solvency and if they need additional finance. The risk
factor involved is the high cost of servicing the debt coupled with inability to use debt
to augment profitability and the same has to be factored in for finance decisions.
Group B companies have managed to service high amount of when compared with
Group A companies yet they have a very good Interest Cover ratio of 27.66.
5.27.2
Group B companies have shown mild improvement in the initial years only to relapse
into lower performance in the recent years which shows that the companies in this
group if pitchforked into debt may not consistently service debt. Group A companies
have again shown their mighty earnings capacity as the ratio in these companies is
impressively high. Group C companies have contracted much less amount of debt. No
wonder, the ratio in Group C is miniscule. The cover ratios for Group A, B and C
companies are 5.38, 17.86 and 3.06 (times) respectively and the Debt-Equity ratios
are 1.19, 1.40 and 0.86 respectively. Group A companies have opted for a lower
amount of debt as compared to Group B companies and yet it is Group B companies
have much better Financial Charges Coverage ratio. Group B companies have a very
robust solvency position. Presence of high debt in capital structure of Group A
companies has brought down the cover ratio which is not really diabolical although it
is much lower in comparison with Group B companies. Group C seem to have huge
financial charges and that has drastically brought down this cover ratio for the
companies.
368
5.27.3
Debt-Equity Ratio:
The Group A companies had on an average, debt-equity ratio of 1.19 where as it was
the least for Group C companies. Despite having excess funds on hand some
companies have not raised the debt funds. Group B and Group C companies are the
case in point. This ratio is a barometer of how solvent a business unit is and the type
of liabilities it carries. The higher the ratio, the higher is proportion of total
borrowings as compared to equity funds. For the Group A ,B and C , the Debt-Equity
ratios are 1.19, 1.40 and 0.86 respectively .The Group C companies seem to have
avoided debt, as can be seen in the above diagrams whereas Group A and Group B
companies have employed debt in their capital structure with both arms. Group C
companies with the given liquidity position should manage debt very carefully.
5.27.4
It is the Group B companies which are highly levered in terms of long term debt. The
long-term liabilities normally entail fixed charges which may prove to be burdensome
for the companies whose profitability is consistent and fluctuating. Group C
companies seem to have followed this tenet. The Long Term Debt-Equity ratios for
Group A , B and C companies are 1.15, 1.28 and 0.84. Again Group B companies
have used the highest amount of long-term debt.
369
TABLE 5.28
POWER/ ELECTRIC UTILITIES: MANAGEMENT EFFICIENCY RATIOS
RATIOS
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012

2.10
3.10
2.57
2.11
3.61
3.06
3.14
4.01
4.10
4.57
4.84
4.00
4.11
4.18
4.20
4.51
4.52
5.33
5.11
5.68
6.62
4.84
0.84
0.72
1.09
1.12
1.26
0.66
0.98
0.66
0.04
0.11
0.14

1.01
1.10
1.26
2.00
2.90
2.78
2.78
3.78
2.98
3.11
4.01
0.10
0.07
1.00
0.78
0.91
0.76
1.10
1.98
1.80
2.14
2.10
0.53
0.31
0.42
0.57
0.59
0.59
0.61
0.73
0.83
0.90
0.91
12.69

11.83
10.4
13.48
20.73
105.68 100.10
98.70
52.92
28.3
12.53
11.98
12.88
20.60
104.53 107.71 184.32
98.17
88.37 87.64
0.2
0.16
0.19
0.28
0.19
0.25
220.86 178.84
9.07
69.35 10.35
162.93 220.86 178.84
48.03
69.35 10.35
0.49
0.31
1.27
1.13
0.97
0.31

10.78
11.69
9.22
9.69
9.29
10.81
98.53
66.79
85.08
82
0.53
0.53
0.4
0.39
0.4
10.86
0.42
0.49
0.6
370
0.55
13.11
131.28
111.79
100.56 108.62 199.70 102.11
46.98
37.79
14.5
13.29
13.00
89.34
115.68
178.68 165.11 173.00 103.53
51.01
19.18
10.7
11.07
75.19
225.9
161.74
166.01 257.63 238.31
30.02
20.11
19.01 16.87
73.65

0.29
0.57
1.32
4.52
1.79
0.88
1.34
1.05
5.53
5.11
0.51
0.44
1.17
2.43
2.67
0.70
0.78
0.79
0.83
0.99
0.29
0.29
0.46
1.04
0.95
0.30
0.40
0.43
0.28
0.10

1067.11 1056.99 1434.86 116.22
42.16
56.05
40.11
51.87
42.11
35.06 33.20
998.11
978.01
1373.53
98.88
41.80
47.04
62.02
58.96
82.13
42.04 38.87
0.34
0.54
0.18
0.19
0.17
0.2
0.18
0.16
0.13
0.06
0.09

9.91
10.98
14.39
14.08
12.31
14.1
33.59
28.21
27.54
29.18 16.87
8.81
10.75
38.27
43.42
25.14
30.51
33.59
28.21
27.54
29.18 16.87
0.40
0.52
0.47
0.52
0.57
0.65
0.7
0.48
0.48
0.52
0.53

11.07
13.09
13.43
15.43
19.34
21.45
20.01
22.10
22.61
21.94 22.79
9.98
13.09
11.5
13.64
17.45
19.50
18.87
18.87
19.67
20.72 24.00
0.07
0.10
0.08
0.10
0.11
0.14
0.13
0.16
0.17
0.15
0.16

29.06
32.10
23.05
22.57
18.33
143.51
58.52
105.33 58.11 31.96
27.11
28.56
22.97
17.18
14.2
118.51
48.01
87.33
371
39.05 23.87
0.76
0.84
0.72
1.00
1.12
1.26
0.66
0.98
0.66
0.72

13.81
13.29
13.86
13.68
10.68
13.25
18.70
15.49
18.98
17.79
14.5
18.11
19.64
17.57
18.71
20.76
23.41
19.70
20.11
20.98
19.00
20.5
0.81
0.91
0.76
0.72
0.77
0.79
0.91
0.58
0.47
0.52
0.44

7.71
8.34
11.56
12.03
17.11
17.87
16.76
19.34
21.45
15.43 19.34
4.00
4.14
6.81
7.23
6.17
6.08
6.09
7.10
5.34
4.89
5.11
15.43
19.34
21.45
15.43
1.38
0.47
0.99
0.73
0.86
0.88
0.94
372
CHART 5.190
CHART 5.191
373
CHART 5.192
CHART 5.193
374
CHART 5.194
CHART 5.195
CHART 5.196
375
5.28
EFFICIENCY ANALYSIS OF AGROCHEMICAL INDUSTRY:
5.28.1
The average Inventory Turnover ratios for Group A,B and C companies are 18.59,
92.60 and 2.46 (times) respectively and the Debt-Equity ratios are 1.19, 1.40 and 0.86
respectively. In Group A companies the Inventory Ratio has been high in the initial
years but in the last 3 years it shows a decline and is also lower than Group B
companies which is indicative of mild stock glut with the group of companies. These
companies could improve their profitability by selling their products more effectively
thereby reducing the cost of inventory pile-up and minimizing the risk of
obsolescence. It can be seen that Group C companies have the lowest turnover ratio
and have comparatively lower amount of leverage too. Group B companies have the
highest turnover ratio and also have a very high Debt-Equity ratio indicating
judicious use of debt. This suggests that if high Inventory Turnover is translated into
high profitability also, then such companies can further increase the amount of debt.
As such both Group A and B companies can afford higher amount of leverage.
5.28.2
Group A and Group B companies have enjoyed a very high Investments Turnover
ratio which is par for the course for such companies. This ratio indicates as to how
many times the net worth of a company is covered by its net sales. But the companies
in Group C have comparatively very low Investments Turnover Ratio. The average
Investments Turnover ratios for Group A, B and C companies are 235.41, 117.91 and
2.43 (times) respectively and the Debt-Equity ratios are 1.19, 1.40 and 0.86
respectively. Group A companies cover the net worth many more times than the
Group B and C companies. Group C companies on an average have a greater amount
of owners funds and also its sales cover the net worth the lowest number of times.
Group B companies have the highest amount of leverage and still their coverage ratio
is lower than that of Group A companies.
5.28.3
As can be seen in the above diagrams, on an average the Assets Turnover ratio of
Group B companies is much higher which shows that these companies have utilised
their assets very efficiently to generate high sales volume. In Group A companies the
376
ratio has been pathetic between 2006 and 2011. This is an indication of the fact that
these companies have under-utilised their assets or made huge investments in assets
which could not augment their sales revenue. The potential for greater profitability
and liquidity stands under-utilised. Group C companies report an average of 0.28 and
the ratio reveals a downward slide with the same prognosis too. The average Assets
Turnover ratios for Group A, B and C companies are 0.50, 25.86 and 0.28 (times)
respectively and the Debt-Equity ratios are 1.19, 1.40 and 0.86 respectively. Group B
companies cover their assets many more times than the Group A and C companies
despite having a high Debt-Equity ratio. Group B companies have used the debt
productively and it is reflected in their efficiency results. This could also be because
of high volume of sales and less investment in assets or maximum exploitation of
assets to generate much higher sales revenue. Group A companies, because of high
value of assets acquired or poor sales volumes may have posted a much lower
turnover ratio. Group C companies have posted a lackluster performance as they
have the lowest Debt-Equity ratio and also the lowest Asset Turnover ratio. It seems
even the miniscule debt has not been used to magnify profitability and efficiency.
377
TABLE 5.29
COMPREHENSIVE AVERAGE ANALYSIS
AVERAGE OF SELECTED RATIOS OF SELECTED INDUSTRIES
GROSS
PROFIT
OPERATING
PROFIT
PROFIT
BEFORE
INTEREST
& TAX
7.59
9.98
6.85
2.26
67.79
52.88
1.91
LONGTERM
DEBT
EQUITY
RATIO
1.62
11.03
13.19
9.53
6.16
0.99
0.92
1.09
14.92
20.01
14.26
8.46
1.09
1.25
10.45
11.57
9.94
4.72
1.39
IRON & STEEL
13.93
16.07
12.86
7.66
PHARMACEUTICALS
11.44
11.27
8.87
31.82
43.68
23.38
RATIOS
INDUSTRY
AGROCHEMICALS
AUTO-PARTS &
EQUIPMENT
CEMENT
HEAVY ELECTRICAL
EQIPMENTS
POWER/ELECTRIC
UTILITIES
INTEREST
COVERAGE
RATIO
FIN.CHARG
ES
COVERAG
E RATIO
INVENTORY
TURNOVER
RATIO
INVESTMEN
TURNOVER
RATIO
ASSETURNOV
ER RATIO
315.27
154.11
5.16
10.05
2.60
0.56
78.33
86.56
11.49
12.72
2.01
1.45
1.22
13.86
14.39
15.51
22.58
0.97
1.54
0.72
0.39
68.90
13.03
18.48
18.60
17.45
1.53
1.62
3.58
1.05
716.48
7.32
11.64
16.49
2.65
-359.69
13.86
13.79
0.78
0.43
295
247.05
7.21
7.60
4.76
19.16
12.10
15.23
1.36
1.44
78.25
10.54
56.30
138.74
9.77
NET
PROFIT
CURRENT
RATIO
LIQUID
RATIO
DEBTEQUITY
RATIO
The diagrams below depict the ratio wise performance of all the seven industries. All the ratios used have been depicted in the diagrams which
also show the averages for all the industries with reference to one particular accounting ratio:
378
5.29
COMPREHENSIVE PROFITABILITY ANALYSIS:

