Project Report - Final-Ankur

WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH
SPECIALISATION PROJECT ON
CAPITAL STRUCTURE AND TURNAROUND STRATEGIES
BY
ANKUR DEKATE
PGDM 2010 12 (FINANCE SPECIALISATION)
ROLL NO 81
PROJECT FACULTY GUIDE
PROF. Dr. SUYASH BHATT
PROJECT COMPLETION CERTIFICATE
This is to certify that project titled CAPITAL STRUCTURE AND TURNAROUND STRATEGIES is successfully done by Mr. ANKUR DEKATE in partial fulfillment of his two years full time course Post Graduation Diploma in Management recognized by AITEC through the Prin. L. N. Welingkar Institute of Management Development & Research, Matunga, Mumbai.
This project in general is done under my guidance. ___________________________ (Signature of Faculty Guide) Name: ______________________ Date: ______________________
ACKNOWLEDGEMENT
A project report requires co-operation of many people. I feel pleasure in taking this opportunity to express my sincere regards to my project guide, Prof. Dr. Suyash Bhatt. Without his guidance, valuable suggestions, constructive criticisms and encouragement throughout the course of the project, the present shape of the work would not have been possible. I also wish to thank the staff of Welingkar Institute of Management Development & Research, for their kind support in carrying out this project. Lastly but not the least I also feel indebted to my parents, and classmates who helped me all the time ensuring that the task is achieved & people who have willingly helped me out with their abilities.
Table of Contents
ACKNOWLEDGEMENT ................................................................................................................................... 3 Executive Summary....................................................................................................................................... 5 Capital Structure Theory ............................................................................................................................... 7 Altmans Z-Score and Bankruptcy prediction ............................................................................................. 13 Turnaround Strategies ................................................................................................................................ 14 Bata India Ltd. ............................................................................................................................................. 17 Rallis India ................................................................................................................................................... 27 Voltas Ltd .................................................................................................................................................... 42 Dunlop India ................................................................................................................................................ 52 Learnings ..................................................................................................................................................... 59 Bibliography ................................................................................................................................................ 61
Executive Summary
Times of financial distress present strategic management challenges. In such situations, a firm may be in bankruptcy or on the verge of bankruptcy. Often consultants are brought into the company to devise and execute a plan of turnaround, assuming that the firm has enough potential to revive and become sustainable and profitable. Over the last decade, many Indian companies facing financial difficulty have again emerged profitable after successful turnarounds and have again attracted investors interest. The project aims to study the change in the financials of such companies over the turnaround periods. The turnaround strategies include overhauling marketing, production, human resources, organizational and financial structures of the company. While the project captures major changes in marketing, human resources, production or organizational spheres, including demergers, mergers, recapitalization, capital reduction programs etc that helped execute turnarounds, the main focus has been to study the changes in the capital structures and other financials of such companies as a result of turnarounds. Thus, rehabilitation strategies are studied with a view to learn how these find reflection in changes in capital structures, income statements, balance sheets, cash flows, ratios like turnover ratios, profit margins and profitability, recapitalization through capital reduction or fresh capital, strategic asset sale, renegotiation of debt terms to reduce servicing costs, using the profits to pay off debt and/or improve liquidity, etc. The study helps to get an understanding of the monetary evidence of the turnaround. At the same time, common pattern and methods adopted for turnaround of sick companies can be identified. For the study, four companies have been selected. These companies are: 1. Bata India 2. Rallis India 3. Voltas Ltd. 4. Dunlop India Ltd.
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All four companies have emerged profitable from financial difficulties in the last ten years. The companies have been selected since they are listed on the major stock exchanges (this assures the availability of financials) and also their turnarounds were reported in the media which gives contours of the turnaround strategy adopted by the company.
Capital Structure Theory

Capital Structure refers to a mix of companys long term debt, specific short term-debt, common equity and preferred equity. The capital structure is how a firm finances its overall operations and growth by using different sources of funds.
Debt comes in the form of bond issues or long-term notes payable, while equity is classified as common stock, preferred stock or retained earnings. Short-term debt such as working capital requirements is also considered to be part of the capital structure.
The capital structure of a company refers to a contamination of the long-term finances used by the firm. The theory of capital structure is closely related to the firms cost of capital. The decision regarding the capital structure or the financial leverage or the financing wise is based on the objective of achieving the maximization of shareholders wealth.
To design capital structure, we should consider the following two propositions: (i) Wealth maximinization is attained. (ii) Best approximation to the optimal capital structure.
Factors Determining Capital Structure: (1) Minimization of Risk: (a) Capital structure must be consistent with business risk. (b) It should result in a certain level of financial risk. (2) Control: It should reflect the managements philosophy of control over the firm. (3) Flexibility: It refers to the ability of the firm to meet the requirements of the changing situation.
(4) Profitability: It should be profitable from the equity shareholders point of view. (5) Solvency: The use of excessive debt may threaten the solvency of the company.
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Theories of Capital Structure:
Equity and debt capital are the two major sources of long-term funds for a firm. The theories on capital structure suggests the proportion of equity and debt in the capital structure.
Assumptions
(i) There are only two sources of funds, i.e., the equity and the debt, having a fixed interest. (ii) The total assets of the firm are given and there would be no change in the investment decisions of the firm. (iii) EBIT (Earnings Before Interest & Tax)/NOP (Net Operating Profits) of the firm are given and is expected to remain constant. (iv) Retention Ratio is NIL, i.e., total profits are distributed as dividends. [100% dividend pay-out ratio] (v) The firm has a given business risk which is not affected by the financing wise.
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(vi) There are no corporate or personal taxes. (vii) The investors have the same subjective probability distribution of expected operating profits of the firm. (viii) The capital structure can be altered without incurring transaction costs.
In discussing the theories of capital structure, we will consider the following notations:
E = Market value of the Equity D = Market value of the Debt V = Market value of the Firm = E +D I = Total Interest Payments T = Tax Rate EBIT/NOP = Earnings Before Interest and Tax or Net Operating Profit PAT = Profit After Tax D0 = Dividend at time 0 (i.e. now) D1 = Expected dividend at the end of Year 1. Po = Current Market Price per share P1 = Expected Market Price per share at the end of Year 1. Kd = Cost of Debt after Tax. [ I (1- T) / D ]. Ke = Cost of Equity, [ D1 / P ] Ko = Overall cost of capital i.e., WACC, { Kd * [D/(D+E)] + Ke * [ E/(E+D)] }
Different Theories of Capital Structure:
(1) Net Income (NI) Approach (2) Net Operating Income (NOI) Approach (3) Traditional Approach (4) Modigliani-Miller Model (a) without taxes (b) with taxes.
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(1) Net Income Approach: As suggested by David Durand, this theory states that there is a relationship between the Capital Structure and the value of the firm.
Assumptions: (1) Total Capital requirement of the firm are given and remain constant (2) Kd < Ke (3) Kd and Ke are constant (4) Ko decreases with the increase in leverage.
(2) Net Operating Income (NOI) Approach: According to David Durand, under NOI approach, the total value of the firm will not be affected by the composition of capital structure.
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Assumptions: (1) Ko and Kd is constant. (2) Ke will change with the degree of leverage. (3) There is no tax.
(3) Traditional Approach: It takes a mid-way between the NI approach and the NOI approach.
Assumptions: (i) The value of the firm increases with the increase in financial leverage, upto a certain limit only. (ii) Kd is assumed to be less than Ke.
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(4) Modigliani Miller (MM) Hypothesis: The Modigliani Miller hypothesis is identical with the net operating Income approach. Modigliani and Miller argued that, in the absence of taxes the cost of capital and the value of the firm are not affected by the changes in capital structure. In other words, capital structure decisions are irrelevant and value of the firm is independent of debt equity mix.
Basic Propositions: M - M Hypothesis can be explained in terms of two propositions of Modigliani and Miller. They are : i. The overall cost of capital (KO) and the value of the firm are independent of the capital structure. The total market value of the firm is given by capitalising the expected net operating income by the rate appropriate for that risk class.
ii. The financial risk increases with more debt content in the capital structure. As a result cost of equity (Ke) increases in a manner to offset exactly the low cost advantage of debt. Hence, overall cost of capital remains the same.
Assumptions of the MM Approach: 1. There is a perfect capital market. Capital markets are perfect when i) Investors are free to buy and sell securities, ii) They can borrow funds without restriction at the same terms as the firms do, iii) They behave rationally, iv) They are well informed, and v) There are no transaction costs. 2. Firms can be classified into homogeneous risk classes. All the firms in the same risk class will have the same degree of financial risk. 3. All investors have the same expectation of a firms net operating income (EBIT). 4. The dividend payout ratio is 100%, which means there are no retained earnings. 5. There are no corporate taxes. This assumption has been removed later.
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Altmans Z-Score and Bankruptcy prediction

The formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. The Z-score is a linear combination of four or five common business ratios, weighted by coefficients. Z-score formula: Z = 1.2X1 + 1.4X2 + 3.3X3 + .6X4 + .999X5. X1 = Working Capital / Total Assets. Measures liquid assets in relation to the size of the co. X2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age and earning power. X3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. X4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag. X5 = Sales/ Total Assets. Standard measure for sales turnover (varies greatly from industry to industry).
Zones of Discrimination: Z' > 2.9 -Safe Zone, 1.23 < Z' < 2. 9 -Grey Zone, Z' < 1.23 -Distress Zone
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Turnaround Strategies
Early warning signals of corporate decline and/or distress are well-documented. Moreover, the probability of bankruptcy can be very accurately forecast long in advance e.g. using the Z-Score. Yet, in practice, recognizing the need for turnaround management invariably takes place too late and actions accomplish too little. Hence the need for emergency management once a turnaround situation assessment has been completed.
Using financial ratios to identify symptoms of failure:
A troubled company goes through phases - underperformance, early decline and late decline. These phases can be tracked by means of adverse trends in financial ratios. Following the triggering of a turnaround, these financial ratios are important to the turnaround practitioner during turnaround situation assessment to ascertain what the turnaround plan should look like. The first financial sign of trouble is normally declining profitability caused by either declining sales or declining margins. If not addressed on time, this lead to declining liquidity and/or declining solvency. The question is often asked which profitability, liquidity or solvency ratios provide the best indication of the degree of financial distress. The answer is the Z-Score, which combines all of these ratios into an overall measure of financial health. Situations of Turnaround: Each company, not only looks at the turnaround situation from the perspective of the managerial, financial and legal aspects associated with the particular stage of decline it is involved in, but also from the perspective of the rights and interests of the constituency it presents, and its own professional background and education. Traditionally different companies have followed different ways of turnaround. Some popular ways can be stated as follows, 1) Cost-Cutting Plan:
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Review the company's profit and loss statement for the past two years and analyze every significant category of expenditures. Determine which expenditures are necessary going forward - if you cannot prove the line item contributed to revenue generation or operational efficiency, cut it from the budget. For the company to emerge from its financial difficulties, it must operate leaner and use every dollar more wisely, so both gross margins on revenues and pretax profit margins are increased. 2) Revenue Building Plan: Devising ways to rebuild sales momentum is a central focus of a turnaround strategy. Review the methods you use to reach your prospective customers. Make sure you are effectively communicating your competitive advantages. Consider a change in pricing structure in order for customers to perceive they are getting a better value. Look for new markets for your existing products or change your product line so it is more in tune with what the marketplace wants. 3) Negotiating with Creditors: Companies that are too far in debt have trouble turning their financial fortunes around because after past due bills are paid there isn't enough money left for an effective marketing effort or for product innovation. Another issue is being so far behind in payments to key suppliers that they don't want to do business with the company anymore. One strategy is to take the past due amounts of trade payables owed to the largest suppliers and convert them into notes payable, with interest, to be paid over the next two to three years. Going forward, the company agrees to promptly pay invoices from these suppliers and make periodic payments on the past due debt. It is also possible to get trade creditors to write off some of the past due amounts -- especially if the financial situation is so bleak that the company might go out of business unless its debt load is reduced. 4) Capital Restructure Plan: Turnaround situations often require an infusion of fresh equity capital to replace some of the debt on the balance sheet that has been dragging the company down. Companies
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might also have unused assets that another company could make better use of. These can be sold off to raise additional cash. One outcome of bringing in additional equity investors is that the company's existing shareholders will have their ownership percentage reduced, but this dilution of ownership is better than losing everything if the company were to go out of business. In this project with we are going to analyze cases of four different companies as in how they approached the situation of turnaround. We will try to analyze their financial statements and the steps followed by company management in order to achieve turnaround.
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Bata India Ltd.

