DEVELOPMENT OF CREDIT MODEL FOR NATIONAL FERTILIZERS LTD.

AND ANALYZING FACTORING AS A PRODUCT FOR THE BANK

By

AALIND GUPTA 12FN-001

01st April 31st May, 2013

DEVELOPMENT OF CREDIT MODEL FOR NATIONAL FERTILIZERS LTD. AND ANALYZING FACTORING AS A PRODUCT FOR THE BANK

By

AALIND GUPTA

Under the guidance of

Mr. Chinmaya D. Tayal Head Global Trade and solutions BNP Paribas, Delhi

Dr NL Ahuja Professor IMT, Ghaziabad

01st April 31st May, 2013

Acknowledgement
The credit for the successful completion of this project goes to several people who have guided me with their invaluable wisdom and guidance. I would like to express my gratefulness to Dr. N L Ahuja, who was my mentor throughout the project and provided me valuable knowledge and guidance. Without his genuine interest in my project, it never would have been possible to complete the project in a professional and sophisticated manner. Secondly, I would like to thank Mr. Chinmaya Tayal, Director of Global Trade at BNP Delhi, Mr. Shaumitra Sahay, Vice president-Global Transaction Banking, and Mr. Vishal Mathur & Mr. Rajeev Saksena who have been very helpful in getting the required information related to this project. They have taken extreme care in respect to the project so that there are no hurdles in my way. Last but not the least; I would like to thank my family for providing the needed motivation throughout this project.

Aalind Gupta 12FN-001 PGDM Finance 2012-14 IMT, Ghaziabad

Abstract
My entire summer project is divided into 3 parts. The project deals which identifying a PSU from a list of PSUs and then it was analyzed accompanied with a credit research. Finally a product needs to be explored which can be offered to the prospective company. Initially, a list of 80-100 prospective Indian corporate for bank in North and East India with entry strategy is prepared. A financial as well as credit analysis is undertaken to select the prospective companies for BNP Paribas. Companies are extracted from a list of "listed companies" and "unlisted companies" above USD 100 M turnover. Several parameters such as D\E Ratio, credit ratings, net worth, PAT, promoters etc were analyzed in depth. Then, a questionnaire is prepared to maximize cross sell of different banking products to 17 public sector enterprises shortlisted by understanding their changing requirements. For the same, research on existing public sector portfolio of corporate banking New Delhi is undertaken. Various banking products like cash management; trade products like bank guarantees\import letter of credits\buyers credit\export credit agency backed financing\investment of surplus funds in fixed deposits or government mutual funds etc are incorporated the get the insight of the correct requirements of the PSUs. National fertilizer Ltd was selected after reviewing 17 PSUs as one of the major prospects for the bank. A complete credit research was undertaken to understand the current financial stability of the company and to determine the probability of default or a CDR. Finally a report is drafted to determine the impact of the new factoring bill on the banks enacted by the government in 2011. According to the new regulation, a bank needs to file the invoices and register the transactions with Central Registry. The whole process of starting factoring as a service and registration of various transactions with the Central Registry needs to be understood and reported. Factoring was one of the products which was decided will be offered to the company. Detail analysis of the impact of factoring on the bank and company is undertaken.

Certificate from Summer Project Guides

This is to certify that Mr. Aalind Gupta a student of the Post-Graduate Diploma in Management has worked under our guidance and supervision. This Summer Project Report has the requisite standard and to the best of our knowledge no part of it has been reproduced from any other summer project, monograph, report or book.

Dr. N L Ahuja IMT, Ghaziabad Date:

Mr. Chinmaya D. Tayal BNP Paribas Sears Tower, NewDelhi Date

Contents
Acknowledgement .......................................................................................................................... 4 Abstract ........................................................................................................................................... 5 Certificate from Summer Project Guides ........................................................................................ 6 List of Tables: ................................................................................................................................. 9 S. NO............................................................................................................................................... 9 CONTENT ...................................................................................................................................... 9 PAGE NO ....................................................................................................................................... 9 1. 1.2. 1.3. 1.4. 1.5. 2. 2.1. 2.2. Introduction ........................................................................................................................... 11 1.1. Fertilizer Sector Review: ................................................................................................ 11 Contribution of Fertilizer industry in the Indian Economy: .............................................. 12 Organization Profile: ...................................................................................................... 15 Objectives of the Study/ Problem Formulation: ............................................................. 15 Research Design: ............................................................................................................ 15 Income Statement: .......................................................................................................... 17 Balance Sheet: ................................................................................................................ 19 Vertical Analysis ..................................................................................................... 20 Solvency Ratios: ..................................................................................................... 20 Turnover Ratios: ..................................................................................................... 21 Cash Conversion Cycle: .......................................................................................... 21 Operating Efficiency: .............................................................................................. 22 Operating Profitability: ........................................................................................... 22 ROE DuPont Analysis: ........................................................................................... 23

Historical Ratio Analysis: ...................................................................................................... 17

2.2.1. 2.2.2. 2.2.3. 2.2.4. 2.2.5. 2.2.6. 2.2.7. 3. 3.1. 3.2. 3.3. 3.4. 3.5. 3.6. 4. 4.1.

Credit Modeling:.................................................................................................................... 24 Income Statement: Line Item Drivers ............................................................................ 24 Balance Sheet: Line Item Drivers (Assets) .................................................................... 26 Depreciation Schedule: .................................................................................................. 28 Amortization Schedule: .................................................................................................. 33 Shares Outstanding Schedule: ........................................................................................ 34 Debt Schedule: ............................................................................................................... 35 Measurement of the Credit Rating Factors: ................................................................... 38 Profitability ............................................................................................................. 38

Credit Rating Methodology: .................................................................................................. 37 4.1.1.

4.1.2. 4.1.3. 4.1.4. 4.1.5. 4.2. 5. 6.2. 6.4. 7. 7.1. 7.2. 7.3. 8.

Financial Strength ................................................................................................... 38 Business Risk .......................................................................................................... 41 Financial Policy ...................................................................................................... 45 Accounting Quality ................................................................................................. 45

Final Credit Rating: ........................................................................................................ 46 ADVANTAGES OF FACTORING............................................................................... 51 REGISTRATION OF TRANSACTIONS ..................................................................... 55 Cash management products ............................................................................................... 58 Global Trade Services ........................................................................................................ 59 QUESTIONNAIRE ........................................................................................................... 60

Conclusions: .......................................................................................................................... 48

CROSS SELLING DIFFERENT BANKING PRODUCTS ................................................. 58

References: ............................................................................................................................ 64

List of Tables: S. NO
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

CONTENT
Demand and supply of fertilizers Type of fertilizers Sector data Fertilizer financial Performance Raw Material Prices Key financial Ratio Horizontal analysis Balance Sheet Solvency Ratios Turnover Ratios Cash Conversion Cycle Operating Efficiency Operating Profitability ROE DuPont Analysis Forecasted Income Sheet Forecasted Balance Sheet Forecasted Depreciation Schedule Forecasted Working Capital Schedule Forecasted Amortization Schedule Forecasted Shares Outstanding Schedule Forecasted Debt Schedule Synopsis Key Rating Matrix Factors Credit Rating Factor - EBITDA Margin CRF - Financial Strength (Debt/ EBITDA CRF - Financial Strength (Cash & Mkt. Securities/ Debt) CRF - Financial Strength (EBITDA Coverage CRF - Financial Strength (Operating Cash Flow/ Debt) CRF - Financial Strength (Return on Capital Employed) CRF - Financial Strength (Long Term Debt/ Capital) CRF - Business Risk (Geographical Diversity) CRF - Business Risk (Segment Diversity) CRF - Business Risk (Management Quality) CRF - Business Risk ( Litigation Track Record) CRF - Business Risk (Project Execution Record) CRF - Financial Policy CRF - Accounting Quality Final Credit Ratings

PAGE NO
10 12 12 12 15 14 21 22 23 23 24 24 25 26 28 30 31 35 37 38 39 40 43 44 44 45 46 46 47 47 48 49 49 50 51 51 52 53

Abbreviations FMCG: GDP: EBIT: EBITDA: CRF: S, G & A: RoE: BoP: YoY: COGS: P, P & E: EPS: DPS: FCF: GAAP: SEBI: ICAI: Fast Moving Consumer Goods Gross Domestic Product Earnings Before Income Tax Earnings Before Income Tax, Depreciation and Amortization Credit Rating Factor Selling, General & Administrative Expense Return on Equity Balance of Payments Year on Year Cost Of Goods Sold Property, Plant And Equipment Earnings Per Share Dividend Per Share Free Cash Flow Generally Accepted Accounting Principles Securities and Exchange Board of India The Institute of Cost Accountants of India

10

1. Introduction
1.1. Fertilizer Sector Review: Indian Agriculture is one of the most important sectors in our country. Agriculture contributes more than 18.5 percent of the Gross Domestic Product and around 60 percent people of India are dependent on this sector. The monsoon plays very significant role on the Indian agriculture. The shortage of irrigation system in Indian agriculture, most of the farmers highly depends on the rainfall. The amount of rain determines the nature and production of the crops. Indian agriculture in the majority of the state is looked after by the State Governments rather than the Central Government. Indian farmers dont get a sufficient supply of chemical fertilizer for agriculture. The main objective of the fertilizer industry is to ensure the supply of primary and secondary nutrients in the required quantities. The Fertilizer Association of India (FAI) has set up a model which is based on several factors that include fertilizer prices, high yielding areas, irrigated areas, fertilizer nutrient prices and previous years' fertilizer consumption. An estimate of the demand and supply till the end of the 11th five year plan is given in the chart below: Year 2007-08 2008-09 2009-10 2010-11 2011-12 Supply N+P Demand of K 16950 17585 18595 19912 19965 Demand N+P+K 23125 24085 25035 25960 26900 DemandSupplyGap 8835 9305 9405 9178 10235 N+P+K 2660 2805 2965 3130 3300

[ N = Nitrogen , P = Phosphate, K = Potasium ]

Table 1 : Demand and supply of fertilizers

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1.2. Contribution of Fertilizer industry in the Indian Economy:

Fertilizer industry has a significant good impact on the development of the Indian agriculture sector. The following points may reflect its contribution. 1. Agricultural development: With the development of fertilizer industry, Indian agricultural development has been made possible. It has played a vital role in the green revolution. 2. Capital Investment: Fertilizer industry today has more than Rs. 5700 Cr investment and has become one of the important industries of the economy. 3. Corporate Development: In the last 30-40 years this industry has become a structured industry. It has made many joint ventures, multinationals and co-operatives which is one of the unique characteristic of this industry development in the nation. 4. Regional development: Gujarat, Maharashtra, Punjab, Uttar Pradesh, Andhra, Assam, Bengal, Rajasthan, Bihar are the states who have many plants of fertilizers. [These states economy has a high impact of fertilizer units.] 5. Employments: This industry has provided shelter to 3.5 lakh families in the last fifty years directly and a number of supporting industry during the last three decades. 6. Investment in the fertilizer sector: The fertilizer sector attracted huge investment in the past, particularly between mid 70s and 90s. However, there was hardly any investment during the 10th Plan. The total investment in the fertilizer sector by the end of 2005-06 was Rs.25, 923 crore. With the accelerated growth in the Indian economy, other sectors have high rates of return on investment, but the fertilizer sector has failed to attract more investment due to low returns. To increase the capacity of urea by about 12 million tonnes to a total of 31.5 million tonnes by 2011-12, India will need to invest at least Rs.36, 000 crore in the sector at current capital costs. Advantages - Reduction in setup Cost - Easy access to rural areas - Retailers help the consumers in accessing the produce