CHART 5.197
CHART 5.198
379
CHART 5.199
CHART 5.200
380
Earnings Capacity Analysis or Profitability Analysis is based on four different ratios.

These are all income based ratios which are as follows:
(1) Gross Profit Ratio
(2) Operating Profit Ratio
(3) Profit Before Interest and Tax Ratio
(4) Net Profit Ratio
When analysis is done, it was found that excluding Pharmaceutical industry all other
six industries had operating ratio greater than Gross profit ratio. These results can be
considered as unusual results.
Difference between Operating Profit and Profit Before Interest and Tax shows share
of non-production cost and other incomes. Lower the gap lower the share of nonproduction cost and higher the share of other incomes and vice a versa. Power/Electric
Utilities industry had the highest gap i.e. 20.3% while lowest gap was reported with
Heavy Electrical Equipments industry i.e. 1.63 %. Only Cement industry had second
highest gap of 5.75 % and remaining industries (other than Power/Electric Utilities
industry and Cement industry) have this gap less than 3.66 % which can be
considered good indicator for good profitability.
Difference between Profit Before Interest and Tax and Net Profit shows share of
financial cost and tax burden. Lower the difference higher the Net profit and it can be
treated as good Profitability status. Only Pharmaceutical industry has exceptionally
negative performance. While excluding Pharmaceutical industry all other industries
gad this gap between 3.37 % (minimum) and 5.80% (maximum).
This has been further analysed with the help of Statistical analysis. Statistical analysis
is applied to examine impact of financial leverage on earning capacity. This impact is
examined with the help of one significant ratio of earning capacity i.e. net profit
margin.
381
5.30 COMPREHENSIVE LIQUIDITY ANALYSIS:

CHART 5.201
CHART 5.202
382
Liquidity analysis is based on two ratios: (1) Current Ratio (2) Liquid Ratio. This
analysis is also known as Short-term Liquidity analysis. When the Current ratio is
greater than Liquidity ratio it means the share of inventory to current assets and share
of bank overdraft to current assets are significant and vice versa.
During the investigation it is reported that only three industries Agrochemical
industry, Auto-parts and Equipment industry and Pharmaceutical industry had Current
ratio greater than Liquid ratio and on the on the hand remaining four industries had
this status other way round.
The lower quantum of inventory would enhance the profitability. This is mainly
because more investment in inventory results in loss of interest. This result shows
efficient use of inventory i.e. good inventory management.
To examine influence of financial leverage on short-term solvency, Current ratio had
been used in this study. A detailed discussion has been done in the respective chapter
adequately.
5.31 COMPREHENSIVE SOLVENCY ANALYSIS:
CHART 5.203
383
CHART 5.204
CHART 5.205
384
CHART 5.206
This analysis is based on four ratios: (1) Debt-Equity Ratio (2) Long-term DebtEquity Ratio and (3) Interest Cover Ratio and (4) Financial Charges Cover Ratio.
Iron and Steel industry has the highest Debt-equity ratio i.e. 3.58 amongst selected
industries. This industry has used debt equity ratio very rationally because the
industry has the highest interest coverage ratio of 716.48 times.
This result shows that the industry has excellent capacity to borrow capital and to
generate interest coverage income. When the data is further analysed Agrochemical
industry is found to be second highest in terms of use of debt-equity ratio where the
industry has interest coverage ratio of 315.27 times. The use of borrowed capital has
not done any harm to this industry.
Cement industry stood third in respect of use of borrowed funds. The industry has
applied debt-equity ratio of 1.45. But its interest coverage ratio is at 7th rank i.e. 13.86
times. So either this industry should reduce debt-equity or should improve interest
coverage ratio.
Power/Electric Utilities industry stood at 4thrank for application of debt-equity ratio
and interest coverage ratio which are 1.36 and 78.25 times respectively.
385
Auto-Parts and Equipment industry has 5th rank in terms of debt-equity which is 1.09.
But interest coverage ratio which is 78.33 times is at 4th rank. This industry can go for
further use of financial leverage.
Pharmaceutical industry is found to be at 6th rank in respect of application of debt
equity i.e. 0.78. But its interest coverage capacity is found to be excellent i.e. at 3rd
rank amongst all other industries. This industry may go for higher amount of debt or
financial leverage.
Heavy Electrical Equipments industry has used lowest debt equity ratioi.e.0.72. But
interest coverage capacity is reported at 68.90 times. The industry may use additional
amount of financial leverage. Separate statistical analysis is done in the relevant
chapter.
5.32
COMPREHENSIVE EFFICIENCY ANALYSIS:
CHART 5.207
386
CHART 5.208
CHART 5.209
387
This analysis is based on three ratios: (1) Inventory turnover ratio (2) Investment
turnover ratio and (3) Total Assets Turnover ratio. The role of assets is to generate
profit and generation of net profit is based on efficient use of financial leverage.
In case of Total Assets Turnover, Heavy Electrical Equipment industry has used
assets to generate maximum revenue. But to acquire assets, only0.72 debt is used
against equity of 1 rupee. This industry is relying on more equity. There for in the
case of this industry further investigation should be done for the feasibility of
application of financial leverage.
Power/Electric Utilities industry has second rank with respect to Total Assets turnover
but financial leverage application is at 4th rank. If turnover ratio is reported good then
the industry can consider additional dose of borrowed capital.
Pharmaceutical industry has good efficiency but lower application of financial
leverage.
In case of Iron and Steel industry efficiency is reported at 4th rank but in terms of
application of financial leverage it has first rank with debt equity ratio of 3.58. But at
the same time the industry stood 3rd in term of generation of net profit at 7.66 %.
Agrochemical industry has third lowest efficiency at 2.6 times. But quantum of debtequity is second highest with 1.91. Subsequently this effect goes to net profit and
company stood with second lowest net profit at 2.26 %. The industry is requited to
rethink on efficiency status and financial leverage status.
Auto-Parts & Equipment industry has the 6th rank for efficiency and 5th rank for
financial leverage application. So it is good synchronization of efficiency and
financial leverage.
Lastly Cement industry is also required to reconsider on efficiency ratio and debt
equity ratio which are reported at 7th rank and third rank respectively.
388
5.33
THE FOLLOWING ARE THE STATISTICAL RESULTS OF

CORRELATIONS AND REGRESSION:
5.33.1
AGROCHEMICALS INDUSTRY
TABLE 5.30
LEVERAGE AND PROFITABILITY
Model Summary
Model
1
R Square Adjusted R Square Std. Error of the Estimate
.319(a)
.102
.090
8.67342
a Predictors: (Constant), DEBTEQTY

ANOVA(b)
Model
Sum of Squares df Mean Square

640.056 1
Regression
1 Residual
5642.118 75
Total
6282.174 76
Sig.
640.056 8.508 .005(a)

75.228

b Dependent Variable: NETPRMAR
Coefficients(a)
Unstandardized
Coefficients
Model
(Constant)
1
DEBTEQTY
Standardized
Coefficients
Std. Error
3.145
1.057
.738
.253
Sig.
Beta
2.976 .004
.319
.005
2.917
a Dependent Variable: NETPRMAR
This model is appropriate in the context of AGROCHEMICALS INDUSTRY.