India's largest footwear retailer - Bata India Limited (Bata) took initiatives to transform itself in the early and mid 2000s. These initiatives bore fruit and since 2006 the company was showing good performance. Bata India was suffering from numerous problems. Its cost of production was high and there was a mounting need to increase the margins. (Under the years in consideration, the companys total expenses overshot the income amount). Bata also suffered from overstaffing. Reducing the high labour costs was one of the main problems of Bata management due to the unionized nature of their workforce. A long-standing challenge at Bata had been the unviable cost structure of its stores, which was 75% fixed and 25 variable. The employee productivity was also low (in terms of pairage sale per employee). Using Altmans Z-score formula for predicting bankruptcy: The formula may be used to predict the probability that a firm will go into bankruptcy within two years. Z-scores are used to predict corporate defaults and an easy-to-calculate control measure for the financial distress status of companies in academic studies. The Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. The Z-score is a linear combination of four or five common business ratios, weighted by coefficients. Z-score formula: Z = 1.2X1 + 1.4X2 + 3.3X3 + .6X4 + .999X5. X1 = Working Capital / Total Assets. Measures liquid assets in relation to the size of the co. X2 = Retained Earnings / Total Assets. Measures profitability that reflects the company's age and earning power. X3 = Earnings Before Interest and Taxes / Total Assets. Measures operating efficiency apart from tax and leveraging factors. It recognizes operating earnings as being important to long-term viability. X4 = Market Value of Equity / Book Value of Total Liabilities. Adds market dimension that can show up security price fluctuation as a possible red flag.
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X5 = Sales/ Total Assets. Standard measure for sales turnover (varies greatly from industry to industry).
Zones of Discrimination: Z' > 2.9 -Safe Zone, 1.23 < Z' < 2. 9 -Grey Zone, Z' < 1.23 -Distress Zone Calculating the Z-score for the Bata company in 2003:
Current Assets Current Liabilities Total Assets Acc Retained Earnings Sales EBIT Book Value Market Value 392 237 578 114.2 713 -13.27
32.21
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X1
X2 X3 X4 X5
Working Capital Total Assets Acc Retained Earnings Total Assets EBIT Total Assets Market Value Book Value Sales Total Assets Z Value
0.268166
0.197578 -0.02296 1.521267 1.233564 2.668969
The Z Value of 2.66 indicates that the company is in a grey area (where there could be a possibility of bankruptcy)
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Turnaround Bata India achieved turnaround by 2005. The company went for a $10 million (approx Rs 46 crore) rights issue to assist its restructuring efforts. With a reduction in labour costs being a part of restructuring moves, it also offered another voluntary retirement scheme (VRS) by the end of that year. It had already offered two rounds, which helped reduce staff strength by 940 to touch 1100. Bata India MD had reported that the amount accruing from the rights issue was to be used to improve working capital and finance some of the new initiatives planned to help make the business more profitable. These included upgrading stores, shutting down unviable ones which are a cash drain, improving logistics systems and several cost cutting initiatives to make the business more responsive to the evolving market and competition. There was also to be a greater focus on low-cost retailing and limiting the wholesale business. It also increased the use of information technology to help rationalize the use of human resources and streamline the business. It invested in a point of sale system that places all the stores online and improves reaction time, which earlier was as high as 2 weeks. Currently its flagship and topline stores, which account for almost 50% of the business, are being made online and the target is to cover 160 stores in four months.
Following pointers of the turnaround are available from the income statements over 2003-2008: 1. Improved Sales. Sales improved at a rate of 12% CAGR from 2004 onwards (till 2008). 2. Raw material expenses (including packaging expenses) as per cent of sales went on declining. 3. Purchase of finished goods in total expenses is significant. And this proportion has remained in the same range, which reflects continuing reliance on sales of SSI products capitalizing on own brand value. 4. Proportion of power, fuel expenses also declined, which mirror efficient and effective energy use.
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5. Reduction in labour cost was a part of the restructuring efforts. The staff strength was reduced by 940 to touch 1100. The company also increased the use of information technology to help rationalize human resources and streamline the business. 6. Reduced Incidences of indirect levies, which reflect partly shift to low value finished products and fiscal policy changes also helped to some extent. 7. The company also took cost-saving measures such as outsourcing certain manufacturing jobs from 2005 onwards. 8. Because of reduced borrowings, particularly high cost debt and better working capital management interest expenses lagged behind the pace in sales. Thus, Interest cost as a proportion of total sales went down from 1.19% in 2004 to 0.63% in 2008.
Following evidences of the turnaround are available from the Balance Sheet. 1. The proportion of land and buildings in total assets was reduced as part of restructuring efforts, notwithstanding opening of 37 new stores and remodeling of 78 existing stores due to: a. Reduction in cash drain stores from 179 in 2005 to 140 in 2006. b. Introduction of franchisee model. Simultaneously, the company invested in upgrading its running stores, shown as the percentage of furniture and amenities became higher. 2. Better inventory management including raw materials and finished goods helped push inventories faster 3. Management of receivables improved; credit to customers and dealers was cut down and cash from receivables started accruing quicker. Thus, along with limiting the wholesale business, reduction in wholesale credit from 126 days in 2005 to only 45 days in 2006, and reduction in receivables from 55 days in 2005 to 46 days in 2006 led to better receivables management and less cash locked up in receivables.
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4. Cash and bank balance improved as a result of funds accrual from rights issue, reduced borrowings and better working capital that includes more efficient inventory and receivables management. 5. In 2005, the company went for a $10 million (approx Rs 46 crore) rights issue to assist its restructuring efforts. 6. Funds from retained profits and rights issue were used to bring down borrowings. 7. In 2005, total funds used were less even after there was good amount of retained profits and fresh capital were issued since the funds accrued from this were used to pay off high cost borrowed capital
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Ratio Analysis Dec-03 Bata India Expression Total income / Compensation to employees Sales /Avg. net fixed assets 3.73 4.21 3.9 4.75 4.12 5.41 4.45 7.5 4.94 9.67 5.84 9.12 Ltd. Dec-04 Bata India Ltd. Dec-05 Bata India Ltd. Dec-06 Bata India Ltd. Dec-07 Bata India Ltd. Dec-08 Bata India Ltd.
Total Compensation to Employees: Compensation to employees in salaries, wages, etc declined slightly, which is remarkable in view of consistent increase in sales. As a result of decline in salaries, wages, on the one hand, and increase in sales on the other, the ratio of the ratio of sales to compensation to employees mounted to 5.84 from 3.83 over the period. Obviously, productivity of employees seems to have improved markedly over the period. Sales/Avg. net fixed assets: This ratio of sales/Average net fixed assets, a proxy indicator for capacity utilisation has improved to 9.12 in 2008 from 4.21 in 2003. Liquidity, Solvency Ratios: Dec-03 Dec-04 Bata Bata Expression India Ltd. India Ltd. Dec-05 Bata India Ltd. Dec-06 Bata India Ltd. Dec-07 Bata India Ltd. Dec-08 Bata India Ltd.
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Quick ratio Current ratio
0.18 1.41
0.2 1.2
0.23 1.53
0.26 1.5
0.26 1.47
0.24 1.48
Debt to equity ratio
0.38
1.68
0.47
0.3
0.21
0.15
Interest cover
-1.79
-6.67
1.13
4.67
7.79
11.13
Current Ratio: Liquidity of the company does not seem to have improved dramatically. Quick ratio has improved from 0.18 to 0.24 whereas current ratio has improved only marginally. Debt-Equity Ratio: Debt-Equity Ratio became very high in 2004 when the firm was facing the peak of financial difficulty. Later, in 2005, after the rights issue, the D/E ratio improved and this improvement continued in the subsequent years. Interest-Coverage ratio: Interest-Coverage ratio had become negative in 2003 and 2004 when the firm was posting losses. It started improving from 2005 onwards. Structure of Current Assets:
Expression
Dec-03
Dec-04 Bata Bata India India Ltd. Ltd.
Dec-05
Dec-08 Bata Bata India Bata India Bata India India Ltd. Ltd. Ltd. Ltd.
Dec-06
Dec-07
Structure of current assets (%) Inventories 69.99 68.28 72.16 77.23 74.6 69.19
Sundry debtors (outstanding less than six months) 11.31 Sundry debtors (outstanding over six months) 5.58 Bills receivable 0 23
9.26
6.16
5.81
5.49
6.08
3.25 0
1.07 0
0.23 0
0.13 0
0.05 0
Accrued income, lease rent & other receivables 0 Expenses paid in advance Deposits Investments & other receivables Cash & bank balance 8.72 2.77 0.8 0.82
3.48 8.31 3.54 0.05 3.82
2.42 8.47 3.43 1.03 5.27
5.36 0.65 4.86 0.78 6.25
4.04 1.37 6.29 0.42 8.03
3.6 5.59 8.7 0.8 6.33
Inventories: The ratio of inventories to current assets has remained almost unchanged over the period. Sundry Debtors and Cash Balance: Liquidity has improved, as proportion of Sundry Debtors outstanding for more than six months decreased due to better receivables management and proportion of cash in current assets went up. Profit Margin Ratios:
Dec08 Bata India Bata India Bata India Bata India Bata India India Ltd. Ltd. Ltd. Ltd. Ltd. Dec-04 Dec-05 Dec-06 Dec-07
Expression
Dec-03 Bata Ltd.
Profit Margin ratios PAT/Total income -3.63 -8.6 1.66 4.88 5.24 5.92
Profit Margin improved as the firm emerged out of losses and could get better price realizations on the one hand and continued control over costs. Return Ratios:
Expression Dec-03 Dec-06 Bata Bata India Bata India Bata India India Ltd. Ltd. Ltd. Ltd. 24 Dec-04 Dec-05 Dec-07 Dec-08 Bata Bata India India Ltd. Ltd.
Return ratios
20.21 PAT/Avg. net worth -8.9 -27.15 5.61 16.96 20.48 22.39
RoE, which was negative in the adverse years, has improved in subsequent years reflecting profits due to successful turnaround. Working Cycle and Turnover Ratios:
Expression Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Bata India Bata India Bata India Bata India Bata India Bata India Ltd. Ltd. Ltd. Ltd. Ltd. Ltd.
Working cycle & turnover ratios Working cycle (days) Debtors Creditors Turnover ratios (times) Raw material turnover Finished goods turnover 38.11 98.85 33.12 105.46 23.87 84.49 15.24 86.16 10.93 87.08 8.81 81.48
6.71 9.76
6.21 11.68
5.61 14.87
7.22 23.09
8.91 31.32
10.47 38.34
Debtor days reduced from 38 days to 8-9 days reflecting effective control over credit to customers. Creditor days also reduced as the cash position had improved and dependence over creditors reduced reflecting better terms on purchases. The company got better efficiency in production and shorter production cycle, which was reflected in improvement in turnover ratios in raw material and finished goods. Altmans Z-Score Analysis For the purpose of this analysis we consider data from Dec 01 to Dec 10. Working Capital/Total Assets Retained Earnings/ Total Assets EBIT/ Total Assets Dec '10 0.303991 0.420715 0.188061 Dec '09 Dec '08 Dec '07 0.351103 0.344956 0.349291 0.452227 0.405508 0.362081 0.199936 0.14936 0.109
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Dec '06 0.373483 0.338892 0.100356
Mkt Value/ Total Liabilities Sales/ Total Assets Altman score
5.643413 4.536964 2.249506 5.801512 5.403048 1.584803 1.835921 1.769302 1.679135 1.768391 6.543655 6.270494 4.591784 6.444125 6.262253 Dec '05 0.351825 0.379082 0.024393 4.096582 1.359264 4.849256 Dec '04 0.262345 0.252492 -0.04318 1.287278 1.323575 2.620431 Dec '03 0.296103 0.39488 -0.02536 0.579794 1.177861 2.349039 Dec '02 0.348284 0.464343 -0.01484 0.695508 1.182676 2.617859 Dec '01 0.351828 0.517215 -0.00305 1.610259 1.365717 3.466734
Working Capital/Total Assets Retained Earnings/ Total Assets EBIT/ Total Assets Mkt Value/ Total Liabilities Sales/ Total Assets Altman score
The plot of Z-Score against time shows the evolution of bankruptcy and turnaround
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Rallis India
Business of the Company: Rallis India is a TATA group enterprise and the company is in four lines of businesses. In the domestic-agri business the company manufactures pesticides, seeds and fertilizers. The key strength in the domestic sector lies in the strong distribution network, which is spread, across 80% of the countrys districts. The Institutional business is involved in providing various technical and bulk molecules to companies. Well known customers include Bayer, Syngenta and DuPont. The company also exports insecticides, fungicides and herbicides and International business is the third LOB the company is in. The fourth LOB is Contract services where the company partners with various other companies for contract manufacturing and contract research. The Turnaround In 2001-2002, Indias largest agro-chemicals company, Rallis, pulled back from the brink of a precipice. From a loss of Rs 31 crore in 2000-01, the company posted a tidy Rs. 45-crore profit in 2001-02. A large part of the credit for this turnaround went to Rajeev Dubey, who joined the company as CEO in September 2000. He brought with him three questions, namely, Who and where are we? Where do we go from here? How do we go? The ultimate aim effectiveness and efficiency of resource utilisation had to lead to profitable growth. Mr. Dubey posed these questions to all the companys stakeholders and experts to get the inside and outside view. Cross-functional teams, including staff from pesticides, fertilisers and seeds, aided by the Tata Strategic Management Group, went into the field to meet employees, dealers, farmers, policymakers, distributors and even domestic and multinational competitors.
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Calculating the Altmans Z-score for the Rallis India in 2000:
Current Assets Current Liabilities Total Assets Acc Retained Earnings Sales EBIT Book Value Market Value
578.95 276.11 810.28 125.26 1453.66 89.61 114.51 89
X1
Working Capital Total Assets Acc Retained Earnings Total Assets EBIT Total Assets Market Value Book Value Sales Total Assets Z Value
0.3737
X2
0.1545
X3
0.1105
X4
0.7772
X5
1.794
3.29
According to the zones of discrimination, the Z Value of 3.29 indicate that the company is in a Safe zone.
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Looking into the problem areas of the company This diagnostic study, conducted in September-October 2000, turned the spotlight onto the problem areas of the company. These included inefficient asset utilization, absence of strong shared values, weak customer orientation, intuitive decision-making as opposed to being analytical, insensitive approach to people-related problems, and a lack of transparency. Armed with the results of this study, the management embarked on a strategic planning exercise. The company used the Tata Business Excellence Model (TBEM) framework to give direction to its strategy. TBEM questioned every process within the organisation and brought method to madness. The method in this case was the decision to focus on five points:

Sharpen and revamp the product/business portfolio Improve cash management Introduce new products Reduce costs throughout the value chain Strengthen controls and business processes
The company developed the corporate balanced scorecard in order to implement and monitor the strategy at all levels. It also cascaded it down to the frontline personnel through key result areas (KRAs). These areas had both qualitative and quantitative measures. For instance, a fixed number of farmer and dealer visits were added to sales targets and collections. Acting upon the problems The companys soul-searching resulted in the formulation of three concrete initiatives:

