Shanto-Mariam University

of

Creative Technology

Subject: Financial Analysis

Assignment on:

Financial Analysis on RAK Ceramic of Bangladesh

Assignment by:

Name: Nawreen Nahar TuliID: 101-401-081Program: BBA Batch: 14th Semester: 6th

Assignment to:

Umma Salma

DATE: NOVEMBER 19, 2012

What is manufacturing?

Definition

The process of converting raw materials, components, or parts into finished goods that meet a customer's expectations or specifications. Manufacturing commonly employs a man-machine setup with division of labor in a large scale production.

Manufacturing is the production of goods for use or sale using labor and machines, tools, chemical and biological processing, or formulation. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing other, more complex products, such as aircraft, household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users the "consumers".

Manufacturing takes turns under all types of economic systems. In a free market economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In mixed market economies, manufacturing occurs under some degree of government regulation.

Modern manufacturing includes all intermediate processes required for the production and integration of a product's components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead.

Manufacturing and Production

Without manufacturing and production, there'd be no products to market or sell. Accountants wouldn't have anything to account for. The retail trade would collapse. Programmers would be without computers to program on. In short, there'd by very little need for any other career.

In this career profile, Wet Feet focuses on outlining the technical jobs in manufacturing and production, with an emphasis on high-tech industries. See our career profile on operations management for information about operational responsibilities outside of manufacturing and production.

RAK CERAMICS

Company Profile

RAK Ceramics (Bangladesh) Limited, a UAE-Bangladesh joint venture company, was incorporated in Bangladesh on 26 November, 1998 as a private company limited by shares under the Companies Act 1994. The name of the Company was thereafter changed to its name from RAK Ceramics (Bangladesh) Private Limited to RAK Ceramics (Bangladesh) Limited as per resolution passed in extraordinary general meeting on 10 June 2008, certificate issued by the Registrar of Joint Stock Companies dated 11 February, 2009. It is engaged in manufacturing and marketing of ceramics tiles, bathroom sets and all types of sanitary ware. The companys headquartered in Dhaka with manufacturing facilities at Gazipur. RAK Ceramics is Bangladeshs largest ceramic tiles and sanitary ware manufacturer. It has started its commercial production on 12 November, 2000. The commercial production of new sanitary ware plant was started on 10 January, 2004. Further expansion of the existing facilities of ceramics tiles plant took place in year 2004, and for tiles and sanitary plant were in year 2007.

RAK Ceramics (Bangladesh) Limited, 90% held by RAK Ceramics PSC and its nominees, a company incorporated under the laws of UAE and remaining 10% owned by local investor Mr. S.A.K. Ekramuzzaman. RAK Ceramics PSC, UAE is presented by Dr. Khater Massaad as Chairman. With an annual turnover of over BDT 3248 million, within the short span of 11 years RAK has firmly established itself as one of the leading manufacturer of high quality ceramic wall, floor tiles, porcelain tiles and sanitary wares products in Bangladesh.Nature of business

The core business of RAK Ceramics (Bangladesh) Limited is to manufacture and sell of tiles and sanitary wares. The company has over 1000 models active in the ceramic and porcelain tile business and regularly adds several new designs to the product portfolio. The company manufactures tiles in a very wide range of tiles in the sizes from 20 cm X 30 cm up to 60cm X 60cm in Bangladesh location. The company has over 40 models an exclusive range of sanitary ware to offer with a very wide choice. In sanitary ware various models are produced in wash basins (mounted as well as pedestal), water closets, accessories and marble sets. The plant standard capacity is 22,000 square meter tiles and 3,400 pieces of sanitary ware per day. Most of production is consumed in local market and balance gets exported to UAE. RAK Ceramics (Bangladesh) Limited is an ISO 9001:2008 certified organization.

Mission of RAK Ceramics:

RAK Ceramics responsible and knowledge-driven mission statement includes:

C Close to our clients by listening to their needs and adapting to market requirements.

E Excellence in producing high quality products that offers best value-for- money.

R Redefining the product innovation and design processes.

A Accountable to its clients, trade partners, stakeholders and employees.

M Motivate employees to develop them into future entrepreneurs.

I Integrity of the management towards the organizational goals.

C Committed to the society by contributing towards a healthy environment.

S Sustainability in every sphere of business.In a challenge 2011, even as a number of manufacturers slowed their investments, RAK raised its outlay through the following investments:

A squaring machine in the value-added tile facilities to enhance product quality.

A robot spaying machine in the sanitary ware nit to enhance production efficiency and product quality.

RAK retained its choice as a preferred brand among private construction and real estate development companies as well as the government organizations namely PWD, MES, CMMU, Civil Aviation, RAJUK, among others.

