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    Submitted in fulfillment ofthe Post Moduleassignment for

    Financial Analysis andControl Systems

    by

    Anthony Joseph Prakash

    Student No.0661033

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    Contents

    1. Introduction 3

    2. Introduction to Subros Ltd 42.1 Introduction 42.2 Manufacturing 42.3 Research and Development 52.4 Human Resources Management 5

    2.5 Environment & Social Responsibility 5

    3. Review of the year gone by3.1 Introduction 63.2 Quantities, Net Sales and PBT 6

    3.2.1 Raw Material Cost reduction 83.2.2 Increase in Other Income

    3.3 Dividend, EPS and Share Price

    4. Application of Funds 11

    4.1 Fixed and Tangible Assets 114.2 Current Assets. 12

    4.2.1 Raw Material 124.2.2 Finished Goods 124.2.3 Sundry Debtors 124.2.4 Cash & Bank Balances 13

    4.2.5 Loans and Advances 134.3 Current Liabilities 14

    4.3.1 Sundry Creditors and Interest 134.3.2 Warranty Costs 134.3.3 Retirement benefits 14

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    5. Cash Flow Statement 15

    6. Five year Ratio Analysis 176.1 Introduction 176.2 Profitability Ratios 186.3 Efficiency Ratios 226.4 Liquidity Ratios 276.5 Investment Ratios 29

    7. Conclusion 30

    7.1 Investment Potential 307.2 The Road ahead 31

    8. References 32

    9. Bibliography 32

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    1. Introduction

    As a part of the Post Module Assignment, I have chosen to analyse the 2005-

    2006 Annual Report of Subros Ltd. (hereafter called Subros), a leading car air

    conditioner manufacturer in India. I have chosen a manufacturing company from

    the automobile sector, because it is which is one of the fastest growing sectors in

    India. The automobile sector growth in India is second only to IT and

    Biotechnology boom. To top this the automobile sector is the largest employer

    in the manufacturing sector in India.

    Most of the global players like Toyota, General Motors, Ford and Honda have set

    up manufacturing facilities in India. India is well on its way to becoming a major

    global hub for automobiles and automobile components. The presence of global

    players brings to the fore improved quality and manufacturing standards. Many

    companies are well on their way to becoming world class manufacturing facilities.

    The emerging scenario makes it all the more important to analyse the financial

    health of companies in the automobile sector. It is also imperative that the Indian

    Automobile companies meet up to world financial standards in terms of

    profitability and financial ratios. In my analysis I have used the Annual Report of

    Sona Koyo Steering systems, another automobile sector company for the sake of

    comparison. Although both have varied products, the results thrown up are

    interesting. In order to have an overview of the performance of Subros on the

    global front, the Annual Report of Behr GmbH is used for comparison. Behr

    GmbH is in the same business of manufacturing car air conditioners and the

    comparison makes interesting reading.

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    2. Introduction to Subros

    2.1 Introduction

    Subros is a leading car air conditioner manufacturer in India. Subros was

    established in 1985 as a joint venture between the Suri Brothers, Denso

    Corporation, Japan and Suzuki Motor Corporation, Japan.

    The company has grown from a capacity of 15,000 AC units in 1985 comprising

    of largely an assembly operation, into the largest and only integrated

    manufacturing unit in India for Auto Air Conditioning systems. The company has

    the capability to manufacture compressors, condensers, heat exchangers and allthe connecting elements that are required to complete the ACLoop.

    Subros has three plants in Noida, Manesar and Pune. It also has a R&D center

    and Tool room at Noida. The manufacturing capacity has grown to a level of

    7,50,000 AC units per annum and there is a plan to go to a level of 1,000,000 per

    annum by 2008.

    2.2 Manufacturing

    The companys manufacturing infrastructure is the best in the class with a lot of

    focus on low cost automation. The company manufactures two main

    components viz the Air conditioning system and the Fan motor assembly. It is

    the only company in India, which has the infrastructure to manufacture all the

    components in the A/c loop.

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    2.3 Research and Development

    Research & Development is high on Subross agenda. The focus on shorter

    product development cycles has prompted investments in prototyping and

    simulation softwares. State of the art validation and test centers give Subros a

    competitive edge.

    Also helping in shortening the lead times is a state of the art Tool Room involved

    in the manufacture of jigs and fixtures.