TBEM Safal (strategic actions for absolute leadership) in sales and marketing. TBEM Prerna (propelling Rallis towards excellent results now and always) in manufacturing.
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TBEM Pragati (people-related actions for growth and achievement through transformation and involvement) in human resource development.
Under TBEM Safal, countrywide restructuring was undertaken and systems set up in distribution, depot management and proactive selling. Costs were reduced on a war footing in every task, be it travel or sales promotion. The results of these measures are seen in the numbers. Discounts and promotion costs are down, so are debtors and bad debt. Volumes are up and the sales mix is richer. Chipping manufacturing costs TBEM Prerna, which was begun with that intention, is an exercise that will continue into the future. The initiative helped cut costs at all levels of manufacturing, through processes like yield improvement, solvent substitution, improving procurement logistics, value engineering and improving throughput, all of which led to major recurring annual savings. Leaner, but not meaner The organisation went through mergers, divestment, closure of non-performing units and financial restructuring. To rationalise assets, Rallis sold its pharma division in 2001. It also sold its property in Andheri, Mumbai, for Rs 133 crore to Tata Consultancy Services. More such sales are in the offing to cut flab and garner funds to retire some of the companys debts. Managing cash from operations was critical to the companys profitability. Financial restructuring, undertaken on a war footing, reduced debt from Rs 663 crore in December 2000 to Rs 445 crore in March 2002. Working capital requirement was brought down from Rs 287 crore on March 31, 2001, to Rs 186 crore a year later. To improve its receivables, the company was in the process of identifying dealers who can be financed directly from the banks, to bring down working capital and improve cash availability.
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Innovation funnel Research and development of new products can be very costly. And if the end result is not satisfactory, it means all that money down the drain. To avoid this, Rallis set up a rigorous project-management process for new product development, based on the innovation funnel model. All new product ideas have to go through this funnel where they are evaluated on specific criteria at four levels opportunity, feasibility, capability and commercial viability before further development is continued. Thus, time and effort are not wasted on unviable projects, and the products pipeline is kept energised fully. In the last two years, five new products have been launched. Downsizing manpower As is inevitable in every restructuring programme, the company had to undertake the painful exercise of shedding a large part of its workforce. Almost 950-odd people from an original workforce of 3,300 are no longer part of Rallis. Of these, nearly 300 were part of the pharmaceutical business that was sold off. Manthan meeting stakeholders A unique initiative that has helped Rallis build relationships is called Manthan. Two-day, largescale, interactive process workshops were held in seven locations. At these workshops, the senior management met with about 1,500 people, covering all categories of stakeholders: workers, customers (farmers and dealers), suppliers, competitors and shareholders. It also led to the birth of the 4-S movement (sampark sambandh satrupti santushti), a revolutionary multi-disciplinary approach to product promotion in rural India, where factory workers, research and development scientists, and head office staffers joined the sales and marketing force in the villages.
31
Initiatives on Quality and IT To carry these initiatives forward and to consolidate them, three more projects have been initiated in the past six months.

TBEM Sankalp TPM with six sigma. TBEM Saransh E-connectivity and ERP / SAP. Project Arjun an intensive six-day training programme for all sales and marketing personnel.
In a bid to re-engineer the business processes to turnaround the loss-making Rallis India, the agro-chemical major of the Tata fold has hired four management consultancies - Accenture, Renoir Consultancy, Eicher Consultancy Services (ECS) and Tata Strategic Management Group (TSMG). Each of the consultancies has a separate mandate to help streamline operations at various levels. Accenture, for example, worked at the shopfloor to enhance productivity and improve supplychain management (SCM). Similarly, Renoir was brought in specifically to strengthen sales and distribution channels across India. Eicher worked closely with the company on the organisational restructuring model and also helped in human resources-related activities. With its help the company has launched HR initiatives like implementation of the performance management system, communication systems, certain changes in management techniques and models. TSMG has been working with Rallis on the long term strategy development. It has helped the company identify its core areas i.e. pesticides and fertilisers and advised Rallis to focus on the higher margin products. Financial Turnaround The company reported a net profit of 33.50 crores for fiscal 2004-05, which is up from 25.55 preceding fiscal. However the profit last year included a figure of 78.47 crore from sale of asset
32
and to that extent the company was in the red but for this exceptional item. The turnaround has been made possible because of a number of factors. This includes divesting from non-core businesses like pharma, gelatine and knowledge services. The proceeds from such divesture has been used to reduce debt which has been brought down from Rs.353 crore in fiscal 03 to Rs. 138 crore this fiscal. Apart from this operational restructuring, streamlining has also been done to bring down costs. For instance efforts were made to reduce corporate and manufacturing overheads and sales and distribution costs. The vendor network has also been rationalized bringing down the number of dealers to less than one fifth of what they were earlier. Reducing inventories and strengthening collections mechanisms have also reduced the working capital requirements.
Road Ahead The company has entered into marketing tie ups with big names like DuPont, Bayer, Syngenta and Dow to sell patented and generic products of these companies through its distribution network. This benefits the company in two ways. It increases the line of products that it sells and leverages its strong distribution network. The export revenue grew by 25% as a result of entering new markets with marketing alliances with global majors. As the relationships with the international companies are new and the products have just been introduced as time progresses the growth in export revenue is likely to considerable. Post turnaround Rallis India, which was making operating losses till FY2004, has made a strong turnaround and posted PAT of Rs 125 crore in FY08. As part of the turnaround strategy, the company has liquidated several assets raising Rs 244 crore in the last five years, including Rs 87 crore of profit on sale of land in FY08. It has consistently reduced its debt-equity ratio over the last five years to 0.15 by the end of FY08. The companys operating margins grew strongly last year.
33
Ratio Analysis
Mar00 Rallis India Ltd. Mar01 Rallis India Ltd. Mar02 Rallis India Ltd. Dec03 Rallis India Ltd. Dec04 Rallis India Ltd. Dec05 Rallis India Ltd. Dec06 Rallis India Ltd. Dec07 Rallis India Ltd. Dec08 Rallis India Ltd. Dec09 Rallis India Ltd.
Expression
PAT/Total income
1.68
-2.26
4.73
-8.29
3.84
5.09
6.14
7.62
14.51
7.51
PAT/Avg. net worth
16.36
17.98
44.73
-80.12 28.34
24.91
26.43
30
48.21
21.73
PAT/Avg. employed
capital 6.4 -6.28 16.47 -25.25 9.01 13.07 17.32 24.43 46.92 21.53
Profit Margin improved from negative to 14% in FY 08 as company got out of difficulties and could improve price realizations and contain costs at the same time. ROE, which became negative in 2001-2003, increased to 48% in FY 08. ROCE, which became negative in FY 03, increased to 46% in FY 08.
Mar00 Rallis India Ltd.
Mar-01 Rallis India Ltd.
Dec03 Rallis India Ltd.
Expression Liquidity Ratios
34
Interest cover
1.4
0.45
-0.58
-0.66
-0.45
2.51
4.34
0.82
12.62
27.97
Debt to equity ratio
2.59
3.66
2.73
8.6
2.32
1.02
0.68
0.17
0.14
0.24
Interest coverage ratio improved as the divested assets were used to reduce the borrowings and subsequently the interest expenses also reduced. The ratio which was negative in FY 02, 03 due to losses improved to 12.62% in FY 08. The Debt to Equity Ratio had shot up to 8.6 in fiscal FY 03, was brought down to 2.32 following a fresh capital issual of Rs. 87 crores in FY 04. The debt-equity ratio has been consistently brought down over the subsequent years to 0.15 in FY 08.
Expression Turnover ratios (times) Debtors turnover Creditors turnover
5.42 5.03
3.94 4.75
3.75 4.05
3.21 3.78
2.26 2.43
3.44 3.66
4.71 4.43
4.59 4.21
4.85 4.73
6.09 4.51
Credit management and debtor control were two major exercises that bore fruit. The debtors turnover ratio increased to 6.09 in FY 09 from a low of 2.26 in FY 04. The creditors turnover ratio improved to 4.51 from a low of 2.43 in the same period. This resulted in better terms from suppliers.
35
Expression
Reserves & surplus
125.26 97.27
123.39 45.53
22.85
46.18
75.63
111.79
207.56
Net worth (net of reval & DRE) (% of Total Liabilities) 19.41 Net worth
15.84
16.25
7.74
21.33 122.83
31.62 146.16
31.52 175.61
40.15 211.77
53.76 307.54
157.24 127.25 135.37 57.51
The company's reserves, which plummeted to Rs. 22.8 crores as the firm incurred losses, rebounded to Rs. 208 crores as the firm emerged stronger from the restructuring exercise and earned profits and sound retention practices. Net worth which was 5.5% of total liabilities in 2003 when the firm was under deep financial difficulties, improved to 40% in FY 08 and further to 53% in FY 09.
Mar-00
Mar-01
Mar-02 Mar-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec08
Interest paid
62.04
65.77
59.48
46.18
41.48
15.47
9.3
11.26
4.09
Interest expenses decreased as the borrowings decreased since the proceeds from the divestiture were used to decrease the borrowings.
36
Following financial numbers are only shown from FY 2000 to FY 2004 since the impact of restructuring to these numbers is revealed in these years.
Mar-00 Rallis Ltd. Mar-01 India Rallis Ltd. Mar-02 India Rallis Ltd. Mar-03 India Rallis Ltd. Mar-04 India Rallis Ltd. India
Expression
Total income
1466.38
1132.31
1242.47
932.36
666.23
Total expenses (% to Total Income) 95.52
104.746
93.071
108.433
91.096
Compensation to employees
51.23
50.54
49.88
56.54
61.77
The total income reduced as the firm divested from many non-core businesses like pharma, gelatine and knowledge services. Manufacturing costs which had shot up to 104% of total income, were brought down through Project TBEM Prerana which involved value engineering and other measures. The manufacturing cost came to 91% of total income in 2004 and had further reduced to 88% in 2008. According to reports, the company followed aggressive downsizing of manpower. But, this does not find corresponding reflection in salaries, wages, etc to employees.
37
Structure of current assets (%) (FY 2000 FY 2004)

