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Maytas Infra, a leading construction and infrastructure developer in India till 2008,
with over two decades of business experience. Founded in 1988 by entrepreneurial legacy of the Raju Family, the promoters of the $2 billion Satyam Group, the company became India's Fastest Growing Construction Company by 2007. The business operations of the Company were encouraging till the Satyam events broke during the December 2008. After the Satyam fiasco, Company has experienced serious hitches which lead its business to collapse. This report presents analysis of various financial parameters like Liquidity, Solvency, Profitability, Turnover, Valuation, of the company- pre & post Satyam fiasco in finding the circumstances which made the company to fall.
ABOUT COMPANY
After creating a strong foothold with over 2 decades of experience in the construction space, the company made significant inroads in the infrastructure sector. The Company participates in competitive bidding where projects are awarded on the basis of experience, engineering capabilities, technical expertise and financial resources. The Company undertakes design engineering, procurement and construction material, fuel and equipment culminating into the construction. Having established a strong foothold in the sectors of irrigation, roads & bridges, buildings & structures, company also entered in to sectors of power, industrial structures, oil & gas infrastructure, and railways. Further, the Company has taken concrete steps towards foraying into water and waste water management, construction of Special Economic Zones (SEZ), urban infrastructure, ports and airports as they provide huge growth opportunities. This provided the Company with much required diversity in terms of nature of the projects and geographies. The Company has a certificate from AQA International, LLC in respect of the quality management system (ISO 9001:2000). By 2011 the operations of the Company are on track after an unprecedented crisis as fallout of the Satyam episode. Infrastructure Leasing & Financial Services Limited (IL&FS), a new promoter of the Company, name of the company has changed to IL & FS Engineering and Construction Company limited. Also the Company was able to induct the Saudi BinLadin Group (SBG) of Saudi Arabia as a Strategic Partner in the Shareholders consortium.
Gautami Power Project, East Godavari, AP -460 MW gas based power project
Turn Over
1800 1600 1400 1200 1000 800 600 400 200 0 1637 1335 955 645 290 395 1045
Rupee in Cr.
2005
2006
2007
2008
2009
2010
2011
In Construction Company most of the Revenues are from contracts. Company showed good improvement from 2005 to 2008.And all time record Rs. 1637 Cr is observed in 2008. After the Satyam fiasco the companys turn over came down to Rs. 955 Cr. A slight improvement in 2011 is observed. B. Profit after the Tax :
58
25
53
100
-250
-490
-600
Companys highest recorded profit is about Rs. 100 Cr which is observed in 2007-2008FY. After the Satyam episode in Dec 2008,Compnay incurred a loss of Rs.490 Cr in 2009 followed by Rs. 250 Cr loss in 2010.
C. Net worth :
Net worth
700 600 500 Rupee in Cr. 400 300 200 100 0 2005 2006 2007 2008 Net worth 2009 2010 2011 197 218 163 265 268 653 582
In 2008, the company has increased its reserves form Rs.215 Cr to Rs. 593 Cr causing the company Net worth recorded all time high of Rs. 653 Cr. Maytas lead consortium has won the prestigious Hyderabad Metro project in this year (2008) only. D. Companys Order Book : During these years under review, Company has secured contracts for Roads & Bridges, Buildings, Power, Irrigation and Railway projects. These contracts have been secured on standalone basis and on Joint Venture basis with leading construction companies. Notwithstanding the economic slowdown and the exigencies, company has been able to retain its healthy order book though it has lost many of its BOT like Hyderabad Metro & other JV projects.
Order book
10000 9000 8000 7000 6000 5000 4000 3000 2000 1000 0 8807 7563 6231 7642
Rupee in Cr.
2638
3041
2006
2007
2008
2009
2010
2011
Also company got few Road projects in 2010 carrying a healthy Order Book.
FINANCIAL ANALYSIS
1.