There is also correlation between Leverage and Profitability. The Regression model is
appropriate. The following equation is derived:
389
Net Profit Margin = 3.145 + 0.738 (Debt-Equity Ratio). It follows that on an average
all the companies in the Agrochemical industry under study have been able to make
gainful use of the borrowed funds and have accelerated their profitability. The
employment of debt funds can be profitable only when the companys earnings rate is
higher than the rate of interest on the debt funds employed. This is also a good
indicator for the investors to base their investment decisions on. The investors who
are eager to invest in profitable and well managed companies should invest in the
companies in the Agrochemical industry and the investors who have already invested
in the companies should continue to stay invested in the companies in this industry.
5.33.2
TABLE 5.31
LEVERAGE AND LIQUIDITY
Model Summary
Model
1
.032(a)
.001
-.013
11.16619

ANOVA(b)
Model

4.687 1
Regression
1 Residual
9351.277 75
Total
9355.965 76
Sig.
4.687 .038 .048(a)

124.684

b Dependent Variable: CurrRatio
Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
5.180
1.361
3.806 .000
DEBTEQTY
.6313
.326
.032 .194 .048
a Dependent Variable: CurrRatio
390

There is also correlation between Leverage and Liquidity. The Regression model is
Current Ratio =5.180 + 0.6313 (Debt-Equity Ratio).From the observed data it can be
seen that the Equity and Debt have favourable impact on the liquidity of the industry.
In this industry over all it is found to have a positive impact on liquidity. Good short
term liquidity also means that on an average all the companies in this industry are able
to meet short term obligations adequately and this will help such companies to sustain
their creditworthiness. This also implies that on an average the industries can borrow
funds at will, given their performance and prestige in the market and if they have any
expansion or diversification plans. This expansion and diversification plan may give
capital appreciation to the investor in the future on successful implementation of
projected plans. Therefore investors can be suggested that if they are in the category
of long-term investors, they should invest their funds in those companies of this
industry wherein impact of financial leverage on liquidity is found to be positive.
5.33.3
TABLE 5.32
LEVERAGE AND SOLVENCY
Model Summary
Model
1
-.602
.362
.077
1.33467
ANOVA(b)
Model
Regression

9.986
1 Residual
104.001 65
Total
114.212 76

b Dependent Variable: IntCover
391
Sig.
9.986 8.229 . 0048(a)

1.214
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
1.287
.177
7.671 .000
-0.511
.141
-.602 2.869 .0048
a Dependent Variable: IntCover

There is also correlation between Leverage and Solvency. The Regression model is
Interest Cover = 1.287 - 0.511 (Debt-Equity Ratio).As discussed in the analysis for
the all-industry result, the use of financial leverage has adverse impact on solvency.
Although the use of financial leverage has adverse impact on solvency the same can
give positive results to sustain or improve profitability and liquidity. On the one hand
financial leverage reduces a firms solvency but on the other it can also improve its
solvency through improved profitability. Theory also advocates optimum level of
financial leverage to enhance overall financial performance of the organization. Out
of different long term sources of finance borrowed capital has the lowest cost when
compared with other sources of finance. Thus the additional dose of borrowed capital
would reduce overall cost of capital and increase in the gap between the rate of return
and overall cost of capital. This difference is unparalleled benefit to the equity
shareholders. This unparalleled benefit can be considered as achievement of goal of
profit maximization or wealth maximization or shareholder value creation.
5.33.4
TABLE 5.33
LEVERAGE & EFFICIENCY
Model Summary
Model
392
-.042(a)
.001
-.012
6.42706

ANOVA(b)
Model

5.363 1
Regression
1 Residual
3098.037 75
Total
3103.400 76
Sig.
5.363 .130 .720(a)

41.307

b Dependent Variable: TATR
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
1.896
.783
2.421 .018
-6.752E-02
.187
-.042 -.360 .720
a Dependent Variable: TATR
The model is not appropriate for AGROCHEMICALS INDUSTRY and there is

apparently no correlation between Leverage and Efficiency. As discussed earlier in
case of staggered results for all the industries, the parameters such as Profitability,
Liquidity and Solvency are directly linked with financial performance while this
parameter has relation with operational part of a company. The degree of relation
between financial leverage and financial performance has to be high except in case of
exceptional cases. However, the same may not be true and it implies that operational
efficiency or may be under direct influence of financial leverage.
Total Assets Turnover Ratio has been used a barometer of efficiency in this study.
This ratio is purposefully employed because the same is used to examine overall
efficiency including Non-current assets and Current assets. Companies acquire the
assets to generate more and more revenue. This tendency differs from company to
company. Further how one industry is superior to other industry or inferior to other
industry has to be also ascertained. It may be stated that efficiency as a measurement
is based on revenue generation capacity or ability. Without sounding repetitious it
393
may again be reiterated that there may not be direct relationship between efficiency
and financial leverage (Total Assets Turnover Ratio). The result of this study also
indicates that there is absence of correlation between efficiency and financial
leverage.
5.33.5
AUTO PARTS AND EQUIPMENTS INDUSTRY

TABLE 5.34
Model Summary
Model
1
-.414(a)
.171
.161
4.12278
ANOVA(b)
Model
Regression
301.584 1
1 Residual
1461.766 86
Total
1763.350 87
Sig.
301.584 17.743 .002(a)

16.997

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
7.691
.662
11.613 .000
-2.224
.528
-.414 -4.212 .002
This model is appropriate in the context of AUTO PARTS & EQUIPMENTS

INDUSTRY. There is also correlation between Leverage and Profitability. The
Regression model is appropriate. The following equation is derived:
394
Net Profit Margin = 7.691 - 2.224 (Debt-Equity Ratio). It can be observed that on an
average the companies in the Auto Parts and Equipment industry have used the
borrowed funds for financial requirements but the same has a negative impact on their
profitability .The use of debt can be profitable only when the companys earnings rate
is higher than the rate of interest on the debt funds employed and if the rate of
borrowed funds is higher than the rate of earnings, then it can be financially disastrous
for the company. This serves as a good indicator for the investors. The investors
looking for good companies to invest in or potential investors should invest in these
companies after careful evaluation of the companies future profitability and their
propensity to use debt. This result is an average of selected companies of this
industry. It is possible that some companies may have positive impact of debt on their
profitability and some may have adverse impact of debt on their profitability. It can be
concluded that negative impact is greater than positive impact thus final impact is
reported as negative influence.
Thus it is suggested that potential investors should examine the status of individual
company before parking their funds. If such companies employ more and more debt
than it would be advisable for the investors not to invest in these companies and the
existing investors may choose to get rid of their investment and exit at the right time
to minimize losses or to walk away with reasonable amount of appreciation of their
shareholding.
In the context of the last suggestion, the data of individual company should be
analysed and performance analysis of the company during the period of study should
be done because the data has been averaged out for eleven years. It may be possible
that in majority period of time the company has performed well but due to abnormal
circumstances the company might have significant adverse impact in a year or two.
Therefore finally existing investors and potential investors should check status of
individual company for the period of study before taking any investment-related
decision.
.
395
5.33.6

TABLE 5.35
Model Summary
Model
1
-.354(a)
.125
.115
.62711
ANOVA(b)
Model

4.842 1
Regression
1 Residual
33.821 86
Total
38.662 87
Sig.
4.842 12.312 .0037(a)

.393

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
1.254
.101
12.450 .000
DEBTEQTY
-.282
.080
-.354 -3.509 .0037

INDUSTRY. There is also correlation between Leverage and Liquidity. The
Current Ratio = 1.254 - 0.282 (Debt-Equity Ratio).It is possible that in this industry
some companies may have adverse impact while others may have positive impact.
396
But on an average, the negative impact is greater as compared to positive impact.