Mar-00 Rallis Ltd. Mar-01 India Rallis Ltd. Mar-02 India Rallis Ltd. Mar-03 India Rallis Ltd. Mar-04 India Rallis India Ltd.
Expression
Inventories
26.12
30.44
24.46
28.32
27.47
Sundry debtors (outstanding less than six months) 41.48 Sundry debtors (outstanding over six months) 7.75 Bills receivable 0
36.97
34.98
34.15
32.44
10.65 0
16.64 0
17.89 0
12.89 0
Accrued income, lease rent & other receivables 12.52 Expenses paid in advance Deposits 2.91 0.19
10.61 4.67 2.29
12.96 1.42 1.81
11.22 1.39 2.68
13.17 0.19 2.71
Sale of investments & other receivables 0 Cash & bank balance 9.03
0 4.59
0 7.94
0 4.67
0 11.32
38
Structure of current assets (%) (Dec 2004 Dec 2008)

Dec-04 Dec-05 Dec-06 Dec-07 Dec-08
Expression Structure of current assets (%)
Rallis India Rallis India Rallis India Rallis India Rallis India Ltd. Ltd. Ltd. Ltd. Ltd.
Inventories 27.47 Sundry debtors (outstanding less than six months) 32.44 Sundry debtors (outstanding over six months) 12.89 Bills receivable 0 Accrued income, lease rent & other receivables 13.17 Expenses paid in advance Deposits Sale of investments & other receivables Cash & bank balance 0.19 2.71 0 11.32
44.62 20.4 11.99 0 14.27 0.46 3.29 0 4.96
47.23 22.56 6.02 0 10.06 6.28 3.48 0 4.61
39.45 24.96 4.55 0 12.87 8.13 2.99 0 7.31
43.63 28.26 2.08 0 9.26 8.83 5.94 0 2.26
As a result of the three TBEM initiatives, the proportion of debtors in current assets went down thereby reducing working capital requirement. To improve its receivables, the company found dealers who could be financed directly by banks. This brought down credit locked up in customers, and in turn brought down working capital and improve cash availability.
39
Working cycle (days)
Mar-01 Rallis India Ltd. 67.13 11.24 35.75 92.6 206.72 80.7
Dec-05 Rallis India Ltd. 53.99 6.8 40.83 106.2 207.82 93.32
Dec-06 Rallis India Ltd. 50.17 7.17 49.82 77.46 184.61 111.7
Dec-07 Dec-08 Rallis India Ltd. 54.04 6.68 47.36 79.46 187.54 125.49 Rallis India Ltd. 55.62 5.05 39.42 75.31 175.39 74.59
Expression
Raw material 61.29 cycle 9.35 WIP cycle Finished goods 29.94 cycle 67.35 Debtors Gross working 167.92 capital cycle 71.7 Creditors
Gross Working cycle days improved reflecting successful turnaround covering raw material, WIP, finished goods, and debtors, due to better efficiency in the operations and more effective collection drive.
Dec-03 Rallis India Ltd.
Expression
Turnover ratios (times) Raw material turnover 5.96 Finished goods turnover 5.3
5.44
5.5
4.53
6.01
6.76
6.94
6.9
6.73
3.95
3.8
3.29 40
2.4
3.29
4.37
4.39
4.52
The Raw material turnover ratio, which touched a low of 4.53 in FY 03 was 7.96 in FY 08.The finished goods turnover ratio, which touched a low of 2.4 in FY04 has increased to 4.52 in FY 08. Improvement in both these ratios, can be attributed to better efficiency in production cycle. Implementation of ERP/SAP systems, as part of TBEM Saransh, contributed to this improvement. Altmans Z-Score Analysis For the purpose of this analysis we consider data from Mar 00 to Mar 11.
Working Capital/Total Assets Retained Earnings/ Total Assets EBIT/ Total Assets Mkt Value/ Total Liabilities Sales/ Total Assets Altman score Mar '11 0.071459 0.582736 0.202755 5.367809 1.274274 6.064359 Mar '10 0.042048 0.666889 0.23935 3.12723 1.436196 5.085054 Mar '09 0.174577 0.598071 0.196 0.84908 1.503926 3.705461 Mar '08 0.285601 0.573005 0.133 1.064834 1.327304 3.548704 Mar '07 0.138613 0.403755 0.011054 0.659395 1.279308 2.441737 Mar '06 0.144716 0.333238 0.080545 0.711069 1.230454 2.561857
Mar '05 0.184776 0.274779 0.056029 0.493897 1.147833 2.234341
Mar '04 0.296652 0.186054 -0.03442 0.114336 0.85159 1.422207
Mar '03 0.301914 0.065034 -0.0277 0.066709 1.243465 1.644194
Mar '02 0.335347 0.14849 -0.00433 0.074257 1.210952 1.850299
Mar '01 0.442899 0.151143 0.037923 0.06491 1.357571 2.263385
Mar '00 0.365946 0.20048 0.11959 0.128061 1.926521 3.115885
41
Voltas Ltd
From Red to Black and now to Blue Voltas Ltd, a Tata group conglomerate, is now among the star performers, having positioned itself as worlds premier engineering solution providers and project specialists. The company is ranked 110th in terms of net sales by Business Standard in its annual study on 1000 corporate giants. But, the company founded in 1954 had suffered a jolt in 1996-97 and 1997-98 when it incurred net losses of crores of rupees that forced it not only to skip dividends but made it rejuvenate its operations. The company runs its business through four main segments: Electromechanical Projects and Services, which yields 63%, Engineering Products and Services that yields 19%, Unitary Cooling Products for Comfort and Commercial Use that contributes 22% and others that accounts for around 1% of corporate sales & service income.
Splashed in Red In the early nineties, the government opened up the gates to the countrys economic and industrial pastures and foreign companies walked in, bringing with them lean management, competitive prices and new business strategies. Voltas was not adequately geared to handle these changes. The portfolio of businesses was unwieldy, the labour unions were obdurate and some businesses were bleeding. The impact on the company was drastic sales plummeted, profits turned into losses and the share price dropped way below what the company was worth. In 1997, the company books were splashed with red. The rot in fact had started from 1995-96, which saw a sharp reduction in net profit to Rs 15.70 crore, from Rs 21.72 crore in 1994-95. Operation in 96-97 resulted in net loss of Rs 16.82 crore, which was brought down to Rs 9.64 crore in 97-98. The losses of two years eroded accumulated reserves from Rs 138.09 crore in 1995-96 to Rs 121.08 crore in 1996-97 and Rs 111.34 crore in 1997-98. The drain also caused escalating borrowing which shot up from Rs 266.52 crore in 1994-95 to Rs 312.74 crore in 1995-96 and Rs 330.54 crore in 1996-97. Borrowing was slightly reduced to Rs 326.33 crore in the following year. Net working capital improved on paper from Rs 142.30 crore in 1994-95 to Rs 160.71
42
crore in 1995-96 and Rs 184.79 crore in 1997-98, but apparently it consisted more of slowmoving inventories or/and illiquid receivables. As a result of losses that drained reserves and caused more borrowing, the debt equity ratio shot up from already high of 1.62 in 2004-05 to 2.26 in 1997-98
From Red to Black The sordid financial results of two consecutive years jerked the management out of complacency and it undertook several short term as well as long term strategies to put the company back on the solid sales and profit growth path. The company re-entered the profit phase in 1998-99 with Rs 12.78 crore profit, but it resulted more from downsizing than growth in operations. Thus, reduction in sales led to sharper reduction in cost of sales & services and operation & administration expenses. Staff cost increased from Rs 130.77crore to Rs 140.72 crore, which was due among other reasons, to impact of VRS, etc as the number of employees went down from 10,269 to 8796. The finance data for 1999-00 bore deep impact of initiation of turnaround comprising restructures and downsizing. Sales & service income went down by 40 per cent, cost of sales & services by a sharper 45 per cent and operation & administration expenses by 21 per cent. Staff cost was cut down by 22 per cent and the number of employees on the roll got reduced to 6701, from 8796 in 1998-99 and 10269 in 1997-98 The five years 2000-01 to 2004-05 can be considered as consolidation phase. During this period, sales & service income grew at 13.9 per cent average, cost of sales & services 13.4 per cent and operation & administration expenses 11.1 per cent. The emphasis was on quality of growth and tight control over expenses. Staff cost increased by 5.3 per cent per annum, but number of employees, largely under-performing employees declined from 6701 to 4484 over the period. This operation resulted in nine-fold shoot up in profit before tax to Rs 57.66 crore in 2004-05, from Rs 5.96 crore in 1999-00. The profit margin as measured by the ratio of profit before tax to sales & service income improved from 0.4 per cent to 3 per cent and return on shareholders
43
funds (profit after tax/net worth) shot up from 3 per cent to 18 per cent. Reflecting the improved fortunes, equity dividend was stepped up to 50 per cent in 2004-05 from 30 per cent in 2003-04, 25 per cent in 2002-03, 18 per cent in 2001-02 and 12 per cent in 1999-00 and 2000-01. Gross fixed assets almost stagnated between 1999-00 and 2004-05 and declined net of depreciation provisions. Total net assets (net of current liabilities & provisions) also stagnated, though reflecting needs of expanding business net working capital (current assets less current liabilities & provisions) increased by around 14 per cent average over the period. On the liability side, while reserves improved by 5.5 per cent average annually, borrowing declined by 4.2 per cent. Debt-equity ratio nose-dived to 0.92 to 0.55 by 2004-05. During 2001-02, Voltas International Limited was merged into Voltas. The manufacturing plant for room air conditioners at Dadra was transferred to a Joint Venture Company (JVC) with Fedders International Inc., U.S.A., whilst the Company continues its focus on marketing and selling these products directly and also as Del credere booking agents for about 60% of the JVCs sales. Other significant decisions taken include closing down the plant at Hyderabad, setting up a new Greenfield project at Pantnagar, Uttarakhand, SAP implementation across the company, outsourcing of IT to TCS, etc.
In 2004-05, marking the next step in consolidation of its various business locations, the Companys Electro-mechanical business, which was operating from a different location in Mumbai, was also brought into corporate headquarters at Chinchpokli, Mumbai For financial strengthening, managing cash flow for the revamp was another priority. The companys motto was: "Top line is vanity, profit is sanity and cash flow is reality." Towards this end, Voltas' unproductive assets, including prime real estate, were either made to yield monetary returns or sold, helping finance the restructuring. The company's offices in Mumbai were consolidated with a view to optimising costs. Its corporate office moved from swanky Ballard Estate, an expensive borough, to utilitarian Chinchpokli. Frills were eliminated and systems were automated.
44
In order to drive high performance in the organization, in an institutionalized manner, the Tata group companies including Voltas had adopted the Tata Business Excellence Model (TBEM) which is based on the Malcolm Balridge National Quality Award Criteria, USA. The TBEM criteria are designed to help organizations develop and use aligned approaches that result in: delivery of improved value to customers and contributing to market place success; improvement of overall organizational effectiveness, etc.
The Company Then & Now

