LATEX INDUSTRIES final

8/7/2019 LATEX INDUSTRIES final

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Presented by :

Deep Patel

Monika Gangwar

Pallavi Singh

LATEX INDUSTRIES

Case Presentation

Group -9


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BackgroundofLatex Industriesy Founded 1970, established in Bangalore(India)

y Purpose Manufacture Milk Processing Equipment

y Initial Production Licensing Agreement with Dutch

Company.

y After patents Expired Decided to go on its own.

(Major challenges for company start from here)

y Limited Market in India for Expansion and Growth

y Company decided to go internationally.y At this time UNIDO invites tender in 1979.

y Company decided to fill up the tender and go internationally.


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Latex Industries

y In 1979, Company Bid for the Construction of Milk

Processing Plant.

y Plant was proposed by

United Nations Industrial Development Organization(UNIDO)

y Finance by

International Finance Corporation of the World Bank

y Pre Requisite for Qualification are :

* Experience, Reliability and Price

* Inspection Visit by UNIDO in India* On-the-spot Survey Construction Site

y However, Company Stand Last in the Bid.


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Analysisofthe Company Ratios

y Liquidity Ratios

1. CURRENT RATIO(Standard 2:1)

Current Ratio = Current Assets

Current Liabilities

2. QUICK RATIO(Standard 1:1)

Quick Ratio = Current Assets Inventories

Current Liabilities

Particulars 1986 1987

Total Current Assets 991060 1051581Total Current Liability 475953 527147

Current Ratio 2.082264 1.99485


Current Assets 991060 1051581

Inventories 316493 411804

Current Liability 475953 527147

Quick Ratio 1.417298 1.21366


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3. NET WORKING CAPITAL(ratio should be more)

Net Working Capital Ratio= Net working capital

Net assets

Where, Net working capital = current assets - current liabilities

Particulars 1986 1987Current Assets 991060 1051581

Current Liability 475953 527147

Net Assets 1054009 1113512

Quick io 0.49 0.47


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y LEVERAGE RATIO

1. TOTAL DEBT RATIO(ratio should not be more than 2:3 or0.67)

y Total Debt Ratio = Total Debt / capital employed

Where total debt=loans+ debentures+ bank overdraft+ short

term loans+ lease with interest

y Capital employed= equity share capital+ reserves & surplus +

preference share capital+ long term liabilities.

Part ars

Total D ts

Capital Emplo d

Total Debt Ratio 0. 0.


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2. DEBT-EQUITY RATIO( ratio is 2:1)

y Debt equity ratio = Total Debt/Net Worth

Where, Total debt= loans+ debentures+ bank overdraft+ shortterm loans+ lease with interest

y Net Worth = equity share capital+ Reserves & surplus +

preference share capital

y ACTIVITY RATIO

1. INVENTORY TURNOVER RATIO ( Standard high ratio)

Inventory turnover ratio= cost of goods sold/average inventory

Particulars

Total D tst Worth

Debt Equity Ratio 1. 8 2.034

Particulars

ost Of Goo s Sold 1068594 106940

Average I ventor 16493 411804

Inventory urnover Ratio 3.88 0.26


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y PROFITABILITY RATIOS

1. GROSS PROFIT RATIO(higher margin% is a favourable)

Gross profit margin= gross margin/sales

2. NET PROFIT MARGIN(higher margin % is a favourable)

Net profit margin= profit after tax/net sales


Gross Margin 15870 48190

Net Sales 1084465 1117830

Gross Profit Ratio 0.02 0.04

Parti lars 1986 1987

Profit After Tax 15468 11929

Net Sales 1084465 1117830

N t Profit Margi 0.0 0.0


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About Zimbabwean Project (in 1979)

Reasons for standing last in the bid According to cost structure ofthe company are as follows :

y High Research & development cost as compared to other bidder

y Subsidies.

Apart from this

y Lack of International Construction Experience.

- Project will not be delivered on time Acc. To IFC.


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3 Strategies InorderofFinancial Strain

1. Diversification to Food Processing equipment's ( in 1986)

y Limited growth in milk processing segmenty More growth opportunity in Food Processing segment

y Agreement with Garland Foods Equipment (Canadian Firm)

y Startup the Operations by 1988

y

Cost Involved was more than $ 2,25,000 plus 1% of profit toGarland Foods

2. Sub-contractor for Danish Firm ( in 1986)

y Company have to increase its research and development activity -

y To make division operational - US$ 35000 and US$ 25000 for

subsequent year & inventory Investment will rise by US$15000.3. Consultancy Division ( 1987 onwards)

y Experience gained through Zimbabwean Project

y Hiring of 4 Assistant managers would cost them $ 35,000 per year


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International Consultancy,a validalternative??

yFriendly Indian competitor came for advice

y After that Latex thought for charging its technical advice

y But only one international Bid experience that too Latex LOST

the bid

y Already Struggling within the Indian milk processing industry

y Costs for hiring the employee for the consultancy

y Consultancy on Domestic level could be an alternative as Latex

was working in India for about 10 years


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Recommendationfor Future Prosperity

y Limited growth in domestic milk processing industry

y Go international but not on their own but initially work as Sub-

Contractor for other international players

y Less financial Strain for the Company

yThis would give them Understanding about the internationalscenario, knowledge, links, expertise and proper finance for

further operations as a main Bidder


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LATEX INDUSTRIES final

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