RAK tiles were used in some of the most visible and respected property brands in Bangladesh.

RAK Ceramics benchmarked best Grade A output of tiles and sanitary ware resulted in an average realization and EBITDA margin higher than the market average.

In 2011, we reinforced this accessibility through the following initiatives:

Added dealers (permanent and provisional) proximate to customers.

Provided incentives to dealers to graduate to run exclusive RAK display centers.

Assisted distributors to showcase our products through display cabinets (wall and floor) and tile stands.

Strengthened recall across fitters and plumbers, who influence customer choice.

Enhanced visibility through advertisements in the print (billboards in high traffic areas) and electronic media (TV commercials.Economic Challenges

Unlike a number of countries, Bangladesh grew in 2010-11. The country reportedGDP growth of 6.70 percent in 2010-11(July to June) against 5.83 percent in 2009-10.

RAK Ceramics performance

Given this challenges background, RAK Ceramics performance was heartening. The Company continued to do what it had always done- invested in product portfolio, innovation and quality. The result translated visibly into stronger financials:

The Company grew its revenues by 14.24 percent on a large base.

The Company strengthened its EBIDTA by 8.10 percent to BDT 1,391.12mn.

Profit after tax increased by 24.80 percent.

RAK Ceramics strategy

RAK Ceramics, strategic blueprint encompasses volume-driven and value-led growth through the following initiatives:

Capacity expansion: RAK expanded its tile capacity three-fold over the last decade and sanitary ware capacity three-fold in six years. Going ahead, as continuous efforts, the company expects to enhance its existing capacity or commission a Greenfield unit for tiles and sanitary ware subject to natural gas availability.

Value-addition: RAK introduced new products across both its product verticals and increased its branding budget in line with new launches.

Managing Business Uncertainties:

Industry risk: Increased competition could affect growth, market share, profitability and shareholder value.

Government regulation risk: Unfavorable policies could impact Bangladeshs real estate sector, affecting tile/sanitaryware demand.

Competition risk: Competition increased following the entry of new players.

Technology risk: Technology obsolescence could restrict new product development, cost competitiveness or product quality.

Quality risk: A compromise in product quality could result in customer and brand attrition.

Input sourcing risk: The Company is largely dependent on imported raw material, a risk in the event of a global crisis.

Cost inflation risk: An increase in raw material, power, fuel, freight and manpower costs can affect margins.

Interest rate risk: An interest rate hike could impact profitability and the ability to raise low-cost funds to meet planned capital expenditure.

Customer attrition risk: Dependence on a handful of customers could be detrimental; the attrition of a single client could create an inventory pile-up.

Exchange rate risk: Unfavorable volatility or currency fluctuation can affect profitability as the Company has a significant exposure to foreign currency transactions.

Management risk: Attrition of key managerial personnel, executives and officers may have an adverse impact on the business.RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC).

Year over year, RAK Ceramics (Bangladesh) Limited has been able to grow revenues from $4.0B to $4.6B. Most impressively, the company has been able to reduce the percentage of sales devoted to cost of goods sold from 62.49% to58.81%. This was a driver that led to a bottom line growth from $606.5M to$757.0M.

Annual Income Statement:

Currency in Millions of Bangladesh TakasDec 31, 2010

BDTDec 31, 2011

BDTChange %

Revenues4,009.04,580.0Up 14.2

TOTAL REVENUES4,009.04,580.0Up 14.2

Cost Of Goods Sold2,505.12,693.5Up 7.5

GROSS PROFIT1,504.01,886.5Up 25.4

Selling General & Admin Expenses, Total750.8960.9Up 28.0

OTHER OPERATING EXPENSES, TOTAL750.8960.9Up 28.0

OPERATING INCOME753.2925.6Up 22.9

Interest Expense-90.7-21.1

Interest And Investment Income140.7147.5

NET INTEREST EXPENSE50.0126.3

Income (Loss) On Equity Investments---56.6

Currency Exchange Gains (Loss)7.7-38.9

Other Non-Operating Income (Expenses)-6.94.3

EBT, EXCLUDING UNUSUAL ITEMS804.1960.7Up 19.5

Gain (Loss) On Sale Of Assets--0.0

EBT, INCLUDING UNUSUAL ITEMS804.1960.7Up 19.5

Income Tax Expense294.2319.0Up 8.4

Minority Interest In Earnings96.7115.2

Earnings From Continuing Operations509.9641.7Up 25.9

NET INCOME606.5757.0Up 24.7

NET INCOME TO COMMON INCLUDING EXTRA ITEMS606.5757.0Up 24.7

NET INCOME TO COMMON EXCLUDING EXTRA ITEMS606.5757.0Up 24.7

Here,

Year 2010Year 2011

Revenue(M):4,009.0215Revenue (M):4,580.0082

Net Income(M):606.5211Net Income (M):756.9526

Profit Margin(%):15.1289Profit Margin (%):16.5273

In here, RAK ceramics profit margin ratio is grow up from 15.1289% at 2010 to16.5273% at 2011.