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S.no
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Type of Fertilizer
Ammonium Sulphate (AS) Calcium Ammonium Nitrate (CaN) Ammonium Chloride Urea Single Super Phosphate (SSP) Triple Super Phosphate (TSP) Urea Ammonium Phosphate Ammonium Phosphate Sulphate Diammonium Phosphate (DaP Mono Ammonium Phosphate (MaP)

Grade
20.6% N 25% N 25% N 46% N 16% P2O5 46% P2O5 24-24-0 28-28-0 14-35-14 16-20-0

Table 2 : Type of fertilizers

FERTILIZER SECTOR TREND

Key Sector Data Market Cap (Rs.. cr) Market Cap (US$ mn) P/E P/BV Debt/Equity ROA (%) ROE (%) EV/Sales EV/EBITDA
Table 3 : Sector data

25567 4635 9.9 1.7 1.2 7.5 16.9 0.8 6.6

Sales% chg YoY Dec-11 Mar-12 Jun-12 Sep-12 20.7 58.2 13.1 3.0

PBDIT% chg YoY -2.7 24.6 -20.4 -8.4

PAT% chg YoY -20.2 2.2 -53.6 -12.6

PBDIT margin % 10.9 12.4 8.5 11.4

PAT margin % 4.6 5.2 2.2 5.5

13

2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 (F) 2013-14 (F)

15.7 53.2 -24.2 12.3 31.0 3.4 11.7

20.2 26.7 -10.6 20.1 22.2 0.0 15.9

24.7 72.6 -8.0 21.0 32.3 8.1 11.3

12.0 9.9 11.7 12.5 11.7 11.3 11.7

3.4 3.8 4.6 5.0 5.0 5.3 5.2

Table 4 : Fertilizer financial Performanc

Year No.Of Companies Debt-Equity Ratio Long Term DebtEquity Ratio Current Ratio Fixed Assets Inventory Debtors Interest Cover Ratio PBIDTM (%) PBITM (%) PBDTM (%) CPM (%) APATM (%) ROCE (%) RONW (%)
Table 5 : Key financial Ratio

Latest 25 0 0 0.76 1.07 7.81 6.45 0.62 10.84 6.55 0.2 -1.89 -6.19 0 0

2012 2 0.67 0.43 1.23 0.68 2.96 2.92 7.82

2011 18

2010 2009 25 17 Key Ratios 0.9 1.06 0.9 0.6 0.54

2008 20 0.83 0.51 1.33 1.36 7.2 6.39 3.15

2007 23 6.36 5.37 1 1.24 7.52 5.68 3.41

2006 25 0 0 0.75 1.09 7.92 6.62 0.63 10.8 6.59 0.36 1.79 -6 0 0

2005 24 0 0 0.65 1.01 7.53 6.86 0.67 11.73 7.65 0.24 -1.72 -5.79 0 0

2004 23 0 0 0.69 0.87 6.21 5.23 0.58 12.8 7.98 1.04 1.95 6.77 0 0

0.49

1.2 1.12 1.22 Turnover Ratios 1.7 1.42 1.91 9.81 8.45 9.95 9.34 7.78 9.11 6.87 4.48 4 9.64 7.6 7.74 5.7 3.66

12.78 12.51 11.36 11.67 10.25 8.56 11.29 11.01 8.43 7.32 8.25 8.67 8.51 6.25 9.45 7.18 4.37

11.78 11.61 8.86 8.35 8.97 6.64 3.72 9.17 7.26 4

17.99 13.06 14.82 12.47 13.72 20.92 13.95 13.83 9.83 57.92

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1.3. Organization Profile: Incorporated in 1974 as a public sector enterprise, NFL manufactures nitrogenous fertilisers, primarily urea. The company has five manufacturing units, one each in Nangal and Bhatinda (Punjab), and Panipat (Haryana), and two units at Vijaipur (Madhya Pradesh). The Vijaipur units are gas-based, with the Vijaipur-II plant having dual feedstock capacity (naphtha and gas). The other three units are based on fuel oil as feedstock. The total production capacity at these units is over 3.2 million tonnes of urea per annum. GoI owns 97.6 per cent of NFL, while financial institutions and the public own the remainder. NFL is the second-largest player in the urea industry in India, after Indian Farmers Fertiliser Cooperative Ltd (IFFCO; rated CRISIL AA/Stable/CRISIL A1+ by CRISIL). NFL has 16 per cent share in the total domestic urea production. NFL reported a profit after tax (PAT) of Rs.1.27 billion on net sales of Rs.72.82 billion for 201112, against a PAT of Rs.1.38 billion on net sales of Rs.57.90 billion for 2010-11. For the first six months of 2012-13, NFL reported a net loss of Rs.512.7 million on net sales of Rs.37.55 billion, against a PAT of Rs.151 1.4. Objectives of the Study/ Problem Formulation: To prepare a Credit Model of National Fertilizers Ltd. and recommend a credit rating as per the guidelines provided. This has to be done in the following steps: The Industry analysis of the Fertilizer Sector. Calculation and interpretation of the historical ratios of the company. Credit modelling i.e. professionally forecasting future financial statements like Income statements, Balance Sheets & Cash Flows. Credit assessments of the company based on the data collected above. Writing a credit thesis in a clear and structured way which would include company overview, sector report, company details, key concerns, financial snapshot, comments on ratios, credit analysis, and key risks and accounting gimmicks.

1.5. Research Design: Methodology: The analysis of the Fertilizer sector has been done. Collection of data from various authenticated online resources regarding Market Size, % of GDP , Supply & Demand, Consumer Behaviour, Production Analysis, Cost analysis, Perfect competition, Monopoly or Oligopoly, Factors of production, Interest Rates & Inflation and its impact, Economy Impact (GDP, Interest Rates, Budget etc.),Major Players, Market Size, Comparison with Developed nations, Drivers (Demand, Revenue, Cost etc.),Foreign Investments, Govt. Undertakings and subsidies, Future of the Sector, Porter Five Forces/PEST Analysis/SWOT Analysis.

15

Data Collection Procedure: The various financial statements were taken from the official website of National Fertilizers Ltd. and were readily available in its Investors Relations section. The Annual reports and the quarterly results up till the previous quarter were all available over there. The conference call transcripts were also provided there which provided invaluable information in forecasting the financial statements. Various press releases and announcements were also followed and included in this project.

Data Analysis:
Historical Ratio Analysis: This includes the understanding of Financial Statement Analysis. The typical approach to financial analysis includes professional measures like Vertical Analysis, Horizontal Analysis, and Ratio Analysis. However, before the calculation starts, the key challenge is to get the right data from various sources. This assignment contains two parts 1. Calculation of the ratios in an Excel sheet and appreciation of its general trends. 2. Commenting on Interpretation of Historical Ratios to be done in a Word Document. Credit Modelling: Credit Modelling includes professionally forecasting future financial statements like Income Statements, Balance Sheets & Cash Flows. Firstly, the credit modelling should be learnt by using the forecasting techniques on a hypothetically built-up case. Thereafter one needs to apply the same methodology on NFL.

Credit Assessment: Credit Assessment is required to be done for NFL. at this particular stage. Credit rating methodologies of Rating Agencies may differ; however, the primary application framework of rating assignment remains the same. Credit Rating Matrix contains five key factors that are important in the assessment of rating companies. 1. Profitability 2. Financial Strength 3. Business Risk 4. Financial Policy 5. Accounting Quality Each of these factors also encompasses a number of sub-factors or metrics. Based on these factors and different calculations one has to assess the credit ratings of NFL. Credit Recommendation Report: The main purpose of this assignment is to write a credit thesis in a clear and structured way. The report considers the following information. Company Overview Sector Report

16

Company Details Key Concerns Financial Snapshot Comment on Ratios Credit Analysis Key Risks Accounting Gimmicks

2. Historical Ratio Analysis:

2.1. Income Statement: Gross Profit:The gross profit margin has been fluctuating between 35% & 45% in the period of 2007 2013. The constant decrease in between has been because of the increase in raw material cost. EBITDA:EBITDA figures have varied between 6% & 4% in the same period. The highest figure of 6.5 % was been recorded at the end of FY2010. This was because the increase in expenses was less than that of the sales recorded in that particular year. Operating Profit (EBIT):The same can be said about the operating profit margin which is fluctuating between 4% & 3%. The highest figure was seen in at the end of FY2010. PBT:The value of PBT margin has fallen since 2010 from 3.4% to -2.5%. This has been due to the higher interest burden, increase in depreciation and other expenses.

Net Income:The net income has decreased by 8.5% in FY2012 as compared to the previous year. There has been consistent decline in the past five years.

EPS:The earning per share decreased continuously from 3.2 to 2.8 to 2.5 due to decreasing PAT. Company although didnt repurchase or issue new shares.

17

National Fertilizers Limited

FY09

FY10

FY11

FY12

FY13E

Income Sheet Net Sales Cost of Sales (excluding D&A) Gross Profit SG&A Expense Other Expense/ (Income) EBITDA Depreciation Amortization EBIT 5117.41 2723.22 2394.19 1951.04 109.15 334 93.3 0.45 240.25

Historical 5826.33 3401.90 2424.43 2021.58 111.64 291.21 88.50 0.40 202.31 7338.02 4526.29 2811.73 2346.50 128.21 337.02 90.79 0.43 245.80 6720.2 4346.4 2373.81 1814.3 547.6 11.90 117.0 0.7 -105.77

Interest Expense Interest Income Pretax Income Current year Income Taxes Net Income Diluted Weighted Average Shares (millions)
Table 6 : Profit and Loss Statement

10.96 30.61 259.9 84.12 88.44 171.46 49.1

9.15 10.82 203.98 99.64 65.42 138.56 49.1

66.24 129.7 4.64 4.7 184.20 -230.80 79.53 0.0 57.47 -59.9 126.73 -170.91 49.1 49.1

Horizontal Analysis:

There has been a significant increase in both the Material cost & SG&A costs as compared to previous year. Other income has also increased significantly over the last years value The increase in other expenses is mainly due to interest payable on land compensation arising out of Apex Court Verdict at Bathinda Unit, exchange rate fluctuation and increase in security expenses. We can see a sharp decrease in net sales, EBIDTA, Net income etc due to staggering 170 crore loss to the company. The company is converting its fuel-oil based units into gasbased plants, at an outlay of around Rs.40 billion (95 per cent debt-funded). NFL will be reimbursed full project cost, including principal repayment and interest on the debt, as part of the special scheme of GoI for these fuel conversion projects.