Hence, the overall impact is reported as negative influence.
There are four parameters to examine financial performance of business entities like
profitability, solvency efficiency and liquidity. It is possible that in all the companies
this industry cannot turn in good performance in all the aspects of the parameters.
Thus the investors can be suggested that in those companies if majority parameters
are found to be satisfactory, they should not withdraw their funds immediately. They
should watch for reasonable amount of time and if condition is continuously
deteriorating they can take the decision to divest and make an investment in any other
profitable opportunity.
5.33.7

TABLE 5.36
Model Summary
Model
1
-.023(a)
.000
.001
1.07878

ANOVA(b)
Model

6.379
Regression
1 Residual
172.143 103
Total
178.521 105
Sig.
6.379 5.632 .004 (a)

1.133

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
1.457
.111
10.767 .000
DEBTEQTY
-.376
.057
-023 2.373 0.004

397

INDUSTRY. There is also correlation between Leverage and Solvency. The
Interest Cover = 1.457 - 0.376 (Debt-Equity Ratio). Theoretically financial leverage
has adversely impacts solvency. However, if used judiciously the financial leverage
can also churn out positive results to sustain or improve profitability and liquidity. It
is true that financial leverage adversely affects financial solvency but when viewed
from a different angle the improved profitability through financial leverage helps to
improve solvency also. Financial leverage when employed up to desirable level
enhances overall financial performance of the organization, as recommended by
theory. The additional dose of borrowed capital which works out to be the cheapest
source of finance would reduce overall cost of capital and widen the gap between the
rate of return and overall cost of capital. This difference renders tremendous benefit to
the equity shareholders. This unparalleled benefit can also be considered as
achievement of goal of profit maximization or wealth maximization or shareholder
value creation.
5.33.8

TABLE 5.37
LEVERAGE AND EFFICIENCY
Model Summary
Model
1
.296(a)
.087
.077
1.10162

ANOVA(b)
Model
Regression

9.986 1
1 Residual
104.366 86
Total
114.353 87

398
Sig.
9.986 8.229 .0049(a)

1.214
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
1.357
.177
7.671 .000
.405
.141
.296 2.869 .0049

INDUSTRY. There is also correlation between Leverage and Efficiency. The
Total Assets Turnover = 1.357 + 0.405 (Debt-Equity Ratio). Profitability, Liquidity
and Solvency as parameters are directly linked with financial performance while this
parameter has relation with operational part of a company. It has been found in
majority of the industries that there is no correlation between financial leverage and
efficiency. Even overall results for the entire industry reflect the same scenario. Auto
parts and Equipments industry is the only industry where in the result shows that there
is correlation between financial leverage and efficiency.
Efficiency has been measured through the prism of Total Assets Turnover Ratio
which is used to examine overall efficiency including Non-current assets and Current
assets. Companies acquire the assets to generate more and more revenue. It may be
stated that efficiency as a measurement is based on revenue generation capacity or
ability. Without sounding repetitious it may again be reiterated that there may not be
direct relationship between efficiency and financial leverage (Total Assets Turnover
Ratio). Why selected companies in the Auto parts and Equipments industry show
correlation between financial leverage and efficiency is the conundrum and hence a
matter of further investigation
399
5.33.9
CEMENT INDUSTRY
TABLE 5.38
Model Summary
Model
1
.297(a)
.088
.082
8.70121

ANOVA(b)
Model

1109.518
Regression
1 Residual
11508.086 152
Total
12617.604 153
Sig.
1109.518 14.655 .002(a)

75.711

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
9.411
.907
10.380 .000
DEBTEQTY
1.790
.468
.297 -3.828 .002
This model is appropriate in the context of CEMENT INDUSTRY.

Net Profit Margin = 9.411 + 1.790 (Debt-Equity Ratio). It also brings forth the fact
that on an average all the selected companies in the Cement industry have been able
to use the borrowed funds profitably. The use of debt funds can be profitable only
when the companys earnings rate is higher than the rate of interest on the debt funds.
This is also a barometer for the investors in that the investors who are eager to invest
400
in those companies which would fetch them greater returns would be attracted toward
such Cement manufacturing companies and the investors who have already invested
in the companies should continue to stay invested in the Cement companies for
greater and greater appreciation of their investment.
5.33.10 CEMENT INDUSTRY
TABLE 5.39
Model Summary
Model
1
-.062(a)
.004
-.003
.86419

ANOVA(b)
Model

.434
Regression
1 Residual
113.516 152
Total
113.950 153
Sig.
.434 .581 .447(a)

.747

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
.833
.090
9.252 .000
-3.542E-02
.046
.062 .763 .447
The model is not appropriate for CEMENT INDUSTRY and there is apparently no
correlation between Leverage and Liquidity.
Under statistical analysis one of the significant liquidity ratios used is Current Ratio.
This ratio is purposefully used to examine overall liquidity as it is an accurate
401
reflection of the companys short-term solvency. Why the selected companies in the
Cement industry show no correlation between financial leverage and liquidity is
indeed a matter of further investigation. Liquidity which reflects the firms ability to
meet short term obligations may not be directly influenced by the quantum of
leverage in the companies selected in this industry, given the peculiarities of how a
company raises its funds and where it invests for the purpose of profit maximization
and wealth maximization. In such a situation it is possible that statistical data
crunching may not be able to identify or detect correlations between various variables.
Therefore the result of this study indicates that there is absence of correlation between
liquidity and financial leverage as far as the selected companies in the Cement
Industry are concerned.
TABLE 5.40
Model Summary
Model
1
-.063(a)
.004
-.002
10.77451
ANOVA(b)
Model
Regression

84.342
1 Residual
15110.004 141
Total
15179.002 142

402
Sig.
84.342 .741 .004(a)

113.832
Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
2.9153
772
7.727 .000
DEBTEQTY
-1.722
.091
-.063 -.861 .004
This model is appropriate in the context of CEMENT INDUSTRY. There is also

correlation between Leverage and Solvency. The Regression model is appropriate.
The following equation is derived:
Interest Cover = 2.9153 - 1.722 (Debt-Equity Ratio). It is a financial axiom that the
judicious mix of owners capital and borrowed capital can give unparalleled benefits
to the business entity if financial leverage is used at optimum level. It is true that
financial leverage reduces financial solvency. Theory also propounds that the use of
financial leverage has adverse impact on solvency. When financial leverage is used
wisely, the same can give positive results to maintain or augment profitability and
liquidity. This also implies that the improved profitability achieved through financial
leverage also helps to improve solvency. As analysed in case of the preceding
industries and as also prescribed by theory, the additional dose of borrowed capital
being low cost source of fund would reduce overall cost of capital and favourably
widen the gap between the rate of return and overall cost of capital. This unparalleled
benefit can be considered as achievement of goal of profit maximization or wealth
maximization or shareholder value creation.
TABLE 5.41
Model Summary
Model
1
R
-.189(a)

.036
.029
403
1.06420
ANOVA(b)
Model
Regression
6.379
1 Residual
172.143 152
Total
178.521 153
Sig.
6.379 5.632 .059(a)

1.133

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
1.201
.111
10.833 .000
DEBTEQTY
-.136
.057
-.189 -2.373 .059
The model is not appropriate for CEMENT INDUSTRY and there is apparently no
correlation between Leverage and Efficiency.
As discussed earlier in case of
staggered results for all the industries, the parameters such as Profitability, Liquidity
and Solvency are directly linked with financial performance implying that he degree
of relation between financial leverage and financial performance has to be high except
in case of exceptional cases. However, the same may not be true in case of this
parameter as the operational performance may have or may not be impacted by
financial leverage.
Total Assets Turnover Ratio a ratio used to examine overall efficiency including Noncurrent assets and Current assets has been used to measure efficiency in this study.
Companies acquire the assets to generate more and more revenue. But operational
efficiency may or may not be affected by financial leverage. Without sounding
repetitious it may again be reiterated that there may not be direct relationship between
efficiency and financial leverage (Total Assets Turnover Ratio). The result of this
study also indicates that there is absence of correlation between efficiency and
financial leverage.
404
5.33.13 HEAVY ELECTRICAL EQUIPMENTS INDUSTRY

TABLE 5.42
Model Summary
Model
1
.021(a)
.0004
.007
7.31625

ANOVA(b)
Model

102.699
Regression
1 Residual
6958.574 130
Total
7061.272 131
Sig.
102.699 1.919 .003(a)

53.527

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
5.358
.780
6.871 .000
DEBTEQTY
1.530
1.105
.021 -1.38 .003
This model is appropriate in the context of HEAVY ELECTRICAL EQUIPMENTS

Net Profit Margin = 5.358 + 1.530 (Debt-Equity Ratio). It also reveals the fact that on
an average all the selected companies in the Heavy Electrical Equipments industry
have been able to use the borrowed funds judiciously and the same has been used to
augment profitability. The use of debt funds can enhance profitability only when the
companys earnings rate is higher than the interest rate on the debt funds. This is a
good barometer for the investors because the investors who are keen to invest in
405
profitable companies which would fetch greater returns to them would naturally
gravitate towards such companies. As for the existing shareholders, they should
continue to stay invested in the Heavy Electrical Equipments companies for greater
returns on the investment.
TABLE 5.43
Model Summary
Model
1
-.053(a)
.003
-.005
.93495

ANOVA(b)
Model

.319
Regression
1 Residual
113.637 130
Total
113.956 131
Sig.
.319 .365 .004(a)