Profit Margin (%)20102011Changes %

15.128916.5273Up 9.243

RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC).

RAK Ceramics (Bangladesh) Limited uses little or no debt in its capital structure and may have less financial risk than the industry aggregate. Accounts Receivable is among the industry's worst with 30.56 days worth of sales outstanding. This implies that revenues are not being collected in an efficient manner. Last, RAK Ceramics (Bangladesh) Limited is among the most efficient in its industry at managing inventories, with only 213.14 days of its Cost of Goods Sold tied up in inventory.

Annual Balance Sheet:

Currency in Millions of BangladeshTakasDec 31, 2010

BDTDec 31, 2011

BDTChange %

Assets

Cash And Equivalents1,487.71,442.0

TOTAL CASH AND SHORT TERM INVESTMENTS1,487.71,442.0

Accounts Receivable274.0493.0

Other Receivables16.133.1

TOTAL RECEIVABLES290.1526.1

Inventory1,487.71,658.1

Prepaid Expenses28.115.7

Other Current Assets668.31,079.0

TOTAL CURRENT ASSETS3,961.84,720.9

Gross Property Plant AndEquipment4,731.34,953.0

Accumulated Depreciation-1,832.0-2,190.9

NET PROPERTY PLANT AND EQUIPMENT2,899.32,762.2

Long-Term Investments30.686.1

Deferred Charges, Long Term15.710.9

Other Intangibles105.1113.9

Other Long-Term Assets28.532.3

TOTAL ASSETS7,041.17,726.3

LIABILITIES & EQUITY

Accounts Payable466.6503.0

Accrued Expenses398.2280.6

Short-Term Borrowings106.3135.8

Current Portion Of Long-TermDebt/Capital Lease2.512.8

Current Income Taxes Payable762.01,085.5

Other Current Liabilities, Total47.944.5

TOTAL CURRENT LIABILITIES1,922.72,196.9

Long-Term Debt10.732.9

Minority Interest196.9173.9

Pension & Other Post-RetirementBenefits----

TOTAL LIABILITIES1,933.42,229.8

Common Stock2,300.72,530.8

Additional Paid In Capital1,473.61,473.6

Retained Earnings1,136.41,318.2

TOTAL COMMON EQUITY4,910.85,322.6

TOTAL EQUITY5,107.75,496.5

TOTAL LIABILITIES AND EQUITY7,041.17,726.3

RAK Ceramics Bangladesh Ltd

Financial Statements for RAK Ceramics Bangladesh Ltd (RAKC)

Annual Cash Flow:

Currency in Millions of BangladeshTakasDec 31, 2010

BDTDec 31, 2011

BDTChange %

NET INCOME606.5757.0

Depreciation & Amortization373.2359.1

Amortization Of Goodwill AndIntangible Assets12.09.8

DEPRECIATION & AMORTIZATION, TOTAL385.2369.0

CASH FROM OPERATIONS765.4373.3

Capital Expenditure-273.1-231.8

Sale Of Property, Plant, AndEquipment2.90.4

Sale (Purchase) Of Intangible Assets-15.9-18.6

Investments In Marketable & EquitySecurities-22.0-112.2

CASH FROM INVESTING-128.8-259.2

Short-Term Debt Issued39.8

Long-Term Debt Issued22.3

TOTAL DEBT ISSUED62.1

Short Term Debt Repaid-592.5

Long Term Debt Repaid-672.6

TOTAL DEBT REPAID-1,265.1

Issuance Of Common Stock2,056.5

Common Dividends Paid-334.0

TOTAL DIVIDEND PAID-334.0

Other Financing Activities-370.2112.3

CASH FROM FINANCING421.2-159.7

Miscellaneous Cash FlowAdjustments0.0

NET CHANGE IN CASH1,057.8-45.6

Growing trust is a time-tested business strategy enjoying attractive returns.

Ratio Analysis:

1.

Current Ratio=

Current Assets

Current Liabilities

Current Ratio20102011Changes %

2.062.15Up 4.3

By this ratio we can see that, this companys current ratio is 2.06 in the year of 2010& 2.15 in the year of 2011 which is higher than 2010. So companys current ratios change is improve 4.3%.

2.