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Growth Rate Analysis Net Sales Growth Rate EBITDA Growth Rate Net Income Growth Rate EPS Growth Rate

13.9% -12.8% -19.2% -19.2%

25.9% 15.7% -8.5% -8.5%

-8.4% -96.5% -234.9% -234.9%

Table 7 : Horizontal analysis

2.2. Balance Sheet

National Fertilizers Limited FY09 FY10 FY11 FY12 FY13E

Balance Sheet

Historical
690.81 920.55 347.12 127.27 2085.7 5 664.61 1.19 29.2 0 121.8 2902.5 5 499.72 389 78.81 967.53 29.44 1601.45 363.14 97.69 2091.72 598.03 0.98 525.56 0 152.09 3368.38 430.88 486.26 333.51 1250.65 2.8 2427.7 516.8 142.8 3090.1 548.4 1.3 2653.4 0.0 116.6 6409.7 437.8 1450.4 902.9 2791.2 6.0 3146.1 417.6 658.7 4228.5 548.4 1.3 4310.0 0.0 1998.0 11086. 2 337.4 1803.6 1588.3 3729.3

Cash Accounts Receivable, net Inventory Other Current Assets Total Current Assets PP&E, net Intangibles, net Capital work in progress Deferred Income Taxes Other Long Term Assets(investments)
Total Assets

Accounts Payable Accrued Liabilities(Short term borrowing & provsions Other Current Liabilities Total Current Liabilities Revolving Credit Facility Long Term Debt Deferred Income Taxes Post retirement Pension Cost Other Long Term Liabilities

233.16 119.6 0

191.22 85.28 169.05

1600.8 71.0 0.0 192.3

3091.6 11.2 0.0 224.2

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Total Liabilities
Deferred Income govt subsidy

1320.29 1582.14 2902.4 3

1696.2 1672.18 3368.38

4655.2 1754.2 6409.5

7056.3 2445.1 1583.7 11085. 1

Total Equity
Total Liabilities & Equity
Table 8 : Balance Sheet

2.2.1. Vertical Analysis There has been a significant increase in the purchase of fixed assets increasing the value of long term loans from 16000 M to 30916 M. The cash and bank balances have increased by to 60 M in 2013 though it was very high in 2010 ie 6700 M. Company is not keeping heavy cash piles and continuously spending on plant and operations The amount of Total current assets has increased considerably by around 37% as compared to the previous year. The major part of the total current assets is formed by the accounts receivable which form around 74% of the total. The other major chunk is taken by inventories which come to be 10% of the total. Current liabilities have always been lower than the current assets for NFL which is a positive sign for the company. The current ratio being more than 1 the company has a better chance of covering its liabilities. NFL has been maintaining negative Cash conversion cycle over the years which is a very good sign for the company.

2.2.2. Solvency Ratios: Current ratio: The current ratio fell drastically from 2.16 to 1.11 in 2010. AS the company ran out of cash, current ratio was impacted. Quick ratio: Similar to the current ratio the quick ratio fell in 2012 and 2013 considerably to a value of 0.87 & 0.85. Cash ratio: The cash ratio is less as the company is cash stripped.
Current Ratio Acid Test Ratio 216% 167% 167% 130% 111% 87%

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Cash ratio
Current Ratio Acid Test Ratio

71.4%
216% 167%

2.4%
167% 130%

0.1%
111% 87% 113% 85%

Cash ratio
Table 9 : Solvency Ratios

71.4%

2.4%

0.1%

0.2%

2.2.3. Turnover Ratios: Receivables turnover: The Receivables turnover ratio has constantly increased from 15% to a high 23% in FY2010. But, this fell to a value of 17% in the FY2011. The average turnover receivables collection period is around 21 in FY2011. Inventory turnover: This depicts how fast the inventory can be converted into cash. Inventory Turnover period has drastically increased as compared to previous years from an average of 43 to 50 days. Payables turnover: Payables Turnover has decreased consistently from 103 days to 86 days in FY2011. This shows that NFL pays suppliers at a slower rate than the rate at which customers pay them. This reduces the cash conversion cycle.

Turnover Ratios Receivables turnover Inventory turnover Payables turnover

Table 10 : Turnover Ratios

2010 65.7 46.53 66.98

2011 2012 2013 100.3 120.8 170.9 38.96 41.68 35.07 46.23 35.31 28.33

2.2.4. Cash Conversion Cycle: Here we can see that cash conversion cycle is increasing continuously which shows that company is not managing its operations efficiently. Company is giving long creditors period. This is one of the reasons due to which cash reserves have declined in the company.

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Table 1 : Cash Conversion Cycle

Average receivables collection period Average inventory processing period Average payment period Cash Conversion Cycle
Table 11 : Cash Conversion Cycle

2010 65.7 46.53 66.98 45.25

2011 100.3 38.96 46.23 93.03

2012 120.8 41.68 35.31 127.17

2013 170.9 35.07 28.33 177.64

2.2.5. Operating Efficiency: Total asset turnover: This ratio depicts how well a company can use its given assets to generate revenues for itself. The higher the ratio higher is the efficiency. This value is decreasing over the years for NFL from 1.8 to 0.6 in FY2013. This is because of high increase of loans in the recent year. Net fixed asset turnover: This ratio shows how efficiently a company can use investments in fixed assets to generate revenues. The value has decreased in the past year. Equity turnover: This value has been increasing over the recent years. As the net sales are growing therefore equity turnover is increasing substantially. \

Table 12 : Operating Efficiency

Operating Efficiency Total asset turnover Net fixed asset turnover Equity turnover

2010 1.8
7.7 3.2

2011 1.7
9.7 3.5

2012 1.1
13.4 4.2

2013 0.6
12.3 4.2

2.2.6. Operating Profitability: EBIDTA Margin: Company margins are under stressed as cost of raw material has risen significantly from 6.5% in 2010 to 0.2% in 2013 company.

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Profit margins are decreasing due to greater interest expense as company is making heavy borrowing for capital expenditures. This value has been constant for the past few years but has decreased in the FY2011. This is a negative sign and NHL should try to up this value in the coming years.
Table 13 : Operating Profitability

EBITDA Margins EBIT Margins EBT Margins Net Profit Margin

6.5% 4.7% 5.1% 3.4%

5.0% 3.5% 3.5% 2.4%

4.6% 3.3% 2.5% 1.7%

0.2% -1.6% -3.4% -2.5%

2.2.7. ROE DuPont Analysis: Profit Margin: Profit margin is an important measure of profitability and is found by calculating the net profit as a percentage of revenues. The profit margin has been constant for the past few years for NHL.

Asset Turnover: This is a ratio that measures the companys efficiency to use its assets to generat e sales revenue or income. The value has decreased from 3.4 to 2.3 in the past year. Financial Leverage: Financial leverage measures how a company can use debt to acquire additional assets. The value has been constant for the past few years but has increased by 23% in the FY2011.This indicates better operational efficiency. ROE: The overall ROE has decreased due to the decrease in the asset turnover despite a better value of financial leverage. The value has decreased by 14% in FY2011.
Table 14 : Du Pont analysis

Return on Assets (ROA) Return on Invested Capital (RoIC) Return on Stockholder's Equity

5.91% 12.71%

4.11% 9.36%

1.98% 82.60%

-1.54% 11.33%

1.95% -21.42%

5.91%

4.11%

1.98%

-1.54%

1.95%

23

3. Credit Modeling:
Credit Modeling includes professionally forecasting future financial statements like Income Statements, Balance Sheets & Cash Flows.First, one needs to learn credit modeling forecasting techniques on a hypothetically built-up case. Thereafter one has to apply the same methodology to the given company. Forecasting of Income Statement (P&L) is most important for analysts. The annual reports and other documents provide a solid understanding of how the forecast should be done. Other brokerage house research reports were read to understand how they have modeled sales numbers. The credit model contains the following tabs Setting up the core financial statements Working capital, Depreciation & amortization (PP&E), and Other balance sheet items Shareholders equity & Shares Outstanding Debt & Interest 3.1. Income Statement: Line Item Drivers a) Revenues For most companies revenues are a fundamental driver of economic performance. A well designed and logical revenue model reflecting accurately the type and amounts of revenue flows is extremely important. There are as many ways to design a revenue schedule as there are businesses. Some common types include: 1. Sales Growth: Sales growth assumption in each period defines the change from the previous period. This is simple and commonly used method, but offers no insights into the components or dynamics of growth. 2. Inflationary and Volume/ Mix effects: Instead of a simple growth assumption, a price inflation factor and a volume factor are used. This useful approach allows modeling of fixed and variable costs in multi-product companies and takes into account price vs. volume movements. 3. Unit Volume, Change in Volume, Average Price and Change in Price: This method is appropriate for businesses which have simple product mix; it permits analysis of the impact of several key variables. 4. Dollar Market Size and Growth: Market Share and Change in Share Useful for cases where information is available on market dynamics and where these assumptions are likely to be fundamental to a decision. For Example: Telecom industry. 5. Unit Market Size and Growth: This is more detailed than the preceding case and is useful when pricing in the market is a key variable. (For a company with a price-discounting strategy, for example, or a best of breed premium priced niche player) e.g. Luxury car market 6. Volume Capacity, Capacity Utilization and Average Price: These assumptions can be important for businesses where production capacity is important to the decision. (In the purchase of additional capacity, for example, or to determine whether expansion would require new investments.) 7. Product Availability and Pricing 24

8. Revenue driven by investment in capital, marketing or R&D 9. Revenue based on installed base (continuing sales of parts, disposables, service and add-ons etc.). Examples include classic razor-blade businesses and businesses like computers where sales of service, software and upgrades are important. Modeling the installed base is key (new additions to the base, attrition in the base, continuing revenues per customer etc.). 10. Employee based: For example, revenues of professional services firms or sales-based firms such as brokers. Modeling should focus on net staffing, revenue per employee (often based on billable hours). More detailed models will include seniority and other factors affecting pricing. 11. Store, facility or Square footage based: Retail companies are often modeled based on the basis of stores (old stores plus new stores in each year) and revenue per store. 12. Occupancy-factor based: This approach is applicable to airlines, hotels, movie theatres and other businesses with low marginal costs.
Table 15 : Forecasted Profit and loss Account

National Fertilizers Limited

FY14E

FY15E

FY16E

FY17E

FY18E

Income Sheet Net Sales Cost of Sales (excluding D&A) Gross Profit SG&A Expense Other Expense/ (Income) EBITDA Depreciation Amortization EBIT

Forecast 7257.8 7838.4 8465.5 9142.8 9874.2 4717.6 5095.0 5502.6 5942.8 6418.2 2540.2 2743.5 2962.9 3200.0 3456.0 2032.2 2194.8 2370.3 2560.0 2764.8 123.4 384.7 86.5 0.4 297.8 133.3 415.4 102.7 0.8 312.0 143.9 448.7 120.2 1.2 327.3 155.4 484.6 139.2 1.4 344.0 167.9 523.3 159.6 1.9 361.8

Interest Expense Interest Income Pretax Income Current year Income Taxes Net Income