Voltas in 1997 Rs16.8 crore loss Voltas in 2007 Profit before tax of Rs155 crore on turnover of Rs2,451 crore
Work force more than 10,000
Work force less than 3,000
11 divisions, 6 subsidiaries
4 divisions
Areas of business Refrigerators and washing machines Air conditioning Textile machinery Materials handling equipment Furniture
Areas of business MEP Electromechanical and HVAC solutions Building management systems Water management Engineering products and services
45
LPG cylinders Chemicals manufacturing and trading Machine tools Mining and construction equipment Pumps and projects Auto air conditioners Granite mining Switchgear manufacturing
Textile machinery Materials handling equipment Machine tools Mining and construction equipment Unitary cooling products Cooling appliances Commercial refrigeration Chemicals trading
Shutting down of businesses
Growth of at least 20 per cent planned through acquisitions.
B2C company with focus on trading and B2B project based company with focus on providing manufacturing of consumer durables expertise and engineering solutions
From Black to Blue (from consolidation to growth phase) The period 2005-06 to 2008-09 reflected the fruits from restructures, improvement in management systems and practices including introduction of IT; which led to sharp improvement in finances that were further helped also by solid investment and consumption-led growth in the Indian economy. The improvement in working results has continued in 2009-10: The sales/income from operations increased by 11 per cent in first three quarters, which led to 33 per cent rise in profit before tax.
46
The four-year period saw sales & service income shoot up 45 per cent average, which was four times the pace in the earlier five year period. Cost of sales & service escalated 44 per cent and operating, administration & other expenses 39 per cent. Even staff cost that had risen 5 per cent in the earlier five-year period, was up ten times this rate and number of employees on rolls by 21 per cent. New entrants appear to be more skilled as staff cost rose at twice the rate of increase in number of employees. Profit before tax burgeoned 1.3 times and the profit after tax cent percent. The ratio of profit before tax to sales & service income shot up from 4 per cent in 2004-05 to over 9 per cent during 2006-07 to 2008-09. The return on shareholders had improved from 26.1 per cent in 2004-05 to 48.9 per cent in 2006-07, though the subsequent two years saw the rate of return decline to 38.7 per cent and 34.6 per cent, respectively. The equity dividend was stepped up to 160 per cent for 2008-09, from 135 per cent in 2007-08, 100 per cent in 2006-07, and 60 per cent in 2005-06.
As for change in the capital and asset structure, reserves & surplus mounted 83 per cent average, against only 5 per cent over the 1999-00 to 2004-05 period. The rise in borrowing was contained to a moderate 5 per cent. Reflecting investment in subsidiaries and joint ventures as also investment of surplus cash in mutual funds, etc, investment in shares and securities doubled over 2005-06-2008-09. Gross fixed assets increased but net of depreciation remained unchanged over the period. Net working capital improved 46 per cent average over the period. The increase of 46.5 per cent in total net assets (net of the portion financed by current liabilities) reflected mainly improvement in net working capital and partly investment. Interestingly, despite sharp rise in business volume, debt-equity ratio fell further from 0.55 to 0.18 over the period.
What directors say on finances in annual report for 2008-09? * The Order Book level remains comfortable. Position of receivables is still not back to the normal levels and probably will revert to the earlier levels next year.
47
* There has been significant volume growth in both Room air conditioners and Refrigeration products over the same period last year. Costs and working capital have been controlled very well by the Operations. * The Company continued the process of identifying underutilized assets and sweating the same and this resulted in an additional rental income of Rs. 5 crores and an exceptional income of Rs. 26 crores. The Chemicals Trading business, which did not fit into the overall Project Engineering profile of the Company, was sold to a company specialised in chemicals trading business and this resulted in a gain of Rs. 8 crores. * The Company started the year with very comfortable cash surpluses of over Rs. 221 crores, other than the Cash and Bank Balances held overseas against advances from customers. During the year under review, the Company utilized Rs. 63 crores for acquiring a 51% shareholding in Rohini Industrial Electricals Private Limited. *. The Company had to face the challenges in terms of increase in number of days credit to trade in view of tight liquidity conditions and substantial increase in inventories in Unitary Cooling Products and Mining and Construction businesses, due to a sudden drop in sales. However, the financial policy adopted by the Company for conservation of resources and extremely low leverage, enabled the Company, finance its increased working capital needs without any significant impact on the interest cost. The Company was not affected by the sharp increase in interest rates or credit squeeze and in fact, benefited due to increase in returns on its investments. *. Relatively higher bank borrowings at the year end and marginally higher debt: equity ratio of 0.17:1 has subsequently come down with inflow of funds against the billings on customers. The Company once again, has a comfortable leverage and liquidity and is cash positive. * In order to accelerate the presence in the Industrial segment, the Company acquired a 51% stake in Rohini Industrial Electricals Private Limited in September 2008. It also took over the 51% shareholding of the local partner of Saudi Ensas Company for Engineering Services W.L.L. (Saudi Ensas), which was hitherto a joint venture company in Jeddah (Kingdom of Saudi Arabia).
48
Key Financial Indicators (Rs. Lakhs)

Sales & Services Income 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-08 1996-97 1995-96 1994-95 407025 308617 245078 190418 144143 132994 123041 94066 85372 78639 131161 152871 144503 120396 120396 Cost OF Sales & Services 299802 227671 186100 145162 108570 100562 101926 74302 66223 60253 109868 127673 122746 120810 99675 Operating, Admin & Other Expenses 82931 57811 46537 35899 32264 30422 20122 19190 18641 19349 23936 27004 25863 22861 19225 Profit before tax 36733 30754 22283 9169 5766 4687 2905 1671 572 596 1412 -931 -1679 1576 2177 Profit After Tax 25259 20837 18608 7049 5041 3903 2558 1683 558 550 1278 -964 -1682 1570 2172
Staff Expenses 42860 27685 24008 17623 14435 12619 12573 10982 10030 10939 14072 13077 11889 11012 9997
No of employees 10657 7378 5848 5390 5747 4484 5147 5096 5314 6701 8796 10269 10711 10801 10667
% to sales 9 10 9.1 4.8 4 3.5 2.4 1.8 0.7 0.8 1.1 0 0 1.1 1.8
Avg. Growth (%) per year

2008-09 /2004-05 2004-05 /1999-00 1998-99 /1994-95
45.6
44.0
39.3
49.2
21.4
134.3
8.6*
100.3
13.9
13.4
11.1
5.3
-2.4
144.6
3*
136.1
2.2
2.6
6.1
10.2
-4.4
-8.8
0.4*
-10.3
Key Financial Indicators (Rs. Lakhs)

Reserves % to Share Net Borrowings Gross Acc. Investment Net Total
49
net worth 2008-09 2007-08 2006-07 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 1999-00 1998-99 1997-08 1996-97 1995-96 1994-95 34.6 38.7 48.9 29.2 26.1 20.6 15.9 9 3.6 3.6 8.4 0 0 9.1 13.2
capital
Worth
Fixed Assets 12844 4767 8214 7201 10641 8324 9079 9705 13447 14187 18782 32633 33054 31274 26652 30358 28178 24493 28074 24858 24751 23987 23140 26328 23852 22605 39632 39023 35669 30651
Depr
Current Assets 23580 26793 13741 6103 4622 4547 3626 3139 3127 4230 9033 5454 5806 8584 8245 42700 13813 16594 9089 14974 9396 7107 6241 5962 8140 12180 18479 18018 16071 14230
Net Assets 85743 58599 46289 31342 29992 27224 25195 28506 28954 29574 34060 47072 48593 48515 43128
3307 3307 3307 3306 3305 3305 3305 3305 3305 3305 3305 3305 3431 3431 3428
69592 50525 34768 20835 16046 15595 12811 15496 12202 12082 11973 11134 12108 13809 13048
72899 53832 38075 24141 19351 18900 16116 18801 15507 15387 15278 14439 15539 17240 16476
13053 12228 11506 14592 16615 12491 11799 10500 12097 10870 9914 16579 14435 12349 10718
Avg. Growth (%) per year