Quick Ratio =

Current Assets Inventory

Current Liabilities

Quick Ratio20102011Changes %

1.291.39Up 7.7

In this quick ratio, we can see that in the year of 2011 this companys quick ratio is improved than the year of 2010 & its percentage change is grow up to 7.7%.that isbetter for this company.

3.

Cash Ratio =

Cash

Current Liabilities

Cash Ratio20102011Changes %

0.770.66Down 14.29

In this ratio, we can see that this companys ratio is decrease in 2011 than 2010. For this company it not good to decrease of cash ratio, because in this position company cannot cover the total asset by their liabilities & they have a high risk.4.

Total Debt Ratio =

Total Assets Total Equity

Total Assets

Total Debt Ratio20102011Changes %

0.270.29Up 7.4

Here, we find that, in year 2011 percentage of total debt ratio grows up from 0.27 to0.29 than the year of 2010. For this increasing of the total debt ratio this company is now in a bad position.

5.

Debt Equity Ratio =

Total Debt

Total Equity

Debt Equity Ratio20102011Changes %

0.020.03Up 50

By this ratio we can analyses that, this companys debt equity ratio is grow up in2011 than 2010. So, it is not favorable for this company.

6.

Long-Term Debt. Ratio =

Long-Term debt.

Long-Term Debt +Total Equity

Long-Term Debt. Ratio20102011Changes %

0.0020.006Up 200

By this ratio we can say that this companys long term debt ratio is increase in the year of 2011 than the year of 2010. For this increase of ratio there percentage change is up to 200%.

7.

Equity Multiplier ratio =

Total Assets

Total Equity

Equity Multiplier20102011Changes %

1.381.41Up 23.9

By this ratio it can be say that this company is increase their equity multiplier in 2011& this is good position for this company.

8.

Return on Assets (ROA) =

Net Income

Total Assets

Return on Assets (ROA)%20102011Changes %

8.619.79Up 13.7

By this ratio we can see that this companys return on asset is increase in the year of2011 than 2010 & its % change is growing up to 13.7%.9.

Return on Equity (ROE) =

Net Income

Total Equity

Return on Equity (ROE) %20102011Changes %

12.3514.21Up 15.1

This companys return on equity is also growing up in 2011 than 2010.

Cash conversion cycle

Inventory Turnover =

COGS

Inventory

Inventory Turnover20102011Changes %

1.681.62Down 3.57

Receivable Turnover =

Sales

Account Receivable

Receivable Turnover20102011Changes %

14.639.29Down 36.50

Days Sales in Receivable =

365 days

Receivable Turnover

Days Sales in Receivable20102011Changes %

24.9539.29Up 57.47

Formula20102011

Collection period360

Receivable turnover

24.61

38.75

Inventory conversion360

Inventory turnover

214.29

222.22

Payment deferral periodTotal Current liability

Cost of Good sold

276.30

293.63

Cash conversion cycle

= (Collection period + Inventory conversion period) - Payment deferral period

Cash conversion cycle20102011Changes %

-37.4-32.66Down -12.67

So, it is efficient for this company.Major Common Size Ratios:

- Total current assets to Total Assets up from 56.3% to 61.1%

- Total non-current assets to Total Assets down from 43.7% to 38.9%

- Fixed Assets to Total Assets down from 40.5% to 35.3%

- Current Inventory to Total Assets up from 21.1% to 21.5%

- Cash to Total Assets down from 21.1% to 18.7%

- Cost of Goods Sold to Sales down from 60.3% to 57.6%

- EBIT to Sales up from 19.4% to 21.9%

- Profit before tax to Sales up from 19.4% to 20.5%

- Profit after tax to Sales up from 14.6% to 16.2%

- Sales and marketing expenses to Sales up from 12.3% to 13.7%

Favorable Changes:

- Total revenue up 12.6% to BDT4.7b ($US57.1m)

- Net profit growth 24.7% to BDT756.4m ($US9.2m)

- EPS growth 57.4% to BDT2.99 (US3.65c)

- EBIT Margin up 10.9% to 22.3%

- A track record of profits in 3 of the last 3 years

- Current ratio up 4.4% to 2.2%

- Net tangible assets per share up 2.2% to BDT20.58 (US25.1c)

- Working capital to total assets up 12.8% to 32.7%

- Retained earnings to total assets up 5.7% to 17.1%

- EBIT to total assets up 15.8% to 13.2%

- Total revenue to total assets up 2.6% to 0.6%

Unfavorable Changes:

- Interest cover down 99.8% to 16.6%

- Total debt to net tangible assets up from 2.5% to 3.5%

- Debt to Equity up 50.0% to 0.03%

- Total liabilities to Total assets up 7.4% to 0.3%.Companys Operating and Financial Leverage:

By leveraging this companys competitive advantages across product development, product quality and customer service (reach and redressed). This will enable for this company to redefine the industry space through unique products, impeccable quality and superior service, leading to a stronger brand. RAK ceramic expect to introduce an interior-decor solution that transforms placid spaces into pride-attractive interiors and changes them from products to services.