82.7 (0.2) 215.0 64.5 150.5

61.7 0.9 251.2 75.4 175.9

40.2 4.0 291.0 87.3 203.7

19.2 7.7 332.4 99.7 232.7

(1.8) 12.0 375.6 112.7 262.9

25

3.2. Balance Sheet: Line Item Drivers (Assets) 1. Cash and Cash Equivalents: Linked to cash from Cash Flow Statement 2. Accounts Receivable (Part of Working Capital Schedule): Generally modeled as Days Sales Outstanding; Receivables turnover = Receivables/Sales * 365 A more detailed approach ma include aging or receivables by business segment if the collections vary widely by segments Receivables = Receivables turnover days/365*Revenues 3. Inventories (Part of Working Capital Schedule): Inventories are driven by costs (never by sales); Inventory turnover = Inventory/COGS * 365; For Historical Assume an Inventory turnover number for future years based on historical trend or management guidance and then compute the Inventory using the formula given below Inventory = Inventory turnover days/365*COGS; For Forecast 4. Other Current Assets (Part of Working Capital Schedule): Modeled as % of sales 5. Fixed Assets (Property, Plant and Equipment) Separate schedule is prepared taking into account various components Ending Balance for PPE = Beginning balance + Capex Depreciation - Adjustment for Asset Sales 6. Current Liabilities Accounts Payables (Part of Working Capital Schedule): Payables turnover = Payables/COGS * 365; For Historical Assume Payables turnover days for future years based on historical trend or management guidance and then compute the Accounts Payables using the formula given below Accounts Payables = Payables turnover days/365*COGS 7. Current Liabilities (contd.) Short Term Debt: Usually modeled as part of debt schedule Accrued Liabilities: Kept constant most often; Can be modeled as % of sales Deferred taxes: Kept constant most often; Can be modeled as % of sales Other Current Liabilities: Can be modeled as % of COGS or as % of Sales 8. Long term Liabilities: Deferred taxes: Kept constant most often; Can be modeled as % of sales Post retirement Pension Cost: Kept constant most often Long term Debt: Usually modeled as part of debt schedule (please refer debt schedule on next page) o Key feature of the debt schedule is to use the Revolver facility and how it works so that the minimum cash balance is maintained and ensures that the Cash account does not become negative in case the operating cash flow is negative (Companies in investment phase who need lot of debt in initial years of operation Telecom cos for example)

26

o Overall range of Debt to equity ratio should be maintained if there is any guidance by the management o Debt balance can also be assumed to be constant unless there is a need to increase the debt o Notes to the accounts would give repayment terms and conditions which need to be accounted for while building the debt schedule o For some industries, like Airlines, Retail etc Operating Leases might have to capitalized and converted to debt.
Table 16 : Forecasted Balance Sheet

National Fertilizers Limited Balance Sheet

FY14E

FY15E

FY16E

FY17E

FY18E

Forecast
-17.2 3579.2 453.3 145.2 4160.4 570.8 1.8 1000.0 0.0 2000.0 7733.0 366.2 1415.3 943.5 2725.0 -16.2 2391.6 50.0 0.0 230.0 5380.4 663.5 77.1 3865.5 489.5 156.8 4589.0 585.7 2.6 800.0 0.0 2800.0 8777.3 395.5 1528.5 1019.0 2943.0 78.1 1691.6 50.0 1.0 230.0 4993.8 1971.3 190.3 4174.8 528.7 169.3 5063.1 592.5 3.1 600.0 0.0 3600.0 9858.7 427.2 1650.8 1100.5 3178.4 191.3 991.6 50.0 2.0 230.0 4643.4 3260.5 323.0 4508.8 571.0 182.9 5585.6 590.4 3.5 400.0 0.0 4400.0 10979.5 461.3 1782.8 1188.6 3432.7 324.0 291.6 50.0 3.0 230.0 4331.3 4530.6 476.0 4869.5 616.7 197.5 6159.6 578.9 3.6 200.0 0.0 5200.0 12142.1 498.2 1925.5 1283.6 3707.3 477.0 -408.4 50.0 4.0 230.0 4059.9 5780.5

Cash Accounts Receivable, net Inventory Other Current Assets Total Current Assets PP&E, net Intangibles, net Capital work in progress Deferred Income Taxes Other Long Term Assets(investments)
Total Assets

Accounts Payable Accrued Liabilities(Short term borrowing & provsions Other Current Liabilities Total Current Liabilities Revolving Credit Facility Long Term Debt Deferred Income Taxes Post retirement Pension Cost Other Long Term Liabilities Total Liabilities
Deferred Income govt subsidy

27

Total Equity
Total Liabilities & Equity

1689.1 7733.0

1812.2 8777.2

1954.8 9858.7

2117.7 10979.6

2301.7 12142.1

3.3. Depreciation Schedule:

National Fertilizers Limited Depreciation Schedule FY09 FY10 FY11 FY12 FY13 FY14E FY15E FY16E FY17E FY18E

Historical
5,117 5,826 22 7,338 41 6,720 117 7,258 7838.4

Forecast
8,466 9,143 9,874

Net Sales Capital Expenditures

Capital Expenditures as % of Net Sales

108.9 1.5% 548.4 108.9

117.6 1.5% 570.8 117.6

127.0 1.5% 585.7 127.0

137.1 1.5% 592.5 137.1

148.1 1.5% 590.4 148.1

0.4%

0.6%

1.7%

Beginning Net PP&E Capital Expenditures (Depreciation Expense) (Asset Sales and write offs) Ending Net PP&E PP&E Break-up for FY11 Freehold Land Leasehold Land Building,Roads & Culvert Plant & Machinery Vehicles Furniture & Off Equipment Computers Capital Work In Progress Total Total Capex Break Up Freehold Land Amount Remaining Useful Life 11.92 NA 7.01 72.12 427.44 1.18 1.59 2.45 24.64 548.35 20 12 6 5 5 5 NA 548.4

(86.5) (102.7) (120.2) (139.2) (159.6) 0 0.0 0.0 0.0 0.0 570.8 585.7 592.5 590.4 578.9

Proportion of Assets 2.17% 1.28% 13.15% 77.95% 0.22% 0.29% 0.45% 4.49% FY14E 108.9 2.4 SL Method SL Method SL Method SL Method SL Method SL Method

FY15E 117.6 2.6

FY16E 127.0 2.8

FY17E 137.1 3.0

FY18E 148.1 3.2

28

Leasehold Land Building,Roads & Culvert Plant & Machinery Vehicles Furniture & Off Equipment Computers Capital Work In Progress

1.4 14.3 84.9 0.2 0.3 0.5 4.9

1.5 15.5 91.7 0.3 0.3 0.5 5.3

1.6 16.7 99.0 0.3 0.4 0.6 5.7

1.8 18.0 106.9 0.3 0.4 0.6 6.2

1.9 19.5 115.5 0.3 0.4 0.7 6.7

Leasehold Land - SL Method Useful Life Leasehold Land Depreciation Expense (Existing)

7.01

Years 20 0.3505 0.3505 0.3505 0.3505 0.3505 0.3505 0.3505

2014 2015 2016 2017 2018 Depreciation Expense Building,Roads & Culvert SL Method Useful Life Building,Roads & Culvert Depreciation Expense (Existing)

Capex 0.0 0.0 1.4 1.5 1.6 1.8 1.9

Useful Life Years

20 20 20 20 20 0.4 0.4

0.03

0.07 0.04

0.07 0.08 0.04

0.07 0.08 0.08 0.04 0.6

0.4

0.5

0.5

0.07 0.08 0.08 0.09 0.05 0.7

72.1

Years 12.0 6.0 6.0 6.0 6.0 6.0 6.0 6.0

2014 2015 2016 2017 2018 Depreciation Expense Plant & Machinery - SL Method Useful Life

Capex 0.0 0.0 14.3 15.5 16.7 18.0 19.5

Useful Life Years

12.0 12.0 12.0 12.0 12.0 6.0 6.0

0.6

1.2 0.6

1.2 1.3 0.7

1.2 1.3 1.4 0.8 10.6

6.6

7.8

9.2

1.2 1.3 1.4 1.5 0.8 12.2

Years

29

Plant & Machinery Depreciation Expense (Existing)

427.4

6.0 71.2 71.2 71.2 71.2 71.2 71.2 71.2

2014 2015 2016 2017 2018 Depreciation Expense Vehicles - SL Method Useful Life Vehicles Depreciation Expense (Existing)

Capex 0.0 0.0 84.9 91.7 99.0 106.9 115.5

Useful Life Years

6.0 6.0 6.0 6.0 6.0 71.2 71.2

7.1

14.1 7.6

14.1 15.3 8.2

14.1 15.3 16.5 8.9 126.1

78.3

93.0

108.9

14.1 15.3 16.5 17.8 9.6 144.6

Years 1.2 5.0 0.2 Useful Life Capex Years 0.0 0.0 0.2 5.0 0.3 5.0 0.3 5.0 0.3 5.0 0.3 5.0 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

2012 2013 2014 2015 2016 2017 2018 Depreciation Expense Furniture & Off Equipment - SL Method Useful Life Furniture & Off Equipment Depreciation Expense (Existing)

0.02

0.05 0.03

0.05 0.05 0.03

0.05 0.05 0.05 0.03 0.4

0.3

0.3

0.4

0.05 0.05 0.05 0.06 0.03 0.5

1.6

Years 5.0 0.3 0.3 0.3 0.3 0.3 0.3 0.3

2014 2015 2016 2017 2018 Depreciation Expense

Useful Life Capex Years 0.0 0.0 0.3 5.0 0.3 5.0 0.4 5.0 0.4 5.0 0.4 5.0 0.3 0.3

0.0

0.1 0.0

0.1 0.1 0.0

0.1 0.1 0.1 0.0 0.6

0.3

0.4

0.5

0.1 0.1 0.1 0.1 0.0 0.6

30

Computers - SL Method Useful Life Computers Depreciation Expense (Existing)

2.5

Years 5.0 0.5 0.5 0.5 0.5 0.5 0.5 0.5

2014 2015 2016 2017 2018 Depreciation Expense Total Depreciation Expense Depreciation as % of PP&E, net Depreciation as % of Capex
Table 17 : Forecasted Depreciation Schedule

Useful Life Capex Years 0.0 0.0 0.5 5.0 0.5 5.0 0.6 5.0 0.6 5.0 0.7 5.0 0.5
0 93.3 88.5

0.0

0.1 0.1

0.1 0.1 0.1

0.1 0.1 0.1 0.1 0.9 139.2

0.5 78.6

0.5 86.5

0.6 102.7

0.7 120.2

0.1 0.1 0.1 0.1 0.1 1.0 159.6

78.6

15.1% 79.4%

17.5% 87.3%

20.3% 23.6% 27.6% 94.7% 101.5% 107.8%

31

National Fertilizers Limited Working Capital Schedule

FY0 9

FY10

FY11

FY12

FY13E

FY14E

FY15E

FY16E

FY17E

FY18E

Historical
5,117 5,826 7,338 6,720 7,258 7,838

Forecast
8,466 9,143 9,874

Net Sales Cost of Sales (excluding D&A)