Liquidity Ratios: a. Current ratio: b. Quick ratio: c. Absolute cash ratio Solvency: a. Debt-equity ratio: b. Interest coverage ratio c. NAV Profitability a. Gross profit ratio b. Net Profit ratio c. Profitability Ratio Based on Investment. i. Return on Capital Employed ii. Return on Shareholders funds Turnover: a. Fixed assets turnover ratios b. Stock Turnover Ratio c. Debtors Turnover ratio d. Creditors Turnover Ratio Valuation: a. Earnings per Share b. Price Earnings Ratio
2.
3.
4.
5.
Liquidity Ratios
The liquidity ratios measure the ability of firm to meet its short-term obligations and reflect the shortterm financial strength /solvency of a firm.
Current Ratio Measures the ability of a company to discharge its day-to-day liabilities out of the cash or
current assets that it possesses
Current Assets are the assets (in ordinary course of business) which can be converted into cash within a short period of time (not exceeding one year) which include Cash, bank balances, inventory of raw materials, etc. Current Liabilities are the liabilities which are short-term maturing obligations to meet, as originally completed within a year , consist of trade creditors, bills payable, bank credit, provision for taxation, dividend payable and outstanding expenses. Implication of Current Ratio As a measure of short term /current financial liquidity, it indicates the rupee of current asset available for each rupee of current liability or obligation payable. The higher the current ratio, the large the amount of rupee available per rupee of current liability, the more is the firm ability to meet the current obligations and the greater is the safety of short term creditors. High ratio leads to greater the volume of current assets more than the specified norm denotes that the firm possess excessive current assets than the requirement portrays idle funds invested in the current assets. Current ratio of Maytas Infra
Current Ratio
Maytas Infra Limited
4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 Current Ratio 2009 2010 2011
3.5 3.0
2.7
2.4 1.5 2.4
2.5
Analysis of Companys Current Ratio For last seven years, It is observed that the company maintained an average of Rs 2.6 available for each Rs.1 of its current liability. Below graph presents the status of the Current Asset and Current Liabilities in Crore rupees.
Current Liabilities
In 2007 the current ratio is very low of about 1.5 this is because, the company liabilities such as, sundry creditors (Rs.68Cr), Dues to Sub-contractors (110cr), security deposits payable (Rs.23cr) and other liabilities are more which made the current year liabilities, four times more compared to previous year (from Rs.100 Cr to 400 Cr) where as its current assets are increased twice (form Rs.300 to 600 Cr). In 2005 the current ratio is all time high of about 3.5. Even though the companys current assets are less when compared to other followed years, the company has the Sundry debtors of about Rs.105 Cr, loans and advances (86 Cr) in the current year. Whereas its total liabilities are about Rs.72 Cr only (Dues to Sub-Con Rs.26 Cr., Security deposits Rs.13 Cr.) In 2009 , the value of companys current assets are high of about Rs.1700Cr which includes sundry debtors (Rs.476Cr) , Inventory (Rs.300Cr),advance tax (Rs.65Cr) , Loan & Advances (Rs.780Cr) which includes inter corporate deposits (Rs.391Cr) , dues form Joint ventures (Rs.107Cr), Share / Debenture Application Money to Others (Rs.73Cr). The Inventory value of the company shown drastic increment form 2005 to 2009 and went down in 2010.
Inventories
Ruppes in Crores 400 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 Inventories
Quick Ratio measures as to how quick, is the ability of a company to discharge its current liabilities net of
working capital limits out of current assets. Inventory takes the longest of all the current assets to convert into cash and working capital limits are renewed on a yearly basis and not settled daily. Hence both are excluded. It is also known as Acid-test ratio.
Implication of Absolute cash Ratio This ratio is a further refinement of current ratio with tighter as well as realistic properties as it considers only the liquid assets and liquid liabilities Analysis of Companys Quick Ratio Except in 2007 ratio is greater than the generally accepted standard of 1:1.This shows that the company have adequate liquid assets available for business. But this may also means the company unable to utilise the available cash for its business operations.
ratio of absolute liquid assets to current liabilities. In the computation of this ratio only the absolute liquid assets are compared with the liquid liabilities. The absolute liquid assets are cash, bank and marketable securities. It is to be observed that receivables (debtors/accounts receivables and bills receivables) are eliminated from the list of liquid assets in order to obtain absolute liquid assets since there may be some doubt in their liquidity.