.874

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
(Constant)
1.034
.100
DEBTEQTY
-.523
.141
Sig.
Beta
10.378 .000
-.053
.604 .004

406
Current Ratio = 1.034 - 0.523(Debt-Equity Ratio).It is possible some companies

selected in this industry may have positive impact of leverage while some others may
have adverse impact of leverage on liquidity. But on an average, the negative impact
is much greater as compared to the positive impact of leverage. Hence, the overall
impact is reported as negative influence.
There are four parameters to examine financial performance of business entities like
profitability, solvency efficiency and liquidity. It is possible that in all the companies
this industry cannot justify good performance in all aspects on all parameters. Some
companies may have turned in superlative performance on some parameters and poor
performance on a few other parameters. This clearly points to the fact that an investor
cannot make haste while making investment or divestment decision. The investor is
further advised that those companies which performed well on majority of the
parameters, the investors should wait and watch and not withdraw their funds
immediately. They should wait for reasonable amount of time and if the financial
condition is continuously deteriorating they can take the decision of disinvesting their
funds and reinvest the same in any other profitable opportunity.
TABLE 5.44
Model Summary
Model
1
-.057(a)
.003
.002
10.77451

ANOVA(b)
Model
Regression

83.771
1 Residual
17780.434 97
Total
17798.242 102

407
Sig.
83.771 .741 .004(a)

99.832
Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
3.6853
772
7.727 .000
DEBTEQTY
-.9652
.091
-.057 -.861 .004

Interest Cover = 3.6853 - 0.9652 (Debt-Equity Ratio). The use of financial leverage
has adverse impact on solvency and the same has been revealed by various theories
too. It is to be taken as the corner stone only the judicious mix of owners capital and
borrowed capital can give unparalleled benefits to the business entity if financial
leverage is used at optimum level. Then it can turn in positive results to sustain or
improve profitability and liquidity. However, it is true that financial leverage reduces
financial solvency but at the same time the improved profitability through financial
leverage helps to improve solvency also. There several long term sources of finance
and among them the borrowed capital has the lowest cost in comparison with other
sources of finance. Thus the additional dose of borrowed capital would reduce overall
cost of capital and increase the gap between the rate of return and overall cost of
capital. This difference is unparalleled benefit to the equity shareholders and this
tremendous financial benefit can be considered as achievement of goal of profit
maximization or wealth maximization or shareholder value creation.
TABLE 5.45
Model Summary
Model
1
R
-.034(a)

.001
-.006
408
6.16039
ANOVA(b)
Model
Regression
5.863
1 Residual
4933.545 130
Total
4939.408 131
Sig.
5.863 .154 .695(a)

37.950

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
2.400
.657
3.656 .000
DEBTEQTY
-.366
.930
-.034 -.393 .695
The model is not appropriate for HEAVY ELECTRICAL EQUIPMENTS

INDUSTRY and there is apparently no correlation between Leverage and Efficiency.
As discussed earlier in case of staggered results for all the industries and other
industries as well, the parameters such as Profitability, Liquidity and Solvency are
directly linked with financial performance implying that he degree of relation between
financial leverage and financial performance has to be high except in case of
exceptional cases.
But as stated earlier in case of previous industries, operational efficiency may or may
not be affected by financial leverage. Without sounding repetitious it may again be
reiterated that there may not be direct relationship between efficiency and financial
leverage (Total Assets Turnover Ratio). The result for Heavy Electrical Equipments
Industry also indicates that there is absence of correlation between efficiency and
financial leverage.
409
5.33.17 IRON AND STEEL INDUSTRY

TABLE 5.46
Model Summary
Model
1
-.072(a)
.005
-.002
10.66921

ANOVA(b)
Model

84.342
Regression
1 Residual
16050.332 141
Total
16134.674 142
Sig.
84.342 .741 . 0034(a)

113.832

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
6.969
.902
7.727 .000
-1.722
.043
-.072 -.861 .0034
This model is appropriate in the context of IRON AND STEEL INDUSTRY. There is
also correlation between Leverage and Profitability. The Regression model is
Net Profit Margin = 6.969 - 1.722 (Debt-Equity Ratio). It can be observed that on an
average the companies in the Iron and Steel industry have contracted debt funds for
financial requirements. However, the debt employed has a negative impact on their
profitability .The use of debt cannot be profitable and can be even counter-productive
when the rate of interest on the borrowed funds is higher than the
borrowing
companys rate of earnings. This serves as a as a wakeup call for the existing
410
investors who may sell off their shares and exit at the right time to minimize losses or
to get reasonable amount of appreciation of their shareholding. The potential investors
may do well to carefully evaluate the companies borrowing tendencies and future
earnings potential and then take the call to invest or to look elsewhere for investment.
However, the result is an average of selected companies of this industry. It is possible
that some companies may have favourable impact of debt on their profitability and
some may have unfavourable impact of debt on their profitability. It can be concluded
that negative impact is greater than positive impact when all the companies in this
industry are considered and thus the final impact is reported to mean that debt has
negative influence. Thus it is suggested that potential investors should investigate and
analyse the status of individual company before investing their funds. If such
companies are to be deficient in financial wisdom as regards used of debt, then it
would be advisable for the investors not to invest in these companies and the existing
investors may choose to get rid of their investment and exit at the right time to
minimize losses or to disinvest with reasonable amount of appreciation of their
shareholding.
Concerning what is mentioned above, it may further be noted that the data of
individual company should be analysed and performance of the company during the
period of study should be analysed as the data has been averaged out for eleven years
and the suggestion is based on the eleven years average. It may be possible that the
company may have performed exceedingly well for majority number of years out of
eleven years but due to abnormal circumstances in a couple of years the company
might have adverse impact of debt on profitability. Therefore, finally existing
investors and potential investors should check status of individual company for the
period of study before taking any investment-related decision.
411

TABLE 5.47
Model Summary
Model
1
-.065(a)
.004
-.003
2.04968

.
ANOVA(b)
Model

2.552
Regression
1 Residual
592.365 141
Total
594.916 142
Sig.
2.552 .607 .047(a)

4.201

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
1.409
.173
8.133 .000
-.4734
.008
-.065 -.779 .047
also correlation between Leverage and Liquidity. The Regression model is
Current Ratio = 1.409 - 0.4734 (Debt-Equity Ratio). Once again it is found that
financial leverage seems to have negative influence on liquidity of an industry. The
above results are based on the averages of all the companies financial information in
the Iron and Steel industry. It clearly follows that there are industries which have
positive impact of leverage on liquidity and at the same time there are companies
412
which have negative influence. But on an average, the negative impact has an
overpowering quantum over positive impact. Hence, the overall impact is reported as
negative influence.
All the companies have different capital structure and they have their unique
advantages as well as unique disadvantages. They are operating in the same external
environment but their internal environment is different. It is possible that in all the
companies this industry cannot turn in good performance in all the aspects of the
parameters. The four parameters to examine financial performance of business entities
have been narrowed down to profitability, solvency efficiency and liquidity. Some
companies take more time to adjust to introduction of debt while others quickly
absorb debt and successfully so. Hence the investors should give reasonable amount
of time to the companies before making any investment related decision.
TABLE 5.48
Model Summary
Model
1
.034(a)
.001
.000
1.5569
ANOVA(b)
Model
Regression

6.379
1 Residual
155.171 103
Total
159.272 105

413
Sig.
6.379 5.632 .0045(a)

1.133
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
2.009
.111
.786
.057
Sig.
Beta
10.767
.000
0.34 2.373 0.0045
also correlation between Leverage and Solvency. The Regression model is
Interest Cover = 2.009 + 0.786 (Debt-Equity Ratio). This is one industry i.e. Iron and
Steel industry where the results are not matching with the theory. Thus further
investigations can be carried out. As discussed earlier majority of the industries show
results as per theory. In most of industries it has been found that financial leverage has
an adverse impact on solvency. In other words, there is negative correlation between
financial leverage and solvency. But at the same time previous to this analysis the
influence of financial leverage on profitability and liquidity has also been found to be
negative. Hence it can be said that optimum or judicious mix of debt and equity brings
enhancement in earnings capacity and short-term solvency. These both are reported
accordingly in this study. The investors should judge individual companys
performance on several parameters and then take the investment related decision.
TABLE 5.49
Model Summary
Model
1
R
-.075(a)

.006
-.001
414
1.55138
ANOVA(b)
Model

1.930
Regression
1 Residual
339.355 141
Total
341.285 142
Sig.
1.930 .802 .372(a)

2.407

Coefficients(a)
Unstandardized
Coefficients
Model
1
Std. Error
1.749
.131
-5.631E-03
.006
(Constant)
DEBTEQTY
Standardized
Coefficients
Sig.
Beta
13.340 .000
-.075
-.895 .372
The model is not appropriate for IRON AND STEEL INDUSTRY and there is
apparently no correlation between Leverage and Efficiency. A companys operational
performance may or may not be impacted by financial leverage. The parameters such
as Profitability, Liquidity and Solvency have a direct association with financial
performance implying that he degree of relation between financial leverage and
financial performance has to be high except in case of exceptional cases. However,
the same may not be true in case of this parameter for the reasons discussed in ample
in case of previous industries.
Without repeating what has already been mentioned in the previous industrys
analysis and also delineated elsewhere in the study, it is pertinent to note that there
may not be direct relationship between financial leverage and efficiency (Total Assets
Turnover Ratio). The result of this industrys analysis is no exception to what has
been observed so far.
415
5.33.21 PHARMACEUTICAL INDUSTRY

TABLE 5.50
Model Summary
Model
1
.591(a)
.349
.030
13.95274

ANOVA(b)
Model

1043.898
Regression
1 Residual
27449.721 141
Total
28493.620 142
Sig.
1043.898 5.362 .0022(a)

194.679

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
(Constant)
9.333
1.347
DEBTEQTY
2.282
.986
Sig.
Beta
6.929 .000
.591
.0022
2.316
This model is appropriate in the context of PHARMACEUTICAL INDUSTRY.