Working Capital Balances

2,723

3,402

4,526

4,346

4,718

5,095

5,503

5,943

6,418

Accounts Receivable , net Inventory Other Current Assets Total Non Cash Current Assets Accounts Payable Accrued Liabilities Other Current Liabilities Total NonDebt Current Liabilities
Net Working Capital/ (Deficit)

920.55 347.12

1601.4 5 363.14

2427.7 2 516.82

3146.1 417.61

3579. 2 453.3

3865. 5 489.5

4174. 8 528.7

4508. 8 571.0

4869. 5 616.7

127.27

97.69

142.78

658.74

145.2

156.8

169.3

182.9

197.5

1394.9 4

2062.2 8

3087.3

4222.5

4177. 6

4511. 8

4872. 8

5262. 6

5683. 6

499.72 389

430.88 486.26

437.84 1450.3 7

337.4 1803.6 1588.2 7

366.2 1415. 3

395.5 1528. 5 1019. 0

427.2 1650. 8 1100. 5

461.3 1782. 8 1188. 6

498.2 1925. 5 1283. 6

78.81

333.51

902.94

943.5

967.53

1250.6 5

2791.2

3729.3

2725. 0

2943. 0

3178. 4

3432. 7

3707. 3

427.41

811.63

296.2

493.2

1452. 6

1568. 8

1694. 3

1829. 9

1976. 3

(Increase)/ Decrease in Working Capital

(427.4)

(384.2)

515.5

(197.0)

(959.4 )

(116.2 )

(125.5 )

(135.5 )

(146.4 )

32

3.4. Amortization Schedule:

Table 19 : Forecasted Amortization Schedule

National Fertilizers Limited Amortization Schedule

FY09

FY10

FY11

FY12

FY13E

FY14E

FY15E

FY16E

FY17E

FY18E

Historical
5,117 5,826 0.19 7,338 0.72 6,720 0.70 7,258 1.45 7,838 1.57

Forecast
8,466 1.69 9,143 1.83 9,874 1.97

Net Sales Additions to Intangibles

Additions to Intangibles as % of Net Sales

0.00% 0.01% 0.01% 0.02% 0.02% 0.02%

0.02%

0.02%

Beginning Net Intangibles Additions to Intangibles (Amortization Expense) (Intangible Sales and write offs) Ending Net Intangibles 1.2 1.0
From:

0.7 1.5 (0.4) 0.7 1.8

1.8 1.6 (0.8) 2.6

2.6 1.7 (1.2) 3.1

3.1 1.8 (1.4) 3.5

3.5 2.0 (1.9) 3.6

Existing PP&E 0.2 Existing Net Intangibles, net Useful Life Straight Line Method $1.0 4.0 Years $1.23
Capex

0.2

0.2

0.2

0.2

Years

$0.25 Useful Life

$0.25

$0.25

$0.25

$0.25

1 2 3 4

1.5 1.6 1.7 1.8

4.0 4.0 4.0 4.0

0.2

0.4 0.2

0.4 0.4 0.2

0.4 0.4 0.4 0.2

0.4 0.4 0.4 0.5

33

5 Total Amortization Expense Amortization as % of Intangibles, net

2.0

4.0

0.2

0.4

0.8

1.2

1.4

1.9

21.3% 29.2% 37.3%

39.7%

51.8%

3.5. Shares Outstanding Schedule:

Table 20 : Forecasted Shares Outstanding Schedule

National Fertilizers Limited Shareholder's Equity Schedule

FY14E

FY15E

FY16E

FY17E

FY18E

Forecast

Beginning Equity Balance Net Income Issuance/ (Repurchase) of Equity Dividends Paid Option Proceeds Effects of Exchange Rate on Cash Ending Equity Balance
Share Repurchase Assumptions

1,583.7 150.5

1,689.1 175.9

1,812.2 203.7

1,954.8 232.7

2,117.7 262.9

(45.2) 1,689.1

(52.8) 1,812.2

(61.1) 1,954.8

(69.8) 2,117.7

(78.9) 2,301.7

Current Year EPS Assumed Current Year EPS Multiple Projected Share Price Shares Repurchased - millions Amount Repurchased ( $ outgo)
New Shares from Exercised Options

Option Proceeds

34

Dividend Assumptions

Total Dividends Paid Net Income Dividend Payout Ratio

45.2

52.8

61.1

69.8

78.9

150.5 175.9 203.7 232.7 262.9 30.0% 30.0% 30.0% 30.0% 30.0%

3.6. Debt Schedule:

Table 21 : Forecasted Debt Schedule

National Fertilizers Limited

FY14E

FY15E

FY16E

FY17E

FY18E

Debt Schedule

Forecast

Cash Flow Available for Financing Activities Proceeds from/ (Repurchase of) Equity Dividends Option Proceeds Effects of Exchange Rates on Cash + Beginning Cash Balance - Minimum Cash Balance Cash Available for Debt Repayment Long Term Debt Issuance Long Term Debt (Repayments) Cash Available for Revolving Credit Facility Revolving Credit Facility Beginning Balance

721.9 (45.2) 6.0 1.0 683.8 (700.0) (16.2)

847.1 (52.8) (17.2) 1.0 778.1 (700.0) 78.1

874.3 (61.1) 77.1 1.0 891.3 (700.0) 191.3

902.4 (69.8) 190.3 1.0 1,024.0 (700.0) 324.0

931.9 (78.9) 323.0 1.0 1,177.0 (700.0) 477.0

16.2

So finally the synopsis of the whole credit model is given as below. 35

Table 22 : Synopsis

National Fertilizers Limited

Key Stats Revenues (Rsm) Ebitda (Rsm) Net Profit (Rsm) EPS (Rs) EPS (%YoY) RoAE (%) RoACE (%) Net Gearing (%) P/E (x) @ Rs.0 P/CE (x) P/B (x) EV/Ebitda (x) FCF Yield Per Share EPS CEPS DPS BVPS FCF Du pont Ebit Margin (%) Asset Turnover (x) Financial Leverage (x) Interest burden (x) Tax Burden (x) RoAE -

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

5,117 334 171 3.5 #DIV/0! 10.84% 12.42%

5,826 291 139 2.8 19.19% 8.52% 9.98% 49.48% 14.2 28.87% 1.19% 7.3 30.05%

7,338 337 127 2.6 -8.54% 7.40% 8.57% 72.59% 15.5 31.56% 0.62% 10.6

6,720 12 (171) (3.5) 234.86% -10.24% -1.93% 63.59% (11.5) -23.40% 0.36% 424.2 1.36%

7,258 385 151 3.1 188.06% 9.20% 4.82% 69.80% 13.0 26.58% 0.52% 11.3 55.44%

7,838 415 176 3.6 16.85% 10.05% 5.76% 56.02% 11.2 22.74% 0.46% 8.8 14.16%

8,466 449 204 4.2 15.84% 10.82% 5.23% 45.17% 9.6 19.63% 0.41% 6.6 16.49%

9,143 485 233 4.7 14.22% 11.43% 4.84% 36.51% 8.4 17.19% 0.36% 4.7 18.94%

9,874 523 263 5.4 12.97% 11.90% 4.53% 29.52% 7.5 15.22% 0.33% 3.0 21.54%

#DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0!

21.69% 11.4 23.33% 1.38% 4.5 35.29%

17.26%

3.5 #DIV/0! 0.00% #DIV/0! 32.2 692.6

2.8 0.00% 34.1 589.8

2.6 0.00% 35.8 (338.6)

(3.5) #DIV/0! 32.3 26.7

3.1 16.9 37.44% 34.4 1,087.9

3.6 19.6 37.21% 36.9 277.9

4.2 20.4 33.34% 39.8 323.6

4.7 21.2 30.30% 43.2 371.7

5.4 22.0 27.86% 46.9 422.7

0.00% #DIV/0! #DIV/0! #DIV/0! #DIV/0! #DIV/0! 1.8

4.69% 1.7

3.47% 1.1

3.35% 0.6

-1.57% 0.9

3.00% 0.9

3.00% 0.9

3.00% 0.8

3.00% 0.8

3.00%

14.74% 1.1 0.7 0.01

11.44% 1.0 0.7 0.01

91.25% 0.7 0.7 0.03

195.22% 2.2 0.7 (0.02)

140.64% 0.7 0.7 0.04

97.66% 0.8 0.7 0.03

60.52% 0.9 0.7 0.02

29.07% 1.0 0.7 0.01 1.0 0.7

2.98%

0.00

36

4. Credit Rating Methodology:

Credit rating methodologies of Rating Agencies may differ; however, the primary application framework of rating assignment remains the same. This note contains a detailed matrix and illustrative mapping of each rated company against factors in the matrix. Credit Rating Matrix contains five key factors that are important in our assessment of rating companies 1. Profitability 2. Financial Strength 3. Business Risk 4. Financial Policy 5. Accounting Quality Each of these factors also encompasses a number of sub-factors or metrics, which are explained in detail.

Identification of key rating matrix factors:

Table 23 : Key Rating Matrix Factors Factor Factor Weighing Profitability Financial Strength 20% 40% EBITDA Margin Debt/EBITDA Cash & Mkt. Securities/Debt EBITDA/Interest Expense Operating Cash flows/ Debt Return on Capital (%) Long Term Debt/Capital (%) Business Risk 25% Geographical Diversity Segment Diversity Management Experience & Quality Disputes & Litigations Track Record Track record of timely project execution Financial Policy Accounting Quality 10% 5% Financial policy Accounting Quality Relevant Sub-Factor Sub-Factor Weighing 20% 5% 5% 10% 7.5% 5% 7.5% 5% 5% 5% 5% 5% 10% 5%

Credit ratings are forward-looking and incorporate our expectations for future financial and operating performance.