Implication of Absolute cash Ratio This ratio gains much significance only when it is used in conjunction with the current and liquid ratios. A standard of 0.5: 1 absolute liquidity ratio is considered an acceptable norm. Analysis of Companys Absolute cash Ratio Extremely low than the industrial standard of 0.5 except in 2008, the level of cash maintained by Maytas infra is less than industry average.
Absolute cash ratio of Maytas Infra Year 2005 2006 2007 2008 2009 2010 2011 Ratio 0.2 0.2 0.1 0.4 0.1 0.1 0.1
Solvency Ratios
The capacity of a company to discharge its obligations towards long-term lenders indicates its financial strength and ensures its long-term survival. Thus its important to study the solvency position or the leveraging capacity of the company. This ratio is useful for financial institutions, banks and other lenders to assess the credit-worthiness of the company.
Debt-equity ratio measures the proportion of debt and capital (both equity and preference capital) in
the capital structure of the company. It measures the extent of assets financed through long-term borrowings.
Implication of Debt-equity Ratio Helps in assessing whether a company is relying more on debt or capital for financing its assets. Higher the debt more is the financial risk which hampers the capacity of the company to raise cheap funds. Higher capital content means not passing the equity to its Debt-equity ratio shareholders. The debt/equity ratio also depends on the industry in which the company operates. For example, capital-intensive industries such as auto manufacturing, tend to have a debt/equity ratio above 2, while personal computer, Construction companies have a debt/equity of under 0.5. Analysis of Companys Debt-equity ratio Is low up to 2008, which implies that the interest payment will be less and the amount of profits available for the shareholders is high and outside control in the business will be low.
Maytas Infra Limited 4.8 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2005 2006 2007 2008 2009 2010 2011 0.3 0.5 1.0 1.4 1.3 0.8
But it is clear, in 2009 after the Satyam episode the company Net worth came down drastically, which lead the Debt Equity ratio raise to 4.8, also another thing is that company has raised a huge amount through secured loans in FY 2008-2009, as the level of debt is high the company is more likely to fall in a debt trap, which kept the companys shareholders in to great risk just as happen to Satyam Computers.
Interest coverage ratio measures the capacity of a company to pay the interests it has incurred on its
long-term borrowings out of its cash profits.
Implication of Interest coverage Ratio Helps in assessing whether a company is comfortably placed to service its interest obligations. Higher the ratio, greater the ability of a company to service interest and lesser is the risk involved for lenders .The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is
10
1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses.
-0.7 2011
-2.2 -2.9
Analysis of Companys Interest coverage ratio Up to 2008, the ratio has been better than 1.5 which implies that the company is generating sufficient profits to meet its debt/interest expenses currently. But form 2009 onwards, after the Satyam episode, it gone negative, which indicates the companys insolvency to pay its debt & increased interest amounts. This made the Banks not invest or issue any kind of loans or Bank guarantee to the company leading to liquidity crisis .Also this decreased the level of profits.
NAV (___________________): measures the net asset value per equity share of the company. It seeks to
assess as to what extent the value of the equity share of a company contributed at par has been created for the shareholders. It is also known as the net worth per share of book value per share.
Implication of Interest coverage Ratio This ratio indicates the efficiency of the company management in building up a back-up of reserves and surplus to fall back upon. Higher the ratio, higher is the capacity of the company to raise further capital.
11
Profitability Ratios
These ratios attempt to analyse the overall profitability of a company .The main objective of every business concern is to earn profits. A business must be able to earn adequate profits in relation to the risk and capital invested in it. The efficiency and the success of a business can be measured with the help of profitability ratio.
Gross Profit Ratio The ratio elucidates the relationship in between the Gross profit and sales volume.