Net Profit Margin = 9.333 + 2.282 (Debt-Equity Ratio). It also reveals the fact that on
an average all the selected companies in the Pharmaceutical industry have been able
to make use of the debt funds judiciously and the same has been successfully used to
augment profitability. It also follows that on an average the companies in this industry
have been able to use debt in a profitable manner by following the financial wisdom
416
that the companys earnings rate must be higher than the interest rate on the debt
funds. This also serves as a good barometer for the investors because the investors
who wish to invest in profitable companies would generously invest in such
companies. And the existing shareholders should continue to hold onto their shares
for greater returns on the investment.
TABLE 5.51
Model Summary
Model
1
-.104(a)
.011
.004
5.11433

ANOVA(b)
Model

40.368
Regression
1 Residual
3688.049 141
Total
3728.417 142
Sig.
40.368 1.543 .0041(a)

26.156

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
(Constant)
2.394
.494
DEBTEQTY
-.449
.361
417
Sig.
Beta
4.849 .000
-.104
.0041
1.242
This model is appropriate in the context of PHARMACEUTICAL INDUSTRY.

There is also correlation between Leverage and Liquidity. The Regression model is
Current Ratio = 2.394 - 0.449 (Debt-Equity Ratio). It is comprehensible to analyse
that in the Pharmaceutical industry some companies may have negative impact while
other companies have positive impact of financial leverage on liquidity. But on an
average for all the selected companies in the Pharmaceutical industry, the negative
impact is greater as compared to positive impact. Hence, the overall impact comes out
as being negative influence.
It is possible that all the companies in this industry cannot render good performance in
all aspects on all parameters. Some companies may have turned in superlative
performance on some parameters and poor performance on a few other parameters.
This clearly points to the fact that an investor cannot be hasty while making
investment or divestment decision. The investor is well advised to analyse and
understand that in case of those companies which performed well on majority of the
parameters, the investor should be patient and not withdraw their funds immediately.
They should wait for reasonable time and if the financial condition is continuously
going downhill they can take the decision of realizing their funds by selling off their
investments and reinvest the same in any other profitable opportunity.
TABLE 5.52
Model Summary
Model
1
R
.012(a)

.000
.001
418
1.6574
ANOVA(b)
Model

8.041
Regression
1 Residual
156.879 119
Total
167.644 120
Sig.
8.041 4.785 .879(a)

1.133

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
3.302
.890
10.76
7
.000
DEBTEQT
Y
.488
.054
.012 2.373
0.879
The model is not appropriate for PHARMACEUTICAL INDUSTRY and there is

apparently no correlation between Leverage and Solvency. During the analysis in this
study it is reported that majority of the selected industries have impact of financial
leverage on solvency as per the theory. Only one industry that is Pharmaceutical
industry is found to have no relation with financial leverage. Therefore it can be said
that the quantum of borrowed capital used by the said industry is insignificant. There
are companies which are not using financial leverage at all or the use of borrowed
capital is negligible as against owners capital. Practically to enhance the overall
value of the firm, the introduction of fixed charges capital is desirable if the earnings
rate is greater than fixed rate of borrowed funds. Why on an average the companies
selected in the Pharmaceutical industry show no correlation between financial
leverage and solvency is a matter of further investigation.
419

TABLE 5.53
Model Summary
Model
1
.091(a)
.008
.001
1.23229

ANOVA(b)
Model
Regression
1.802
1 Residual
214.115 141
Total
215.916 142
Sig.
1.802 1.186 .278(a)

1.519

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
1.294
.119
10.880 .000
DEBTEQTY
9.483
.087
.091 1.089 .278
The model is not appropriate for PHARMACEUTICAL INDUSTRY and there is

apparently no correlation between Leverage and Efficiency.
For the purpose of
statistical analysis one of the significant efficiency ratios used is Total Assets
Turnover Ratio. This ratio is purposefully used to examine overall efficiency
including Non-current assets and Current assets and it also indicates the efficiency
with which total assets have been used to generate revenue. And efficiency per se, is a
measurement based on revenue generation capacity or ability. This being so it may
again be pertinent to put forth that there may not be direct relationship between
financial leverage and efficiency (Total Assets Turnover Ratio). The result of this
420
study also indicates the results that there is absence of correlation between efficiency
and financial leverage.
5.33.25 POWER/ELECTRIC UTILITIES INDUSTRY
TABLE 5.54
Model Summary
Model
1
.571(a)
.32
.045
1.42549

ANOVA(b)
Model

18.383
Regression
1 Residual
54236.062 130
Total
54254.445 131
Sig.
18.383 .044 .0034(a)

417.200

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
16.189
2.094
7.733 .000
0.230
1.094
.571 -.210 .0034
This model is appropriate in the context of POWER/ELECTRIC UTILITIES

Net Profit Margin = 16.189 + 0.230 (Debt-Equity Ratio). It can safely be surmised
that all the selected companies in the Power/Electric Utilities industry, on an average,
have been able to use the borrowed funds profitably. It also implies that on an average
421
the companies earnings rate must have been higher than the interest rate on the debt
funds, for only then the leverage can give enhanced profitability. The investors who
wish to invest in profitable companies would generously invest in such companies.
And the existing shareholders would going by the profitability alone would continue
to hold onto their shares for greater appreciation of their investment.
TABLE 5.55
Model Summary
Model
1
.209(a)
.044
.036
9.51906

ANOVA(b)
Model

537.264
Regression
1 Residual
11779.629 130
Total
12316.893 131
Sig.
537.264 5.929 .004(a)

90.613

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
2.683
.976
2.750 .00
DEBTEQTY
1.242
.510
.209 2.435 .004

422
Current Ratio = 2.683 + 1.242 (Debt-Equity Ratio).From the observed data it can be
seen that the Equity and Debt have favourable impact on the liquidity of this industry.
In this industry over all it is found to have a positive impact on liquidity. Good short
term liquidity also means that on an average all the companies in this industry are
enjoying good short term solvency and are able to meet short term obligations
adequately and this will help such companies to maintain their present level of
creditworthiness. Major fallout of this is that on an average all the companies this
industry can borrow funds as and when they are required in the light of their
performance and prestige in the market. Such funds are required only if the companies
have any expansion or diversification plans. This expansion and diversification plan
may give capital appreciation to the investor in the future if these expansion or
development plans are executed along the dotted lines. Therefore investors who fall in
the category of long-term investors can be suggested that they should invest their
funds in those companies of this industry wherein impact of financial leverage on
liquidity is found to be positive.

TABLE 5.56
Model Summary
Model
1
-.477(a)
.228
.186
18.197623

ANOVA(b)
Model
Regression

67.443 1
1 Residual
19145.271 85
Total
19285.293 87

423
Sig.
67.443 .741 .0045(a)

99.832
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
Sig.
Beta
3.971
881
7.727 .000
-.6920
.079
-.477 -.861 .0045

Interest Cover = 3.971 - 0.6920 (Debt-Equity Ratio). It is a financial axiom that the
judicious mix of owners capital and borrowed capital can give superlative financial
benefits to the business entity if financial leverage is used at optimum level. Theory
seconds the fact that financial leverage reduces financial solvency and from what has
been observed in this study also propounds the fact that the use of financial leverage
has indeed adverse impact on solvency. If and when financial leverage is used wisely,
it invariably gives positive results to maintain or augment profitability and liquidity.
By the same logic it can further be stated that the improved profitability achieved
through financial leverage also in turn helps to improve solvency. As analysed in case
of the preceding industries and as also prescribed by theory, the additional dose of
borrowed capital being low cost source of fund would reduce overall cost of capital
and favourably widen the gap between the rate of return and overall cost of capital.
This unparalleled benefit can be equated with achievement of profit maximization
goal or wealth maximization goal or shareholder value creation.
424

TABLE 5.57
Model Summary
Model
1
-.092(a)
.008
.001
.27042

ANOVA(b)
Model

.081
Regression
1 Residual
9.506 130
Total
9.588 131
Sig.
.081 1.108 .294(a)