37

4.1. Measurement of the Credit Rating Factors: 4.1.1. Profitability a. EBITDA Margin A key metric in analyzing any company is to look at its operating efficiencies. To do this, analysis of a companys cost structure is required, and that leads us to the profit and loss statement. However, please note that EBITDA can be inflated by reclassifying regular operating expenses as extraordinary items; some companies take liberties in defining what is considered extraordinary. Hence, before calculating EBITDA Margins, please consider normalized recurring business income and expenses. The following weights were allocated for the estimated EBITDA Margins.
EBIDTA Margin Weights <0% > 0 and <= > 10% and > 20% 10% <= 20% <=30% 0 0.2 0.4 and > 30% and >35% <=35% 0.6 0.8 1

Table 24 : Credit Rating Factor - EBITDA Margin

EBITDA Margin Value Weightage Score

6.5% 5.0% 0.2 10 2 0.2 10 2

4.6% 0.2 10 2

0.2% 0.2 10 2

5.3% 0.2 10 2

5.3% 0.2 10 2

5.3% 0.2 10 2

5.3% 0.0% 0.2 10 2 0 10 0

4.1.2. Financial Strength a. Debt / EBITDA - Debt to EBITDA is a key indicator of credit risk as it measures the degree to whicha company has borrowed against future earnings and cash flow. A higher multiple suggests a longerperiod over which operating profit would have to be generated to repay debt. A lower ratio may beindicative of a companys greater flexibility to manage changes in the economic or competitiveenvironment. The following weights were allocated for the estimated Debt / EBITDA.
Debt / EBITDA Weights > 4.0 > 1.75 and <= > 1.5 and <= > 1 and <=1.5 > 0.5 and <=1.0 < = 0.5 4.0 1.75 0 0.2 0.4 0.6 0.8 1

Table 25 : CRF - Financial Strength (Debt/ EBITDA)

38

National Fertilizers Limited

2010

2011

2012

2013

2014

2015

2016

a.Debt/EBITDA Value Weightage Score

0.698084 0.6566 4.749896149 259.8 6.175334553 4.259999838 2.636599357 0.8 5 4 0.8 5 4 0 5 0 0 5 0 0 5 0 0 5 0 0.2 5 1

b. Cash & Mkt. Securities / Debt - Cash and Marketable Securities to Debt provides an indication of managements liquidity planning and flexibility. The amount of cash that management elects to holdmay be an indication of the cushion available to quickly meet known and unknown liquidity needs or provide the ability to meet particularly highly volatile working capital needs or to fund near term debtobligations. A substantial amount of strategic cash holdings can also reduce the reliance on refinancingto meet maturing debt obligations. The following weights needs to be allocated for the estimated Cash & Market Securities / Debt. Cash & Mkt. <5% Securities / Debt Weights 0 > 5% and > 25% > 50% and > 75% and >100 % <= 25% and <= <=75% <=100% 50% 0.2 0.4 0.6 0.8 1

Table 26 : CRF - Financial Strength (Cash & Mkt. Securities/ Debt)

National Fertilizers Limited

2010

2011

2012

2013

2014

2015

2016

b.Cash & Mkt Securities / Debt Value Weightage Score

296% 1 5 5

15% 0.2 5 1

0% 0 5 0

0% 0 5 0

-1% 0 5 0

4% 0 5 0

16% 0.2 5 1

c. EBITDA / Interest Expense - Typically, high grade coverage ratios are far higher than they are for high yield companies. This could be a function of the start-up nature of high yield companies or thefact that they might be leveraged buyouts, which by definition have high leverage and low coverage. The following weights were allocated for the estimated EBITDA / Interest Expense.

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EBITDA Coverage Weights

< = 0.25

> 0.25 and > 0.5 and <= > 1 and <=1.5 > 1.5 and > = 1.75 <= 0.5 1.0 <=1.75 0 0.2 0.4 0.6 0.8

Table 27 : CRF - Financial Strength (EBITDA Coverage)

National Fertilizers Limited

2013

2014

2015

2016

c. EBITDA Coverage Value Weightage Score

5.087862319 0.091728976 4.653946841 6.738278762 1 0 1 1 20 20 20 20 20 0 20 20

d. Operating Cash Flows / Debt - This coverage ratio compares a company's operating cash flow to itstotal debt, which, for purposes of this ratio, is defined as the sum of short-term borrowings, the current portion of long-term debt and long-term debt. This ratio provides an indication of a company's abilityto cover total debt with its yearly cash flow from operations. The higher the percentage ratio, the better is the company's ability to carry its total debt. The following weights were allocated for the estimated Operating Cash Flows / Debt.
Operating Cash Flows < = -0.4 / Debt Weights 0 > -0.4 and <= > -0.2 and > 0 and > 0.10 and > = 0.25 -0.2 <= 0 <=0.10 <= 0.25 0.2 0.4 0.6 0.8 1

Table 28 : CRF - Financial Strength (Operating Cash Flow/ Debt)

National Fertilizers Limited

2010

2011

2012

2013

2014

2015

2016

d. Operating Cash Flows / Debt Value Weightage Score

3.556953 0.7604 0.46188948 0.274443163 0.210302036 0.174773455 0.152628444 1 7.5 7.5 1 7.5 7.5 1 7.5 7.5 1 7.5 7.5 0.8 7.5 6 0.8 7.5 6 0.8 7.5 6

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e. Return on Capital (%) - assess a company's efficiency at allocating the capital under its control toprofitable investments. The return on invested capital measure gives a sense of how well a company is using its money to generate returns. The following weights needs to be allocated for the estimated Return on Capital (%).
Return on capital (%) Weights < 10% > 10% and > 15% and > 20% and > 25% and > 30 % <= 15% <= 20% <=25% <= 30% 0 0.2 0.4 0.6 0.8 1

Table 29: CRF - Financial Strength (Return on Capital Employed)

National Fertilizers Limited

2013

2014

2015

2016

e. Return on Capital Value Weightage Score

82.60% 1 5 5

11.33% 0.2 5 1

-21.42% 0 5 0

145.89% 1 5 5

f. Long-term debt/capital (%) - Companies can finance their operations through either debt or equity. The debt-to-capital ratio gives users an idea of a company's financial structure, or how it is financing its operations, along with some insight into its financial strength. The following weights needs to be allocated for the estimated Long-term Debt / Capital (%).
Long-term debt/capital (%) Weights > 80% > 65% and > 50% and > 35% and > 20% <= 80% <= 65% <=50% <=35% 0 0.2 0.4 0.6 and <= 20% 0.8 1

National Fertilizers Limited

Table 31 : CRF - Financial Strength (Long Term Debt/ Capital)

2010 2011 2012 2013 2014 2015 2016

f. Long Term Debt/ Capital Value Weightage Score

17.28% 12.91% 1 7.5 7.5 1 7.5 7.5

1043.42% 0 7.5 0

-205.03% 1 7.5 7.5

-340.41% 1 7.5 7.5

1403.32% 0 7.5 0

102.96% 0 7.5 0

4.1.3. Business Risk a. Geographic Diversity- Geographic diversity is a positive factor because it reduces a companys vulnerability to adverse economic shocks or cyclicality that may impact certain geographies, mitigates the impact of regional regulatory, environmental or safety issues and provides exposure to different demand trends that may persist for an intermediate period of time in various regions. Geographic diversity is usually a plus in that it may smooth volatility by

41

balancing slower and higher growth markets, regional economic swings, and seasonal or weather-related fluctuations in cash flows. The following weights were allocated for the estimated Geographic Diversity.
Geographic Diversity All sales expected from one small economic region Sales expected to be well diversified with 70% 80% from one economic region 0 0.2 Sales expected to be well diversified with 60% 70% from one economic region 0.4 Sales expected to be well diversified with 50% 60% from one economic region 0.6 Sales expected to be well diversified with 40% 50% from one economic region 0.8 Sales expected to be well diversified with less than 40% from one economic region

Weights

Table 31 : CRF - Business Risk (Geographical Diversity)

a. Geographical Diversity Value Weightage Score

64.29% 64.29% 0.4 5 2 0.4 5 2

64.29% 0.4 5 2

64.29% 0.4 5 2

64.29% 0.4 5 2

64.29% 0.4 5 2

64.29% 0.4 5 2

b. Segment Diversity - Segment diversity mitigates the impact of demand fluctuations, price competition and technological trends that can occur in particular segments. The effectiveness of segment diversity is usually analyzed with regard to the correlation of individual segments. The definition of business segments may differ among companies, according to each companys strategic focus or construction services groupings. While the number of business segments discussed in annual reports usually serves as a good indicator of segment diversity, analysts may adjust this measure based on the level of correlation of the reported segments. The following weights were allocated for the observed Segment Diversity
Segment Diversity Single segment 2 segments, but heavily reliant on 1 segment (>90% of revenues generated in one segment) 2 segments, but heavily reliant on 1 segment (> 70% of revenues generated in this segment) 0.2 0.4 2 balanced and profitable segments Very good diversity with 3 balanced,profitab le core segments Excellent diversity with 4 balanced, profitable core segments 1

Weights

0.6

0.8

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Table 32 : CRF - Business Risk (Segment Diversity)

b. Segment Diversity Value Weightage Score

3.91% 3.91% 0.8 5 4 0.8 5 4

3.91% 0.8 5 4

3.91% 0.8 5 4

3.91% 0.8 5 4

3.91% 0.8 5 4

3.91% 0.8 5 4

c. Management Experience & Quality - The quality of management is an important factor supporting a companys credit strength. Normally credit analyst meet with senior executives as part of their assessment of managements business strategies, policies, and philosophies. However, for our educational consideration, we may restrict ourselves to objectively looking at the companys track record and follow press releases and other updates to judge Managements experience & Quality. The following weights were allocated for the estimated Management Quality.
Management Quality Weights Very Bad 0 Bad 0.2 Below Average 0.4 Average 0.6 Good 0.8 Excellent 1

Table 33 : CRF - Business Risk (Management Quality)

c. Management Quality Value Weightage Score

Good 0.8 5 4

Good Good 0.8 5 4 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

In 2011 NFL implemented some sound business strategies which indicate that it has an excellent management quality which we hope will continue in the future. d. Dispute and Litigation Track Record There can us variety of disputes and litigations associated with patents, trademarks, copyrights, labors etc. The financial impact of these disputes and litigations should be assessed and judgment should be made accordingly. The following weights were allocated for the estimated Dispute and Litigation Track Record.
Disputes / Very Bad Litigations Weights Bad 0 0.2 Below Average 0.4 Average 0.6 Good 0.8 Excellent 1

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Table 34 : CRF - Business Risk ( Litigation Track Record)

d.Litigation Track Record Value Weightage Score

9.68% 8.34% 1 5 5 1 5 5

4.38% 1 5 5

2.53% 1 5 5

3.63% 1 5 5

3.20% 1 5 5

2.85% 1 5 5

e. Track Record of Timely Project Execution Timely execution of announced projects are of prime importance and the ability of the management to honor deadlines and execute quality project should be assessed. The following weights were allocated for the estimated Project Execution Capabilities.
Project Execution Weights Very Bad 0 Bad 0.2 Below Average 0.4 Average 0.6 Good Excellent 0.8 1

Table 35: CRF - Business Risk (Project Execution Record)

e. Project Execution Record Value Weightage Score

Good 0.8 5 4

Good Good 0.8 5 4 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

Good 0.8 5 4

The project execution and completion time has been good as compared to the other players in the industry so it has weight of 0.8 for the future years also.