Implication of Gross Profit Ratio It facilitates to study the profit earning capacity of the firm out of the manufacturing or trading operations. Higher the ratio is better the position of the firm which means that the firm earns greater profits out of the sales and vice versa. Analysis of Companys Gross Profit Ratio The margin has been significantly decreasing across these years. After the 2006 the companys gross profit was decreasing even though revenue of the company is raising, this is due to increase in the consumption of the material. This indicates that the company may quoted the tenders at very lower prices in order to get the contracts which made the companys profit margin less.
78%
86%
Net Profit Ratio The ratio expresses the relationship in between the Net profit and sales volume. Net Profit Ratio
Maytas Infra Limited
30% 20% 10% 0% -10% -20% -30% -40% 2005 2006 2007 2008 2009 2010 2011
Implication of Net Profit Ratio This ratio facilitates to portray the overall operating efficiency of the firm. The net profit ratio is an indicator of overall earning capacity of the firm in terms of return out of sales volume. Higher the ratio is better the operating efficiency of the firm which means that the firm earns greater volume of both operating as well as non-operating profit s. More analysis on the Profit of the company is discussed in the following ratios. 20%
6%
9%
6%
0%
-26% -37%
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Implication of Return on Capital Employed Ratio Higher the ratio is better the utilization of the long term funds raised under the capital structure means that greater profits are earned out of the total capital employed Analysis of Companys Return on Capital Employed Ratio In year 2005, even the business is small, the company succeeded in making a very good profit of about 28.63 % which is Rs.57 Cr on the Rs.198Cr. capital employed. In year 2009, after the Satyam Scandal, and media hype on the company, company seen a severe loss of about Rs.490Cr.
28.6% 9.1% 14.7% 7.5% 0.2% Return on Capital Employed
Maytas Infra Limited
It is also observed that the company has purchased an additional material of worth Rs.737Cr &Rs.648Cr in 2008 and 2009 respectively which is all time high in company records.
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Return on Shareholder fund Equity Shareholders of a company are more interested in knowing the
earning capacity of their funds in the business. As such, this ratio measures the profitability of the funds belonging to the equity shareholders.
Implication of Return on Shareholder fund This ratio measures how efficiently the equity shareholders funds are being used in the business. It is a true measure of the efficiency of the management since it shows what the earning capacity of the equity shareholders funds. If the ratio is high, it is better, because in such a case equity shareholders may be given a higher dividend. Analysis of Companys Return on Shareholder fund Clearly this return has significantly decreased since from 2005 and the pattern continued and gone negative value of about -8.31 which indicates the company is fully incapable to return anything to its shareholders except the losses. Thus the shareholders lost their hopes on the company and the value of the company has been come down drastically.
1.69
2008 2009
-0.60
2010
0.01
2011
2005
2006
-8.31
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Turnover Ratios
The efficient utilization of assets and optimum capital structure are fundamental to any company hence it is essential to study and analyses these ratios.
Implication of Return on Shareholder fund As fixed assets generate income to the company, the more efficiently they are utilised, the more they would contribute to the revenue.
Analysis of Companys fixed assets turnover 2005 2006 2007 2008 2009 2010 2011 ratio: It is observed that the company owns a gross block of Rs. 550 Cr worth Fixed assets including the Construction Machinery like Tunneling Machines, Cranes, etc. which has been kept idle or for long time or purchased machinery before actually they intended for. The ratio is falling gradually, which implies, fixed assets are not used efficiently and are hence they became burden to the revenue. It is also observe that the depreciation of Rs 261 Cr has incurred on the Fixed assets of the company as indicated in below table.