.073

Coefficients(a)
Unstandardized
Coefficients
Model
(Constant)
1
DEBTEQTY
Standardized
Coefficients
Std. Error
.269
.028
-1.525E-02
.014
Sig.
Beta
9.712 .000
-.092
.294
1.053
The model is not appropriate for POWER/ELECTRIC UTILITIES INDUSTRY and

there is apparently no correlation between Leverage and Efficiency. As discussed
earlier in case of an all- industry analysis, the operational performance may or may
not be impacted by financial leverage. Unlike that, Profitability, Liquidity and
Solvency as parameters are influenced by financial performance implying that the
degree of relation between financial leverage and financial performance has to be high
barring a few exceptional cases.
425
Total Assets Turnover Ratio a ratio used to examine overall efficiency including Noncurrent assets and Current assets has been used to measure efficiency in this study.
But operational efficiency may or may not be affected by financial leverage. Without
sounding repetitious it may be concluded in brief that that there may not be direct
relationship financial leverage between efficiency (Total Assets Turnover Ratio). The
result of the Power/electric Utilities Industry bears a testimony to the fact.
5.33.29 ALL INDUSTRIES TOGETHER
TABLE 5.58
LEVERAGE & PROFITABILITY
Model Summary
Model
1
.050(a)
.002
.001
12.67968

ANOVA(b)
Model
Regression
344.912
1 Residual
139391.386 867
Total
139736.298 868
Sig.
344.912 2.145 .003(a)

160.774

Coefficients(a)
Unstandardized
Coefficients
Model
1
Standardized
Coefficients
Std. Error
Sig.
Beta
(Constant)
7.671
.435
17.641 .000
DEBTEQTY
.6874
.050
.050 -1.465 .003
When all the industries and their companies are considered together, then they show
that there is a correlation between Leverage and Profitability enjoyed by the
companies. The Regression model is appropriate. The following equation is derived:
426
Net Profit Margin = 7.671 + 0.6874 (Debt-Equity Ratio). It can also be stated that on
an average all the industries under study have been able to use the borrowed funds in
a profitable manner. The use of debt can be profitable only when the companys
earnings rate is higher than the rate of interest on the debt funds employed. This
serves as a barometer for the investors. The investors looking for good companies to
invest in or potential investors should invest in these industries and the existing
investors should continue to stay invested in these industries for their investments will
fetch greater returns. The companies have, on an average, consistently been able to
use debt fund profitably over the period of eleven years. This implies that the
financial management of the companies under study has been excellent and that there
is no doubt about the financial acumen of the financial management of the concerned
companies with respect to use of debt funds judiciously and profitably.
From the data, it is observed that some industries have managed to use debt
effectively and efficiently while some industries have not been able to use debt
profitably and on the rebound they have suffered a dip in their profitability. An
analysis of selected individual industries is undertaken subsequently.
TABLE 5.59
LEVERAGE & LIQUIDITY
Model Summary
Model
1
.002(a)
.000
-.001
5.68631

ANOVA(b)
Model
Regression

.002
1 Residual
28033.698 867
Total
28033.700 868

427
Sig.
.002 .000 .0035(a)

32.334
Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
2.056
.195
0.7834
.023
Sig.
Beta
10.541 .000
.002
-.008 .0035
This model is appropriate in the context of all the industries put together and therefore
there is also correlation between Leverage and Liquidity. The Regression model is
Current Ratio = 2.056 + 0.7834 (Debt-Equity Ratio). Generally for good liquidity
current assets have to be greater than current liabilities. But when current assets are
more and current liabilities are less, it shows that investments of long-term funds are
made in current assets also.
Long term funds comprise of Equity and Debt. It cannot be segregated whether long
term fund investment in current asset is made from Equity or Debt. Thus the
aggregate effect of Debt and Equity will be considered. In this analysis the average
impact of Equity and Debt on liquidity is found to be positive.
During analysis it is reported that out of the selected industries, some industries show
positive effect and some industries also show negative effect. The quantum of positive
impact is greater than negative effect. Consequently overall impact is observed as
positive.
Good liquidity position stands for short term solvency. Short term solvency is used as
an image-creating factor amongst short-term borrowers. This implies that every
industry can collect short term funds without any obstacles.
Therefore, from the viewpoint of industries, Debt and Equity have established good
liquidity. Theoretically, profitability and liquidity are considered conflicting
objectives. It case of this study Financial Leverage has played a significant role
towards the performance of profitability and liquidity.
428
Theoretically and practically, different objectives are to be achieved. Sometimes

achievement of one objective may create hurdle for achievement of other objective. In
this kind of situation the role of financial manager becomes important. In such a
situation determination of priority of objectives is to be finalized. Accordingly
financial strategy should be formulated. Fortunately an average impact of financial
leverage is reported positive on two conflicting objectives profitability and liquidity.
From the analysis it can be said that appropriate application of theory and reliable
external factors are identified by finance departments and policy is executed in that
direction.
TABLE 5.60
LEVERAGE & SOLVENCY
Model Summary
Model
1
-.004(a)
.000
-.001
5.8956

ANOVA(b)
Model
Regression
.002
1 Residual
28100.698 867
Total
28100.600 868
Sig.
.002 .000 .0011

12.784

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
2.056
.187
-0.5373
.020
429
Sig.
Beta
10.541 .000
.004
-.008 .0011
This model is appropriate in the context of all the industries put together and therefore
there is also correlation between Leverage and Solvency. The Regression model is
Interest Coverage Ratio = 2.056 0.5373(Debt-Equity Ratio). There are three
important decisions in financial management - finance, investment and dividend
decisions. Every decision has an individual importance for any business entity to
increase market value of firm and to reduce overall cost of capital. In this context
different experts of finance have contributed for capital structure decision. Durand
David, Ezra Solomon and Modigliani & Miler are main contributors. The judicious
mix of owners capital and borrowed capital can give unparalleled benefits to the
business entity if financial leverage is used at optimum level.
Theoretically the application of financial leverage has adverse impact on solvency.
The use of financial leverage has adverse impact on solvency but can give positive
results to sustain or improve profitability and liquidity. It is true that financial
leverage reduces financial solvency but at the same time the improved profitability
through financial leverage helps to improve solvency also. Theory also permits
desirable level of financial leverage to enhance overall financial performance of the
organization. Out of different long term sources of finance borrowed capital has the
lowest cost against other sources of finance. Thus the additional dose of borrowed
capital would reduce overall cost of capital and increase in the gap between the rate of
return and overall cost of capital. This difference is unparalleled benefit to the equity
shareholders. This unparalleled benefit can be considered as achievement of goal of
profit maximization or wealth maximization or shareholder value creation.
TABLE 5.61
LEVERAGE & EFFICIENCY
Model Summary
Model
1
R
-.017(a)

.000
-.001
430
3.26235
ANOVA(b)
Model

2.744
Regression
1 Residual
9227.396 867
Total
9230.139 868
Sig.
2.744 .258 .612(a)

10.643

Coefficients(a)
Unstandardized
Coefficients
Model
1
(Constant)
DEBTEQTY
Standardized
Coefficients
Std. Error
1.416
.112
-6.565E-03
.013
Sig.
Beta
12.655 .000
-.017
-.508 .612
Considering the entire data for all the industries i.e. all the values processed together,
the model is not appropriate and there is apparently no correlation between Leverage
and Efficiency. There are two types of performance generally evaluated- financial
performance and operating performance. Pervious three parameters are directly linked
with financial performance while this parameter has relation with operational part of
the entity. There is direct relation between previous three parameters and leverage
while in case of operational performance it has indirect relation. The degree of
relation between financial leverage and financial performance has to be high except in
case of exceptional cases. On the other hand operational performance may have or
may not have direct influence of financial leverage.
Under statistical analysis one of the significant efficiency ratios used is Total Assets
Turnover Ratio. This ratio is purposefully used to examine overall efficiency
including Non-current assets and Current assets. This ratio indicates as to how far
total assets are efficiently used to generate revenue. Further how one industry is
superior to other industry or inferior to other industry is also ascertained. Efficiency as
a measurement is based on revenue generation capacity or ability.
As stated earlier there may not be direct relationship between efficiency and financial
leverage (Total Assets Turnover Ratio). The result of this study also indicates that
there is absence of correlation between efficiency and financial leverage.
431
Below are self-explanatory diagrams depicting the Four Pillars of Financial