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4.1.4. Financial Policy When assessing financial policy, we tend to focus on a companys overall balance of maintaining creditor and shareholder interests. Particular areas of focus in this rating factor include managements financial discipline and position on capital structure changes, commitment to ratings, general approach to dividends and share repurchase activities, and growth aspirations including the financing strategy for acquisitions. Managements stated and transparent financial policies, supported by historical practices including a commitment to a given rating range, and track-record of maintaining a financial profile appropriate for its rating category may provide us some comfort that its financial policies will not vary widely. Absent these, we may take a cautious approach when evaluating this rating factor. The following weights were allocated for the estimated Financial Policy.
Financial Policy Weights Very Bad 0 0.2 Bad Below Average 0.4 0.6 0.8 1 Average Good Excellent

Table 36: CRF - Financial Policy

Financial Policy Value Weightage Score

Good 0.8 10 8

Good Good 0.8 10 8 0.8 10 8

Good 0.8 10 8

Good 0.8 10 8

Good 0.8 10 8

Good 0.8 10 8

NFL has a reputation of maintaining a financing profile appropriate to its rating range and it will not vary widely as seen from the Annual Reports. So a weight of 0.8 is justified in the years to come. 4.1.5. Accounting Quality Weaknesses in the overall financial reporting processes, financial statement restatements or delays in quarterly/annual reports or other regulatory filings are indications of apotential weakness or even breakdown in internal controls. The following weights were allocated for the estimated Financial Policy.
Accounting Quality Weights Very Bad 0 0.2 Bad Below Average 0.4 0.6 0.8 1 Average Good Excellent

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Table 2 : CRF - Accounting Quality

Accounting Quality Value Weightage Score

Excel 1 5 5

Excel 1 5 5

Excel 1 5 5

Excel 1 5 5

Excel 1 5 5

Excel 1 5 5

Excel 1 5 5

From the annual reports of the company we can say that the company has strong internal controls. The accounting quality has been always above the industry standard and is to remain the same in the future. 4.2. Final Credit Rating: After estimating or calculating each sub-factor, the potential outcomes for each of the 10 subfactors are mapped toCorporate Bridge Suggested Rating Methodology. Assigning Ratings: Based on the final scores one may use the below table for providing rating to the company.
Table 3 : Ratings Indicator

Score > 95 > 90 and <=95 > 85 and <=90 > 80 and <= 85 > 75 and <=80 >70 and <=75 > 65 and <=70 > 60 and <=65 > 55and <=60 > 50 and <=55 > 45 and <=50 > 40 and <=45 > 35 and <=40 > 30 and <=35 > 25 and <=30 > 20and <=25 > 15 and <=20 > 10and <=15 <=10

Indicated Ratings AAA AAAAA AAA ABBB BBBBB BBB BCCC CCCCC CCC CD

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Note in most cases, the above parameters are sufficient enough to provide an approximate view on the credit ratings. However, in specific companies there may be other additional important factors that need to be considered for ratings.
Table 39 : Final Credit Ratings

Total Score Final Rating

79 A

74 A-

66.5 BBB-

50 B

67.5 BBB

65 BBBBBB-

65

Conclusions from the ratings: One can conclude that the credit rating of NFL can go down in the future years unless some steps to improve it are taken. The debt has to be reduced which is bringing down the value of Cash & Market securities/Debt value which is a key part in the financial strength.

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5. Conclusions:
During the year under review, the Company achieved turnover of `7341 crore (previous year `5804 crore). The earnings before interest, depreciation and tax(EBIDTA) at `342 crore was higher than `302 crore achieved in previous year in spite of higher salaries and wages, repairs & maintenance, etc. mainly due to higher production/sale of urea and industrial products. The profit before tax was `184.20 crore (previous year 203.92 crore) and profit after tax was `126.73 crore (previous year `138.50 crore). The short-term borrowings of the company as at 31 March, 2012, stood at `1383.82 crore including cash credit utilization, short-term loans, working capital demand loan, etc. Delay in receipt of urea subsidy and hike in the prices of Gas/LSHS/FO lead to more borrowings for meeting working capital requirements. In addition, during the year, longterm loans of 1342 crore have been availed for Ammonia Feedstock changeover Projects and `80.96 crore of Buyers Credit, 100.40 crore Bonds and `77.45 crore External Commercial Borrowings have been utilized for financing Capacity Enhancement of Urea at Vijaipur. One can conclude that the credit rating of NFL can go down in the future years unless some steps to improve it are taken. The debt has to be reduced which is bringing down the value of Cash & Market securities/Debt value which is a key part in the financial strength. The Negative outlook reflects delay in commissioning of Vijaipur 1 and Vijaipur 2 units post completion of revamp project and deterioration in gearing because of increase in working capital borrowings. The ratings may be downgraded in case of continued pressure on profitability due to lower than expected benefits generated from Vijaipur 1 and Vijaipur 2 units or delay in attaining optimum capacity utilisation and/or plants operating at more than the revised energy norms for Nangal, Bhatinda and Panipat. The ratings could also be downgraded if the monthly subsidy payments from GoI for Nangal, Bhatinda and Panipat are delayed resulting in cash flow mismatch. Conversely, the outlook could be revised to Stable if stable state of operations is achieved according to schedule and subsidy dues from GoI are cleared in a timely manner. Subsidy payments from Government of India (GoI) are expected to be delayed by around five to six months in 2012-13, resulting in substantial increase in NFLs working capital borrowings. Fertiliser manufacturers are expected to have large subsidy receivables as on March 31, 2013, because GoI had exhausted its fertiliser subsidy budget by September 2012 and subsidy dues of about six months are likely to be cleared only in 2013-14. The increase in interest burden will also impact NFLs profitability and capital structure in 2012-13.

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6. FACTORING
Factoring is a financial transaction whereby a business entity sells its receivables, i.e. invoices to a Factor at a discount. Although a receivable is a property right and is transferable, there was a long-felt need for a statutory framework for Factoring. Recently new Factoring Regulation Act, 2011 was passed which asked factors to register themselves with CERSAI and file the transactions regularly. For the purpose of filing of particulars of every transaction of assignment of receivables with the Central Registry, the receivables may be described specifically or generally with reference to the debtor, or the period to which they relate or by any other general description by which such receivables can be identified.

Figure 1: Factoring Mechanism

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6.1.

RATIONALE FOR FACTORING

Factoring is a method used by some firms to obtain cash. Certain companies factor accounts when the available cash balance held by the firm is insufficient to meet current obligations and accommodate its other cash needs, such as new orders or contracts; in other industries, however, such as textiles or apparel, for example, financially sound companies factor their accounts simply because this is the historic method of financing. The use of factoring to obtain the cash needed to accommodate a firms immediate cash needs will allow the firm to maintain a smaller ongoing cash balance. By reducing the size of its cash balances, more money is made available for investment in the firms growth. Debt factoring is also used as a financial instrument to provide better cash flow control especially if a company currently has a lot of accounts receivables with different credit terms to manage. A company sells its invoices at a discount to their face value when it calculates that it will be better off using the proceeds to bolster its own growth than it would be by effectively functioning as its "customer's bank. Accordingly, factoring occurs when the rate of return on the proceeds invested in production exceed the costs associated with factoring the receivables. Therefore, the tradeoff between the return the firm earns on investment in production and the cost of utilizing a factor is crucial in determining both the extent factoring is used and the quantity of cash the firm holds on hand. Many businesses have cash flow that varies. It might be relatively large in one period, and relatively small in another period. Because of this, businesses find it necessary to both maintain a cash balance on hand, and to use such methods as factoring, in order to enable them to cover their short term cash needs in those periods in which these needs exceed the cash flow. Each business must then decide how much it wants to depend on factoring to cover short falls in cash, and how large a cash balance it wants to maintain in order to ensure it has enough cash on hand during periods of low cash flow.

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6.2. ADVANTAGES OF FACTORING Factoring has become popular all over the world thanks to the services it offers. Factors provide services that range from financing to the administration of sales on credit. Some advantages of factoring include: No time wasted on comprehensive loan applications Better cash flow and quicker access to working capital Better liquidity through on-time cash injections (advances from the factor) Better financial standing, creditworthiness, and solvency Higher sales volume - the company can offer its customers better credit terms and can accept more business Better terms for new customers (important for exporting companies) Risk or bad debts eliminated, under non-recourse factoring, or at least reduced through timely collection Business growth funded without new debt - no monthly payments or balloon payments No sale of equity (no new shareholders to raise funds) No personal guarantees, unlike most loan programs; No material insurance A stronger balance sheet, enhancing borrowing potential, as factoring is off-balance sheet and does not need to be reported to prospective lending institutions, boosting the efficiency ratios (e.g. return on assets etc.) Easier to finance seasonal production Fresh' working capital means suppliers can be paid in advance, at an additional discount Less time and effort needed to collect receivables, because the factor is specialized Operating expenses reduced (for the reasons listed above) Even a start-up or young company can obtain financing quickly Better information management (especially under full factoring) Allows quicker, smaller, just-in-time' purchases

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6.3.

REGISTRATION PROCESS

The registration process of a bank with CERSAI can be divided into 2 segments. 1. One time Bank Registration 2. Recurring Registration of Transactions

Bank Registration
For registering themselves with CERSAI, banks need to fill in some forms. These forms need to be sent to the CERSAI office along with identity proofs. All the forms are available on the CERSAI Website. (https://www.cersai.org.in/) 1. Registration form A (Applicant institutions details) duly filled, signed and stamped by approving authority. (Annexure 1) 2. Registration form B (CERSAI user administrator for applicant institution) duly filled, signed and stamped by approving authority and also by the user administrator (representative) at an appropriate place specified in the form. (Annexure 2) 3. Terms and conditions duly signed and stamped by approving authority. 4. The certified copy of photo identity card issued by employer is to be attached with the Registration Forms respectively. 5. Copy of any of the following ID Card is to be attached with the Registration Forms PAN Card Passport Voter ID Card Driving License

BNP Paribas is already registered with CERSAI in Mortgage based Transactions division. There is no separate registration required for factoring services Mr. Vijay Bhide and Mr. Sanjiv Jhurani are CERSAI user administrators. They need to create sub users i.e. Checker and Maker who will register and authenticate the transactions with CERSAI. Once registration of entity is successful & approved by CERSAI user admin, username and password for Entity User Administrator will be forwarded to primary contact persons e-mail ID who will be considered as User Administrator of that particular entity. Once Entity user admin receives User ID and Password, user is required to log in to CERSAI system with the given User ID & Password.

52

Entity User Administrator can create multiple secondary user administrators and member users for its own entity in the CERSAI System. That means User administrator can further create secondary user administrator for that entity. But secondary user administrator can only create member user for its entity.

Enter the following details: 1. Employee Number 2. First Name 3. Date of Birth 4. Select Gender 5. Nationality 6. Department 7. Designation 8. Role Level 9. Office Address which includes address, telephone number, fax and mobile number. 10. Email ID 11. Residential Address- Permanent and Present Following roles are defined in the system: 1. C03:Data Processing user - Checker 2. M03: Data Processing user Maker 3. R04: Search User 4. R05: MIS Report User (Can view the reports of various charge registrations) 5. C06: Multifunction User - Checker 6. M06: Multifunction User - Maker 7. R07: Secondary User Administrator 8. R08: Accountant

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After successful submission of request by maker entity admin, system will display the successful message & the record will be sent to checkers queue for authorization. Checker entity admin needs to login into CERSAI system. At this time, system will ask for Digital Signature. Click on Checker FYA link. Enter Maker user ID, select type of transaction as Create Member User. If maker ID is wrong, system will show error message that Please enter valid User ID.

If no request is pending for selected maker ID with selected type of transaction, system will display message No Records to Display. Entity user admin can play dual Role to that of Ma ker as well as Checker. However, if user tries to authorize the transaction entered by him, system will throw error message that You are not authorized to check data entered by you. System will display the list of newly created member users pending for authorization. Select the appropriate record & click on Show Details button. Checker entity admin can verify the details entered by maker entity admin and compare it with physical documents. If any discrepancy is found checker entity admin can reject record by giving rejection comments.