Fixed Assets
Gross Block Less: Accum. Depreciation Net Block
efficiently working capital has been utilized in making sales. Implication of Working capital turnover ratio It shows the number of times working capital has been rotated in producing sales. A high working capital turnover ratio shows efficient use of working capital and quick turnover of current assets like stock and debtors. A low working capital turnover ratio indicates under-utilisation of working capital. Analysis of Companys fixed assets turnover ratio: From 2005 to 2007 the company has showed improvement in utilising the working capital efficiently. But the ratio came down from 2008 onwards indicating the improper usage of the working capital. Year 2005 2006 2007 2008 2009 2010 2011 Working Capital Turnover ratio 1.9 2.0 3.1 1.8 1.3 1.3 1.1
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3.8 2.8 2.2 0.6 2006 2007 2008 2009 2010 2011 2.2
Analysis of Companys fixed assets turnover ratio: Inventory of any construction company includes the material that has to be executed in the projects like Cement, Steel, Electrical equipment, transformers, conductors, etc. The ratio is very low in 2010 compared other years indicates that the material is kept un-executed for long time. Otherwise the company has ordered for excess material than it exactly required for the projects.
Ruppes in Crores
199
2011
16
This ratio indicates the relationship between credit sales and average
debtors during the year While calculating this ratio, provision for bad and doubtful debts is not deducted from the debtors, so that it may not give a false impression that debtors are collected quickly.
Implication of Debtors Turnover ratio: This ratio indicates the speed with which the amount is collected from debtors. The higher the ratio, the better it is, since it indicates that amount from debtors is being collected more quickly. The more quickly the debtors pay, the less the risk from bad- debts, and so the lower the expenses of collection and increase in the liquidity of the firm. By comparing the debtors turnover ratio of the current year with the previous year, it may be assessed whether the sales policy of the management is efficient or not.
Assumptions: Here revenue including other income is taken as credit sales and average debtors equal to Sundry debtors form respective annual reports. Analysis of Companys Debtors Turnover ratio: Up to 2009 the Debtors turnover ratio is good implying company made good effort in collecting the money form its debtors. But ratio is fall in 20010 & 2011 which imply the revenue have not been significant which is not true. Hence the money collected from debtors is not done quickly. Maytas infra should speed up the money collection process from Debtors.
Creditors Turnover Ratio: This ratio indicates the relationship between credit purchases and average
creditors during the year.
Implication of Creditors Turnover ratio: This ratio indicates the speed with which the amount is being paid to creditors. The higher the ratio, the better it is, since it will indicate that the creditors are being paid more quickly which increases the credit worthiness of the firm.
Analysis of Companys Creditors Turnover ratio: has been In-consistent across the 5 years which indicates the credit worthiness of Maytas Infra. This may be due to the fact that either business has better liquidity position which is not true. Hence it is important to note that the business credit rating among suppliers is not good and also they do not allow reasonable period of credit.
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Valuation Ratios
The capital market is a major source of capital for the company. The ability of a company to raise capital is largely dependent on promoters, performance of the company, financial position and investor-servicing track record. Hence it is important for any prospective investor to study these crucial aspects before making an investment decision. Also it is important for an existing shareholder to study these aspects to take a hold or to exit decision.
contributed by the owners. The portion of a company's profit allocated to each outstanding share of common
Implication of Earnings per Share This ratio is helpful in the determining of the market price of the equity share of the company. The ratio is also helpful in estimating the capacity of the company to declare dividends on equity shares.
Price earnings ratio is the ratio between market price per equity share &
earnings per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company & is widely used by investors to decide whether or not to buy shares in a particular company. Implication of Price Earnings Ratio: This ratio shows how much is to be invested in the market in this companys shares to get each rupee of earning on its shares. This ratio is used to measure whether the market price of a share is high or low.
Analysis of Companys Price Earnings Ratio: After the Satyam episode and media hype in 2008 the companys earnings per share fall in 2009 to Rs. -83.2 as company incurred a loss of about Rs 490 Cr.
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SOLVENCY:
As the business of the company of experiencing the rapid growth, company took over Rs. 700 Cr of secured loans to enhance its business during 2007-2008 FY. But due to Satyam Fiasco, Companys shareholders fund which is expected to increase had reduced form Rs. 652 Cr to Rs.348 Cr, during 2008-2009 FY, which lead the companys Debt-Equity Ratio raise to industry high 4.8 which made the company to fall into insolvency state . Besides this, companys Interest coverage ratio fall to negative, which indicates the companys insolvency to pay its debt & increased interest amounts. This made the Banks not invest or issue any kind of loans or Bank guarantee to the company leading to liquidity crisis .