After the leverage this companys degree of combined leverage is:

Degree of Operational Leverage (DOL) =

=

% in EBIT

% in sales

10.65 %

14.24%

= 0.747

Degree of Financial Leverage (DFL) =

=

% in EPS

% in EBIT17.7 %

10.65 %

= 1.662

Degree of Combined Leverage (DCL) = DOL x DFL

= 0.747 x 1.662

= 1.242SWOT Analysis

1. Strength

1. Market leader: RAK Ceramic is the market leader in the Ceramic Market ofBangladesh. They occupy 12 % of the total ceramic market.

2. Innovativeness: The strength of RAK lies in the speed with which it has innovated itself to meet market expectations. It invests regularly to produce products that would stand out in the market.

3. Strong Marketing lineup: RAK has developed sound and effective marketing policy to share knowledge about their products with design engineers, thus creating more awareness in the minds of the customers

4. Reliability: Be the preferred business partner of the customer and suppliers by offering quality products; providing best and timely service before and after the business transaction.

5. Great competitive skills: It has been working consistently in steel production sector. So it has achieved great competitive skills. It has the ability to face strong competition.

6. Strong products distribution lineup: RAK has appointed more than 98 dealers including tiles and sanitary ware products all over the country to sell the products of the Company to the ultimate customers.

7. Modern equipment technology: The Company is working continuously with their modern technological expertise with research and development to improve the product quality in accordance with customer choice, fashion and design.

2. Weakness:

1. Low advertising.

2. Low per capital consumption as compared to developed nations.3. Increase of account receivable.

4. Bad position of the cash ratio.

3. Opportunity

1. The construction and housing boom to provide bolstering demand for ceramic tiles.

2. The untapped rural market supported by a strong growth witnessed by agriculture provides tremendous potential for the domestic ceramic manufacturers.

3. As RAK is internationally renowned company so its have a strong possibility to export steels product in near future.

4. To discourage import of tiles and sanitary ware items supplementary duty on imports increased to 45% in place of existing 20%.

4. Threats

1. Sometimes raw material becomes unavailable.

2. Environmental Compliance threat.Competitive Condition of the company

RAK Ceramics (Bangladesh) Limited enjoys the reputation of being a market leader in the localities and sanitary ware market, as one of the establishments producing high quality tiles and sanitary ware products. The quality along with the competitive pricing of the products has enabled RAK Ceramics (Bangladesh) Limited to gain a substantial market share in the ceramic sector. The Companys currently enjoying more than one fourth share of the tiles market and greater than two third share of the sanitary ware market. The strengths of RAK Ceramics (Bangladesh) Limited is its professional expertise, unrelenting pursuit of excellence, and a deep and profound knowledge of the business environment that has enabled the company to tap the market share in the tiles and sanitary ware field. RAK has always painstakingly positioned the company to respond to emerging mark top port unities and have made major investments. RAK intends to leverage the leadership by pursuing strategic opportunities through the investments that have been made. It will continue to invest in innovative breakthrough technologies in the ceramic field because we know that in this era of global competitiveness and borderless economies, only productive organizations delivering quality goods send services can prevail, prosper and grow.

Overall Observation about the Organization

R.A.K. Ceramics (BD) Pvt. Ltd. is located at Sreepur, Gazipur in 1999 and started its commercial production in November 2000. The company is equipped with most modern machineries from Italy and successfully started producing Wall, Floor and Porcelain tiles. R.A.K. Ceramics (BD) Pvt. Ltd. never compromises with its quality. Their goal is to satisfy their valued customer by providing High Quality Product at affordable price. Quality made them market innovator. After SWOT Analysis we get that this company is at profitable position, having a good market reputation, having satisfied customers, in a low risk position, having good market share. This company has good strength, low weakness, good number of opportunity & as well as threats. This company has a lot of success factors, well qualified, skilled & trained employees, well distribution channels etc.Recommendations

1. R.A.K Ceramics should introduce more advertisement.

2. It should reduce risks.

3. It should expand its market more.

4. It may reduce its pricing.

5. It should be more careful regarding selecting raw materials.

6. It should introduce more designs.

7. It should use better & up to date technology.

8. It should produce different type of products for different income level persons.

9. Need to improve cash ratio.

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