Once the record is rejected, it will be added to maker entity admin queue. Maker CERSAI admin is required to log in into the system & go to Maker FYA link. Maker entity admin is required to select type of transaction as Create member user & click on Submit. System will display the rejected records in grid format. If record is found to be incorrect, maker entity admin can make necessary changes & resubmit the record or discard the record. Once the record is discarded, it will be removed from CERSAI database. If record is resubmitted with necessary corrections, it will be added to checker entity admins queue. If the details are found to be correct, checker entity admin to click on Confirm button to authorize the recor d entered by selected maker admin. The transaction can be authorized with digital signature.

54

6.4. REGISTRATION OF TRANSACTIONS Once the bank is registered with CERSAI, company will get a username and password which will direct the user to the factoring portal where he can upload the invoices, file the transactions etc. 1. The bank needs to fill up Bill Factoring Form no 1 which contain information of assignment of Receivables in favor of Factor. The form is available on the CERSAI website. ( Annexure 3) https://www.cersai.org.in/ These are the following fields which need to be filled in the form. Category of the Assignor of receivables Assignor Details Address of the Assignor Particulars of the Factor being the Assignee of receivables Debtor (Buyer) Details Assignment Details Expected realization period Total Limit/Facility sanctioned under the agreement Whether assignment is absolute without recourse to assignor Particulars of specific receivables Description of future receivables

Description of Document by which the receivables are assigned Whether the assignment is on (a) whole turnover basis or Invoice basis (non whole turnover basis) Invoice No. Amount of invoice Payable by date Brief particulars of the principal terms and conditions of the assignment agreement Digital signature of the authorized representative of Assignee 55

2. After the bank receives all the receivables from the buyer, it should file satisfaction of the assignment of receivables in its favor. The bank needs to fill up Bill Factoring Form no II which contain particulars for satisfaction on realization of receivables. The form is available on the CERSAI website. (Annexure 4) https://www.cersai.org.in/ These are the following fields which need to be filled in the form. Assignor Permanent Account Number (PAN) Details of the Assignor Assignment registration ID Number Registration date Final amount assigned (in Rupees)

Date of realization of or repayment of loan in full 6.5. CERSAI Web Portal for Factoring Satisfaction of Receivables Once the borrower fulfills his obligations, it is necessary for Lending Entity to satisfy its security interest in Central Registry System. Entity is required to release its security interest on the asset upon fulfillment of all obligations by the borrower. The same will be done through online data entry. Entity that has created security interest can only make it satisfied in CERSAI system. User who has given Security Interest creation menu will also be given additional link of Satisfaction of Security Interest. On the basis of Asset ID user can see the basic details of asset for which security interest is to be satisfied. When there are more than one charge holders for a particular asset, any of the charge holders can satisfy its own in the system. That means, one entity cannot satisfy other entitys security interest in the system. Upon satisfaction of security interest by all the entities, system will update security interest satisfaction status of that particular asset to satisfied. Maker member user needs to navigate Satisfaction of Security Interest link. Once the charged is wrongly marked as Satisfied, the user cannot again make it as Unsatisfied in the system. After successful submission of request by maker member user, system will display the successful message & the record will be sent to checkers queue. Checker entity admin to verify the details & if it is correct click confirm button to approve the record. Once the record is successfully approved, system will send email notification to checker user who has approved that record.

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6.6. BATCH UPLOAD

CERSAI has not introduced batch upload for factoring but batch upload is available for Mortgage based transactions. Soon batch upload will be available for factoring as well. Here is the process flow followed in the CERSAI portal for uploading batch files. System provides a facility to user to enter/search multiple charge records simultaneously through batch process. Following are the three different batch files which can be uploaded in CERSAI system. Add security interest Satisfaction of security interest Online Search The format for batch files will be hosted at web site in Download tab. Batch facility will not be made available to entity as a default feature. To avail this facility, entity needs to test their test batch file to helpdesk team. Further, helpdesk team will upload it in testing region. If the file gets uploaded successfully with respect to file format & data quality entity can request CERSAI team to enable batch facility for them. Member user, who has privilege for Add Security Interest will be given additional link for batch upload facility in Central Registry System. The same link will also be provided to entity user administrator. Then checker member user verifies the details & if it is correct click confirm button to approve the record.

CERSAI Contact Person

Mr. Deepak Sarda (Head-Operations) Mob: +919953555015 Mr. Sumesh Mob: +919911052629

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7. CROSS SELLING DIFFERENT BANKING PRODUCTS

The main aim of BNP Paribas Corporate and Investment Banking (CIB)s teams is to develop and maintain long-term relationships with clients. They provide support for clients expansion or investment strategy, as well as handle their Day-to-day transactions, and deliver integrated solutions to meet clients financing, advisory and risk management needs. A questionnaire is prepared to maximize cross sell of different banking products to 17 public sector enterprises by understanding their changing requirements. For the same, research on existing public sector portfolio of corporate banking New Delhi is undertaken. Various banking products like cash management; trade products like bank guarantees\import letter of credits\buyers credit\export credit agency backed financing\investment of surplus funds in fixed deposits or government mutual funds etc are incorporated the get the insight of the correct requirements of the PSUs. A exhaustive questionnaire is designed to cover all the cash and trade requirements of the company and how can BNP mould its product according to their needs.

7.1. Cash management products

BNP Paribas offers a range of cash management global services directly to clients through our international network. It has more than 500 experts around the world who deliver cash management services. As a leading bank in cash management BNP offer: - a global service (e-banking, cash centralization) to fit consolidation requirements of international groups; - a large volume payments capacity on industrialized and straight through processing platforms; - a great innovation capacity (BNP Paribas is recognized as a pioneer in new technology development and a reference bank for shared services centers); - a high-quality implementation service for the setting up of tailor-made solution and a personalized client support service.

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7.2. Global Trade Services

Trade services focus to optimize, secure and finance international trade transactions for their customers. It Provide trade solutions to all customers of BNP Paribas. Various products offered by BNP are Flow business: documentary business, guarantees, standby LC, export credit, trade credit, etc Supply Chain Financing: receivables, payables, inventory solutions Documentary operations Guarantees / SBLCs Financing imports / exports Domestic Trade Solutions
- Connexis Trade - eW@are E-BANKING

- International Guarantees Issuance

- SBLC Issuance/ Confirmation - Documentary Credits (export/import) - Documentary Credit Confirmation - Documentary Collections (export/import) STANDARD PRODUCTS - Documentary discount PLAIN VANILLA - Export/Import loans
SECURITIZATION

Optimize, secure, finance international trade transactions and support large corporate and mid-size companies TRADE EXPERTISE DESK Advice, technical assistance & training on: - International guarantees - Documentary credits

SUPPPLY CHAIN MANAGEMENT

TRADE DEVELOPMENT

Support companies to internationally: - Market studies - Research of partners - Set up of foreign ventures

develop

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7.3. QUESTIONNAIRE
Q1 Company's Name Q2 Contact Person Q3 Designation Q4 what are your average cash volumes (Rs.)? (Yearly) less than 100 million (1) 100-1000 million (2) 1000-5000 million (3) more than 5000 million (4) Q8 Is the company using online platforms or cheques for cash collection and payments? Cheques (1) Online platform (2) Q5 What are your total average check volumes ? (Yearly) less than 1000 (1) 1000-5000 (2) 5000-10000 (3) more than 10000 (4) Q6 What cheque credit period do you expect from the bank? Local & Outstation Q7 Does the company face problems in determining the name of vendors for different cheques received by the company. Yes (1) No (2) Q9 How user friendly is your online portal? Please rate. 1 (1) 2 (2) 3 (3) 4 (4) 5 (5) Q10 What further improvements would you like to implement in your online cash platform?

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Q11 Are you open towards implementing Host to Host auto authorization service for e payments ? Yes (1) No (2) Q12 Does the e payment portal you use provide the company with the following. Account Information (1) Bulk Payments (2) e-Tax Payments (3) Cheque reports (4) Transaction status (5) Q13 Who are your payment and collection bankers? Standard Chartered (1) Citi (2) HDFC (3) SBI (4) ICICI (5) Other, Please specify (6) ____________________ Q14 Does the company receive PDC's and require end to end management of the same? Yes (1) No (2) Q15 Does the company require cash poooling and cash reconciliation services? Yes (1) No (2) Q16 Does your company have Cash Surplus ? Yes (1) No (2) Q17 If yes, then which of the following liquidity management products does the company wish to avail from banks? Please tick Time deposits (1) Sweeps to TD (2) Sweeps to MF (3) Zero balance accounts (4)

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Q18 Does your company deal in: Exports (1) Imports (2) Both (3) None (4) Q22 With which countries does your company usually trade with? Q19 What are your average Trade payables and receivables? Q24 What are your average Days Payable Outstanding (DPO) ? Less than 90 days (1) 90-180 days (2) 180-365 days (3) More than a year (4) Q25 What are your average Days Sales Oustanding (DSO) ? Less than 90 days (1) 90-180 days (2) 180-365 days (3) More than a year (4) Q27 Do you look at financing at financing your Accounts receivables and Accounts Payables ? (Vendor Financing) Yes (1) No (2) Q29 What is the rate at which the company is currently availing Export and Import financing ? Q28 What payment modes does the company adopt for imports? Open account (1) Advance payment (2) Letter of credit (3) Document Collections (4) Others, please specify (5) ____________________

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Q20 What Trade credit facilites does your company desire to gain access to? Supplier's Credit (1) Buyer's Credit (2) Working Capital Demand Loan (3) Foreign Currency Loans (4) Q21 What non-funded facilities do you normally avail from the banks? Bank Guarantee [ Performance --- Financial --- Bid Bond] (1) Letter of credit [Sight --- Usance] (2) SBLC(Stand by Letter of credit) (3) Q23 What credit period does your company normally avail in case of LC's ? Less than90 days (1) 90-180 days (2) 180-365 days (3) More than a year (4) Q26 Are you comfortable with the present credit period? Yes (1) No (2) If not, what is the desired credit period? (3) ____________________ Q30 Does the company require online platforms for the following trade activities: Export LC advising (1) Buyers Credit request (2) View the guarantees issued (3) Document tracking (LC's & Collection documensts) (4) Confirmation of document dispatch (5) Discrepancy intimation (6) Notification of Bank Guarantee request (7) Vendor Financing (8)

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8. References:
Books Financial Management: I.M. Pandey, Vikas Publishing House (10th edition). Financial Accounting for Business Managers by Ashish K. Bhattacharya. National Fertilizers Ltd.- Annual Reports 2007-08, 2008-09, 2009-10, 2010-11. 2011-2012

Websites

http://www.moneycontrol.com/stocksmarketsindia/ https://www.educorporatebridge.com/- Online Library http://www.bloomberg.com/ http://deadpresident.blogspot.in/- Equity Research Reports http://www.principlesofaccounting.com/ http://www.wallstreetoasis.com/tag/credit-research

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