    2.4 Human Resources Management

    Subros firmly believes that Employees are its greatest assets. Well structured

    training programs and improvement programs like Quality circles, TPM and TQM

    ensure Total Employee Involvement at all levels.

    2.5 Environment and Social Responsibility

    The Environment and Social Responsibility find special mention at Subros. The

    company uses environment friendly refrigerant for its air conditioners and also

    sponsors trees and green areas across major metros in India. Subros started a

    school for children with special needs in 1990. Subros also sponsors treatment

    for children suffering from cancer.

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    3. Review of the year gone by

    3.1 Introduction

    Buoyed a growing economy and increasing levels of disposal income, the

    Passenger car segment in India is seeing tremendous growth. According to

    ACMA [1], the compounded annual growth rate of passenger car production in

    the period 2000-2005 stands at 17% as compared to 8% in the previous five-year

    period. ACMA [1] also states that the Auto component industry has achieved a

    Compounded Annual Growth Rate of 20% in the 2000-2005 period as compared

    to 9% in the previous five-year period. Although the year 2005-2006 saw agrowth of only 7.7 % in the passenger car segment as against a growth of 17.8 %

    in 2004-2005, Subros has managed to grow significantly. This is evident from

    the latest financials of the company.

    3.2 Quantities, Net Sales and PBT

    Figure 3.1: Comparison of quantities.

    3.643.93

    2.843.08

    6.487.01

    0.00

    1.00

    2.00

    3.00

    4.00

    5.00

    6.00

    7.00

    8.00

    2005 2006

    Quantityinlacs

    A/c's

    Blowers

    Total

    As shown in figure 3.1, number of units sold in 2005-2006 grew by 8.1 % to 7.01 lac

    units. The Auto component Industry in this period grew by 7.7%.

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    Figure 3.2: Net Sales and PBT (Profit Before Tax)

    5906356490

    350

    289

    0

    10000

    20000

    30000

    40000

    50000

    60000

    70000

    2005 2006

    Rsinlacs

    0

    50

    100

    150

    200

    250

    300

    350

    400

    Rsinlacs

    Net Sales Value

    PBT

    4%

    20%

    The net sales value dropped by 4%, as can be seen in figure 3.2, although the

    Profit before Tax increased by 20% to Rs. 350 lacs. The drop in Net sales value

    can be attributed to the sharp decline in Unit Sale Price** (Figure3.3). Pressure

    from competition and market demands has forced Subros to bring about a 12%

    reduction in the Unit Sale Price.

    Figure 3.3: Unit Sale Price

    8058.5

    9114.7

    7400.0

    7600.0

    7800.0

    8000.08200.0

    8400.0

    8600.0

    8800.0

    9000.0

    9200.0

    2005 2006

    ValueinRs

    12%

    Reduction

    ** Calculated by dividing the Net Sale value by the total number of units sold.

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    Subros has nevertheless managed to maintain a growth of 20% in the PBT. This

    is primarily due to two reasons.

    a) Reduction in Raw Material cost.

    b) Marginal increase in other income

    3.2.1 Raw Material cost reduction

    Figure 3.4: Unit Raw Material Cost

    6991.7

    5839.4

    5200.0

    5400.0

    5600.0

    5800.0

    6000.0

    6200.0

    6400.0

    6600.0

    6800.0

    7000.0

    7200.0

    2005 2006

    ValueinRs

    16%

    Reduction

    The unit raw material cost++ has reduced by 16 % in the last year (Figure 3.4).

    This has been achieved by bringing down the import content of Raw Material.

    The resulting reduction has helped Subros reduce its Raw Material Cost for the

    year although the volumes have increased. It is apparent from figure 3.5 that an

    aggressive indigenisation plan in is place at Subros. This is also mentioned in theDirectors Report (Page 7). Costs of imported components are high due to the

    high import duties. This in turn results in high raw material costs. Therefore it is

    very important that the localization content of raw material is steadily increased.

    ++ Calculated by dividing the raw material cost by the total number of units sold.

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    Figure 3.5: Raw Material Percentage of Imports and Indigenous.

    35

    65

    45

    55

    0%

    20%

    40%

    60%

    80%

    100%

    Percentage

    2005 2006

    Imported

    Indigenou