200809/200405 200405/199900 199899/199495
38*
0.0
83.4
69.2
5.2
5.5
-5.4
102.5
46.3
46.5
18*
0.0
5.5
4.3
-4.2
0.7
8.8
1.5
14.0
0.2
3*
-0.9
-2.1
-1.8
-7.4
-6.6
-1.9
2.4
-3.6
-5.3
* : Average ratio over the period.
50
Altmans Z-Score and Analysis We now calculate Z-Score

Working Capital/Total Assets Retained Earnings/ Total Assets EBIT/ Total Assets Mkt Value/ Total Liabilities Sales/ Total Assets Altman score Mar-02 0.067864 0.16791 0.018107 0.220631 1.312456 1.819785 Mar-01 0.063652 0.130272 0.006107 0.165107 1.318128 1.694791 Mar-00 0.085083 0.126287 0.00623 0.180931 1.169037 1.575885 Mar-99 0.110543 0.108665 0.012815 0.348648 1.190391 1.725461 Mar-98 0.121352 0.073117 -0.00611 0.105624 1.003903 1.294083
Mar-97 0.11462 0.077024 -0.01068 0.065402 0.919992 1.168445
Mar-96 0.102399 0.087986 0.010042 0.168162 0.920726 1.2999
Mar-95 0.101994 0.093522 0.015604 0.255474 0.862943 1.320181
Mar-94 0.106447 0.092126 0.030586 0.421435 0.786582 1.396302
Mar-93 0.157936 0.117849 0.008541 0.227187 0.953503 1.471558
51
Dunlop India
Ruia Group acquired Dunlop in 2005, accepting the challenge of revamping and reviving its twin plants at West Bengal and Tamil Nadu. The Group is committed to deliver a product excelling in quality and performance and has major investment plants for technology upgradation in the near future. The company has over 100 years of existence in India.
Major Chronology 1898: Dunlop reaches India. 1926: Dunlop is incorporated in India 1936: Sets up the first tyre plant spread over 239 acres at Sahagunj near Kolkata. 1958: Second plant spread over 90 acres developed at Ambattur near Chennai 1998: Dunlop operation suspended & declared sick 2005: Ruia Group takes over Dunlop 2006: Major refurbishment of plant and Machinery & trial Production. 2007: Regular Production Started at Both the Units in Sahagunj and Ambattur.
Problem areas of the company Prior to the acquisition, an assortment of factors ranging from working capital constraints to high input costs and excessive manpower had all spelt trouble, resulting in stoppage of operations in February 1998. Dunlop walked into the BIFR fold in June 1998.
52
Turnaround Strategy After 12 years in the red, Dunlop India reported a positive net worth in April for 2006-07, paving the way for its emergence from the BIFR fold. Compared to a negative net worth of Rs 261.15 crore in 2005-06, Dunlop reported Rs 151.82 crore in positive net worth last year. This happened as the international real estate firm Jones Lang LaSalle re-evaluated the company's real estate assets, and valued the property at Rs 900 crore. The prized assets, not including its manufacturing units at Shahgunj near Kolkata and Ambattur near Chennai, comprise the 88,000 sq. ft, Bombay House in Worli (valued at Rs 300 crore), land and constructed area adjacent to the Shahgunj plant (Rs 100 crore) and a piece of land at Ambattur (Rs 500 crore). The Dunlop House in Mumbai is mortgaged to lenders against loans worth Rs 77 crore. Instead of selling the real estate assets to a third party, Dunlop has transferred part of it to associate companies, including Dunlop Properties and Bhartiya Hotels. Instead of paying cash, these companies have issued shares of equal worth to Dunlop, which has booked them as other income, thereby shoring up its balance sheet. Such an approach only made it possible to turn the firm's net worth positive to help them raise cash required to strengthen operations. Now a Profit making Company In 2007-08, the company achieved sales of Rs 117.95 crore and earned a net profit of Rs 4.85 crore. Interest expenditure was Rs 1.12 crore and employee cost was Rs 1.08 crore. The sales were sustained by purchase of finished goods to the tune of Rs 88.16 crore. The next year witnessed sales rise to Rs 178.66 crore, yielded a sharply lower net profit of Rs 1.36 crore. Interest expenditure amounted to Rs 7.02 crore and staff expenditure Rs 9.15 crore. Purchase of finished goods amounted to Rs 137.99 crore. The second half of the financial year was marked by financial tsunami worldwide. These tremors were experienced in the Indian automobile sector and tyre industry also. The company continued to face problems in the first three quarters of the current financial year: Its sales amounted to Rs 160.70 crore, which yielded net profit of only Rs 0.4 crore.
53
What directors said for the AR 2008-09? The Company had commenced production in all major product categories like OTR, Truck and Buses, Farm and Industrial Products like High Pressure Hoses, Transmission Belting etc. which has been very well received in the market place by all the market segments like Replacement, Export & OEM. The Management of the Company and its Union had very cordial and healthy relationship, however due to certain unfortunate developments in the second half of the year under review, the Management was forced to declare suspension of operation at its Sahaganj Factory. On improvement in situation, Management partially lifted the suspension and necessary maintenance work with over 200 workmen is on and your Company expects the normal operations from May, 2009. At Ambattur Factory, the Union has desired the final settlement for all the employees; the Management is in dialogue with the Union to reach for an amicable settlement through the Office of DCL, Chennai.
Salient points from the Management Discussion & Analysis (MD & A), 2008-09 The year 2008-09 was a year of fluctuating fortunes for the tyre industry as a whole, which impacted your Company also. During the year, second half of the financial year was marked by financial tsunami worldwide. These tremors were experienced in the Indian automobile sector and tyre industry also. There were huge drops in the OEM production leading to proportionate drop in the tyres demand. There was an acute slow down in mining activities leading to severe drops in mining and OTR tyres demand, imported truck and bus tyres from China captured a sizable portion of the domestic market due to price differentials vis-a-vis local products. Tyre Industry was compelled to manage the inventories through production cuts to the tune of almost 40%.
54
The company worked hard and took all necessary action to remain afloat in the difficult times. Systems and procedures were put in place to ensure better working, productivity, traceability and accountability. And a whole new basket of initiatives were unleashed to step up marketing. In line with its multi-product entity, the company ensured a thrust on industrial products along with tyres in various segments. Together, these product lines would ensure effective tapping of new business opportunities and help the company to occupy uncontested spaces in their respective markets. All efforts were directed to maintain the confidence, of the customers and business partners. The Dunlop brand name continues to be a major strength. For, the words tyres, rubber goods and Dunlop are still synonymous. This extraordinary brand recall and brand loyalty are even this day the biggest USP-s of the company. The core strengths of the company entail the large and diversified product range, the unflinching quality tag associated with every Dunlop product, the back-up of a strong R&D, the accumulated knowledge base and, above all, the presence of a committed and competent workforce unmatched in skills and motivation. A new management team spearheading the turnaround efforts has amply manifested these strengths. The two manufacturing plants of your company have commenced production in all major product categories like OTR, truck, farm tyres and industrial products. The marketing drives for these products have met with warm and encouraging responses from the OEM, replacement and export markets.
55
Company financials show the revaluation that contributed to a positive net-worth
Dunlop India Ltd. Rs. Crore (Non-Annualised) Net worth Reserves & surplus Free Reserves Security premium reserves (Net of deductions) Other free reserves Specific Reserves Revaluation Reserves Less Accumulated losses
Mar-04 12 mths
Mar-05 12 mths
Mar-06 12 mths
Mar-07 12 mths
Mar-08 12 mths
Mar-09 12 mths
-283.65 -328.64 2.65
-330.92 -375.91 2.65
-261.16 -306.15 2.65
1358.77 1293.78 176.95
1312.73 1240.75 161.98
1140.44 1068.46 132.76
2.65 0 1.46 144.47 477.22
2.65 0 1.46 102.66 482.68
2.65 0 1.46 100.54 410.8
2.65 174.3 0.71 1116.12 0
2.65 159.33 0.71 1078.06 0
2.65 130.11 0.71 934.99 0
The land revaluation done in FY 2007 is reflected in Revaluation Reserves in FY 2007. Due to this, the net worth turned positive in that year.
Dunlop India Ltd. Rs. Crore (Non-Annualised) Total income Sales Industrial sales 82.9 1.7 0 45.25 2.19 0 56 106.03 2.62 0.01 501.64 2.71 0 127.38 125.63 34.74 187.64 183.18 28.6 Mar 04 12 mths Mar 05 12 mths Mar 06 12 mths Mar 07 12 mths Mar 08 12 mths Mar 09 12 mths
Income from non-financial services 1.7 Income from financial services Interest Dividends Treasury operations Other income Prior period income extraordinary income & 79.51 1.11 0.68 0.04 0.39 0.58
2.19 0.04 0 0.04 0 0.39
2.61 1.27 0.93 0.03 0.31 0.17
2.71 2.6 0.66 0.07 1.87 0.45
90.89 0.06 0.06 0 0 0.91
154.58 0.08 0.08 0 0 0.53
42.63
101.97
495.88
0.78
3.85
PAT
32.67
-5.46
71.88
488.8
4.85
1.36
After the land revaluation, the income from transferring the real estate to group companies was reported as other income in the income statement of FY 2007. Post this, the company's net-worth turned positive and hence the company was able to raise cash. Altmans Z Score and Analysis We now calculate the Z-Score for the period March 2000 to March 2011
Working Capital/Total Assets Retained Earnings/ Total Assets EBIT/ Total Assets Mkt Value/ Total Liabilities Sales/ Total Assets Altman score Mar '11 0.05807847 0.689299 0.0041168 0.97015189 0.11610992 1.74638316 Mar '10 0.068441 0.711406 0.002014 1.397619 0.119897 2.043094 Mar '09 0.027432 0.752513 0.004634 0.728198 0.126807 1.10381 Mar '08 0.029787 0.792255 0.00341 0.926245 0.077383 1.169219 Mar '07 0.023441 0.794117 -0.00328 0.75317 0.001638 0.997235 Mar '06 -1.35547 -1.8654 -0.1767 -0.85053 0.015903 -3.44099
Mar '05 -1.4735276 -1.895472 -0.0779548 -0.819216 0.01104276 -3.236694
Mar '04 -1.27625 -1.44839 -0.06232 -0.83854 0.007492 -2.67975
Mar '03 -1.03481 -1.38657 -0.07902 -0.81318 0.010769 -2.49211
Mar '02 -0.89414 -0.88984 -0.15084 0.058362 0.011706 -2.76981
Mar '01 -0.62098 -0.33261 -0.17488 0.049556 0.208222 -1.55019
Mar '00 -0.51956 -0.05731 -0.09082 0.147576 0.008174 -0.90671
57
Mar '11 0.07145868 0.58273624 0.20275527 5.36780908 1.27427415 6.06435885
Mar '10 0.0420477 0.6668891 0.2393498 3.1272302 1.4361962 5.0850543
Mar '09 0.1745772 0.5980709 0.1959997 0.8490804 1.5039257 3.705461
Mar '08 0.2856007 0.5730045 0.1329999 1.064834 1.3273037 3.5487036
Mar '07 0.1386133 0.4037548 0.0110543 0.6593946 1.279308 2.2633847
Mar '06 0.144716 0.333238 0.080545 0.711069 1.230454 3.115885
Mar '05 0.18477638 0.27477883 0.05602883 0.49389658 1.14783339 2.44173738
Mar '04 0.2966518 0.1860535 -0.034421 0.1143363 0.8515902 2.5618571
Mar '03 0.301914 0.0650336 -0.027696 0.0667092 1.2434652 2.2343407
Mar '02 0.3353472 0.1484896 -0.004333 0.0742566 1.210952 1.4222069
Mar '01 0.4428985 0.1511428 0.0379234 0.06491 1.3575709 1.6441942
Mar '00 0.365946 0.20048 0.11959 0.128061 1.926521 1.850299
58
Learnings
The turnaround of the four companies are summarised below, following which few observations are made regarding turnarounds. The turnaround strategy adopted by Bata India Ltd mainly included a fresh capital issue, downsizing the manpower by retrenchment and VRS plan, altering the format of retail stores e.g. introducing the franchisee model, among other initiatives. The turnaround of Voltas Ltd. happened through substantial revamping of the business portfolio. The company undertook retrenchment and has cut the size of its workforce by more than half. Also, other measures include shutting down a plant, initiating a new Greenfield project, SAP implementation, consolidation of different business locations. Rallis India undertook its turnaround by hiring four consultants to help the company in different areas. While Accenture helped the company to improve shop floor productivity and SCM, Renoir was brought in to strengthen the companys sales and distribution channels. Eicher helped the company restructure the organizational model and TSMG worked on drafting the companys long term strategy development. To be noted here is that the company gave the job of strategy development, the part concerns with the companys core competencies, competitive advantages to an arm of parent group (Tata), TSMG. Another notable part of the turnaround was due to adopting the TBEM framework for excellence. This manpower downsizing, innovation funnel, reduction in manufacturing costs, Quality and IT initiatives as part of the TBEM framework are very integral to the turnaround of Rallis India. The case of Dunlop presents a unique turnaround strategy. The company was facing acute problems with unions at both their plants in West Bengal and in Tamil Nadu. It had minimal production and was acquired by a chartered-accountant-businessman who sought to revalue its land assets for procuring loans by mortgaging the revalued real estate. After this exercise, the company reported positive net worth after 12 years of financial weakness This helped new management execute turnaround in several fields.
59
The turnaround of a company typically goes through three stages. The first stage is the period just before the profitability begins to decline. The company is still considered profitable at this point, but losing ground. The second period is known as the period of crisis. At this point the company needs to turnaround. This stage is marked by a decline in profits (even negatives), a fall in market share and the company's poor cash situation. The third stage is the period of recovery or the turning point. This is the stage where serious action is taken to turnaround the company. Important strategies responsible for turnaround decisions are taken. At this point, the company's strategy becomes clear. This period is long and may last for years. In each of the turnarounds, we observe a few common factors. Most of the companies were plagued by labour union problems and retrenching staff was one measure most of the companies adopted. Companies like Rallis and Voltas that have an array of product lines, majorly revamped the business adding / removing products, services, or divisions from their portfolio. Rallis even had a substantial drop in sales post-restructuring. The funds from sold divisions were used to reduce the borrowings thus reducing the interest expenses and improving the bottomline. Also, the companies managed the working capital in the turnaround years, reducing receivables and increasing cash balances. Companies like Bata, which are in a sector that has a narrow set of products carried out fresh capital issue to help reduce the debt. Also, companies, one and all, employed IT in their processes, mainly by ERP/SAP implementation. From the study of the four companies, indicators like Net Worth, Profit Margin, Debt-Equity Ratio, Structure of Current Assets (percent composition), Working Cycle (days) and Turnover Ratios (times) can be regarded to be unanimous in their indication of the financial health of the company in the pre-turnaround, post-turnaround phase. All four companies have started making profit and/or their accumulated losses have been erased. The companies are on a growth stage once again and have started attracting investors interest.
60
Bibliography
For all company financials, including ratios: Prowess Database (CMIE) Website: o For stock prices (used in Altmans z-score model): www.moneycontrol.com and CapitalOne database o For Voltas restructuring: http://tata.com/company/Articles/inside.aspx?artid=Fl3TavWIL7M= o Google.com for media reports on the turnaround of these companies.
61