Performance vis--vis the Seven Industries as also the Three Groups within them.
(All the values are averages unless indicated otherwise)
TABLE 5.62
DEBT TO EQUITY
GROUP
AGROCHEMICALS
AUTO
PARTS &
EQUIPMENT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
GROUP-A
0.76
0.50
0.90
0.32
1.34
0.45
1.29
GROUP-B
1.37
1.51
2.02
0.87
7.93
1.45
1.61
GROUP-C
3.03
1.35
1.44
1.02
2.03
0.52
0.90
CHART 5.210
432
TABLE 5.63
NET PROFIT MARGIN RATIO
GROUP
AGROCHEMICALS
AUTO
PARTS &
EQUIPMENT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICA
L INDUSTRIES
POWER/
ELECTRIC
UTILITIES
GROUP-A
5.61
10.09
12.24
7.97
16.12
16.87
17.49
GROUP-B
4.13
4.02
7.22
5.85
3.73
7.96
23.47
GROUP-C
-1.23
3.50
5.29
-1.49
1.01
-1198.03
12.55
CHART 5.211
433
TABLE 5.64
CURRENT RATIO
GROUP
AGROCHEMICALS
AUTO
PARTS &
EQUIPME
NT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
GROUP-A
1.78
1.30
0.89
1.28
1.18
2.00
3.92
GROUP-B
1.01
0.98
1.22
1.14
2.25
1.73
23.41
GROUP-C
156.33
0.93
0.83
1.96
1.25
40.82
4.26
CHART 5.212
434
TABLE 5.65
TOTAL ASSETS TURNOVER RATIO
GROUP
AGROCHEMICALS
AUTO
PARTS &
EQUIPME
NT
GROUP-A
1.56
1.76
1.09
2.14
0.95
0.92
0.38
GROUP-B
1.73
1.73
0.98
1.77
1.89
1.77
0.36
GROUP-C
-1.26
2.80
1.59
6.81
3.20
3.18
0.12
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
CHART 5.213
435
TABLE 5.66
GROUP-A
AGROCHEMICALS
AUTO
PARTS &
EQUIPMENT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
0.76
0.50
0.90
0.32
1.34
0.45
1.29
5.61
10.09
12.24
7.97
16.12
16.87
17.49
CURRENT RATIO
1.78
1.30
0.89
1.28
1.18
2.00
3.92
TOTAL ASSETS
TURNOVER RATIO
1.56
1.76
1.09
2.14
0.95
0.92
0.38
RATIO
DEBT TO EQUITY
RATIO
NET PROFIT MARGIN
RATIO
CHART 5.214
GROUP-A
AGROCHEMICALS
AUTO PARTS & EQUIPMENT
CEMENT INDUSTRY
HEAVY ELECTRICAL EQUIPMENTS
IRON AND STEEL
PHARMACEUTICAL INDUSTRIES
POWER/ ELECTRIC UTILITIES

20.00
17.49
16.87
16.12
18.00
16.00
14.00
12.24
12.00
10.09
10.00
7.97
8.00
5.61
6.00
3.92
4.00
2.00
0.76 0.50 0.90
0.32
1.34
0.45
1.78
1.29
1.30
0.89 1.28 1.18
2.00
1.56 1.76
2.14
1.09
0.95 0.92
0.38
0.00
DEBT TO EQUITY RATIO
NET PROFIT MARGIN

RATIO
436
CURRENT RATIO
TOTAL ASSETS TURNOVER

RATIO
TABLE 5.67
GROUP-B
AGROCHEMICALS
AUTO
PARTS &
EQUIPMENT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
1.37
1.51
2.02
0.87
7.93
1.45
1.61
4.13
4.02
7.22
5.85
3.73
7.96
23.47
CURRENT RATIO
1.01
0.98
1.22
1.14
2.25
1.73
23.41
TOTAL ASSETS
TURNOVER RATIO
1.73
1.73
0.98
1.77
1.89
1.77
0.36
RATIO
DEBT TO EQUITY
RATIO
NET PROFIT
MARGIN RATIO
CHART 5.215
437
TABLE 5.68
GROUP-C
AGROCHEMIC
ALS
AUTO
PARTS &
EQUIPMENT
CEMENT
INDUSTRY
HEAVY
ELECTRICAL
EQUIPMENTS
IRON
AND
STEEL
PHARMACEUTICAL
INDUSTRIES
POWER/
ELECTRIC
UTILITIES
3.03
1.35
1.44
1.02
2.03
0.52
0.90
-1.23
3.50
5.29
-1.49
1.01
-1198.03
12.55
156.33
0.93
0.83
1.96
1.25
40.82
4.26
-1.26
2.80
1.59
6.81
3.20
3.18
0.12
RATIO
CURRENT RATIO
RATIO
CHART 5.216
438
TABLE 5.69
AGROCHEMICALS
RATIO
GROUP-A GROUP-B GROUP-C
0.76
1.37
3.03
5.61
4.13
-1.23
CURRENT RATIO
1.78
1.01
156.33
TOTAL ASSETS TURNOVER RATIO
1.56
1.73
-1.26
CHART 5.217
439
TABLE 5.70
AUTO PARTS & EQUIPMENT
RATIO
GROUP-A
GROUP-B
GROUP-C

CURRENT RATIO
RATIO
0.50
10.09
1.30
1.51
4.02
0.98
1.35
3.50
0.93
1.76
1.73
2.80
CHART 5.218
440
TABLE 5.71
CEMENT INDUSTRY
RATIO
GROUP-A
GROUP-B
GROUP-C
0.90
2.02
1.44
12.24
7.22
5.29
CURRENT RATIO
RATIO
0.89
1.22
0.83
1.09
0.98
1.59
CHART 5.219
441
TABLE 5.72
HEAVY ELECTRICAL EQUIPMENTS
RATIO
GROUP-A
GROUP-B
GROUP-C
0.32
0.87
1.02
7.97
5.85
-1.49
CURRENT RATIO
1.28
1.14
1.96

RATIO
2.14
1.77
6.81
CHART 5.220
442
TABLE 5.73
IRON AND STEEL
RATIO
GROUP-A
GROUP-B
GROUP-C
1.34
7.93
2.03
16.12
3.73
1.01
CURRENT RATIO
1.18
2.25
1.25

RATIO
0.95
1.89
3.20
CHART 5.221
443
TABLE 5.74
PHARMACEUTICAL INDUSTRIES
RATIO
GROUP-A
GROUP-B
GROUP-C
0.45
1.45
0.52
16.87
7.96
-1198.03
CURRENT RATIO
RATIO
2.00
1.73
40.82
0.92
1.77
3.18
CHART 5.222
444
TABLE 5.75
POWER/ ELECTRIC UTILITIES
RATIO
GROUP-A
GROUP-B
GROUP-C
1.29
1.61
0.90
17.49
23.47
12.55
CURRENT RATIO
3.92
23.41
4.26

RATIO
0.38
0.36
0.12
CHART 5.223
445

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CHAPTER 5

DATA AND DATE ANALYSIS

AIMCO PESTICIDES LTD. (524288) : GROUP-C

-19.5 -9.39 1.94 -6.81 -0.97

PROFITABILITY ANALYSIS OF AGROCHEMICALINDUSTRY:

Operating Profit Margin:

Profit Before Interest and Tax Margin:

Gross Profit Margin:

Net Profit Margin:

AIMCO PESTICIDES LTD. (524288) : GROUP-C

ATUL LTD. (500027) : GROUP-B

BAYER CROPSCIENCE LTD. (506285) : GROUP-A

PAUSHAK LTD. (532742) : GROUP-C

PI INDUSTRIES LTD. (523642) : GROUP-B

SOCRUS BIO SCIENCES LTD. (524719) : GROUP-C

38.17 176.97 2787.71 335.49 618.08 324.31 300.33

34.46 158.88 2522.81

322.56 221.47 188.79

UNITED PHOSPHORUS LTD (512070) : GROUP-A

LIQUIDITY ANALYSIS OF AGROCHEMICAL INDUSTRY:

2002 2003 2004

AIMCO PESTICIDES LTD. (524288) : GROUP-C

Financial Charges Coverage Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

ATUL LTD. (500027) : GROUP-B

Financial Charges Coverage Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

BAYER CROPSCIENCE LTD. (506285) : GROUP-A

Financial Charges Coverage Ratio

12.33 13.19 14.08 14.19

Debt Equity Ratio

Long Term Debt Equity Ratio

PAUSHAK LTD. (532742) : GROUP-C

-0.30 -0.28 -1.23 13.26

Financial Charges Coverage Ratio

-0.15 -0.32 -0.36 14.15

Debt Equity Ratio

Long Term Debt Equity Ratio

PI INDUSTRIES LTD. (523642) : GROUP-B

Financial Charges Coverage Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

SOCRUS BIO SCIENCES LTD. (524719) : GROUP-C

Financial Charges Coverage Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

UNITED PHOSPHORUS LTD (512070) : GROUP-A

Financial Charges Coverage Ratio

Debt Equity Ratio

Long Term Debt Equity Ratio

SOLVENCY ANALYSIS OF AGROCHEMICAL INDUSTRY:

Interest Cover Ratio:

Financial Charges Coverage Ratio:

Long Term Debt-Equity Ratio:

AIMCO PESTICIDES LTD. (524288) : GROUP-C

Investments Turnover Ratio

Asset Turnover Ratio

Inventory Turnover Ratio

ATUL LTD. (500027) : GROUP-B

Investments Turnover Ratio

Asset Turnover Ratio