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WELINGKAR INSTITUTE OF MANAGEMENT DEVELOPMENT & RESEARCH

CAPITAL STRUCTURE AND TURNAROUND STRATEGIES

PGDM 2010 12 (FINANCE SPECIALISATION)

PROJECT FACULTY GUIDE

PROF. Dr. SUYASH BHATT

PROJECT COMPLETION CERTIFICATE

Capital Structure Theory

Theories of Capital Structure:

Different Theories of Capital Structure:

Altmans Z-Score and Bankruptcy prediction

Bata India Ltd.

0.197578 -0.02296 1.521267 1.233564 2.668969

Quick ratio Current ratio

Debt to equity ratio

Dec-04 Bata Bata India India Ltd. Ltd.

3.48 8.31 3.54 0.05 3.82

2.42 8.47 3.43 1.03 5.27

5.36 0.65 4.86 0.78 6.25

4.04 1.37 6.29 0.42 8.03

3.6 5.59 8.7 0.8 6.33

Dec-03 Bata Ltd.

Dec '06 0.373483 0.338892 0.100356

Mkt Value/ Total Liabilities Sales/ Total Assets Altman score

Calculating the Altmans Z-score for the Rallis India in 2000:

578.95 276.11 810.28 125.26 1453.66 89.61 114.51 89

PAT/Avg. net worth

Mar00 Rallis India Ltd.

Mar-01 Rallis India Ltd.

Mar02 Rallis India Ltd.

Dec03 Rallis India Ltd.

Dec04 Rallis India Ltd.

Dec05 Rallis India Ltd.

Dec06 Rallis India Ltd.

Dec07 Rallis India Ltd.

Dec08 Rallis India Ltd.

Dec09 Rallis India Ltd.

Expression Liquidity Ratios

Debt to equity ratio

Expression Turnover ratios (times) Debtors turnover Creditors turnover

Mar00 Rallis India Ltd.

Mar01 Rallis India Ltd.

Mar02 Rallis India Ltd.

Dec03 Rallis India Ltd.

Dec04 Rallis India Ltd.

Dec05 Rallis India Ltd.

Dec06 Rallis India Ltd.

Dec07 Rallis India Ltd.

Dec08 Rallis India Ltd.

Dec09 Rallis India Ltd.

Mar00 Rallis India Ltd.

Mar01 Rallis India Ltd.

Mar02 Rallis India Ltd.

Mar-03 Rallis India Ltd.

Mar-04 Rallis India Ltd.

Mar-05 Rallis India Ltd.

Mar-06 Rallis India Ltd.

Mar-07 Rallis India Ltd.

Mar08 Rallis India Ltd.

Reserves & surplus

157.24 127.25 135.37 57.51

Total expenses (% to Total Income) 95.52

Structure of current assets (%) (FY 2000 FY 2004)

10.61 4.67 2.29