PROFITABILITY:
It is observed that the Companys Gross Profit Margin is considerably less, implying that the Company had bid the executing contracts at very lower prices (or) executing the contracts inefficiently which includes delay in work (out of schedule) for which Clients charge LD on contractors. Company has incurred a Net loss of about Rs. 490 Cr (-32.8 % on capital ) in 2009 due to decrease in Contract Revenues and increase in contract & financial Expenses compare to the previous year 2008 where it has made a Net profit of Rs. 100Cr (7.5 % on Capital).
19
TURNOVER:
Company owns a gross block of Rs. 550 Cr worth Fixed assets including the Construction Machinery like Tunneling Machines, Cranes, etc. Growth in the efficiency of fixed assets utilization which is reflected in EPS and fixed assets turnover ratios. Falling gradually to lower values, the Fixed asset turnover ratio implies, fixed assets are not used efficiently in the company. This means Machinery has been kept idle or for long time or purchased the machinery before actually they intended for use. The Stock turnover ratio is very low in 2010 compared other years indicates that the material is kept unexecuted for long time. Otherwise the company has ordered for excess material than it exactly required for the projects.
VALUATION:
Earnings per share (EPS) have gone to (negative) Rs. -83. After the Satyam Fiasco the company became insolvent and shareholders lost their hope on the company. The market price or the stock price has fall to all time low in 2009 and hence the price earnings ratio has fallen to negative and no dividend is shared.
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Balance Sheet
Sno Particulars Sources of Funds Share Holders Fund Share Capital Reserve & Surplus Loan Funds Secured Loans Unsecured Loans Deferred Tax Liability Total Application of Funds Fixed Assets Gross Block Less: Depreciation Net Block Capital Work in Progress Investments Current Assets, Loan & Advances a Inventories b Cash & Bnk Balances c Other Current Assets d Sundry Debtors e Loans & Advances Total Less: Current Liabilities & Provisions Net Current Assets/working capital Miscellaneous Expences for the year ended 31st March 2005 for the year ended 31st March 2006 for the year ended for the year ended for the year ended for the year ended for the year ended 31st March 2007 31st March 2008 31st March 2009 31st March 2010 31st March 2011
1 2
2 3
31.09 10.89 20.20 0.00 53.20 8 17.08 139.32 86.05 250 72 178 0
56.02 14.54 41.48 3.71 79.42 10 19.24 172.25 98.87 300 100 201 0
150.71 25.12 125.59 39.00 169.01 87 54.81 2.19 228.38 226.93 600 403 197
431.66 63.37 368.29 56.20 262.89 227 284.68 13.49 649.83 397.72 1573 666 907
534.98 130.08 404.9 26.34 335.96 300 57.29 83.54 476.79 781.74 1700 637 1063
537 208.89 328.11 7.25 36.65 154 52.48 33.53 550.1 592.24 1382 586 796
550.65 261.77 288.88 7.04 158.37 244 67.62 45.8 566.45 689.4 1614 638 975
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Income a Contract Revenues b Other Revenues Total Expenditure a Decrease/(Increase) in WIP b Material consumed c Personnel expenses d Contract expenses e Administrative and Selling expenses f Financial expenses g Depreciation/Amortisation Total Add : Company's share in (Loss)/Profit in integrated Joint Ventures Exceptional items (Loss) / Profit before tax and prior period items Provision for taxation a Current tax b Fringe benefit tax c Deferred tax charge / (credit) d Taxes for earlier years Total taxes (Loss) / Profit after tax and before prior period items Prior period expenses (Loss) / Profit after tax Add: Balance brought forward from previous years Appropriations Transferred (from) / to general reserve Proposed dividend Dividend tax (Deficit) / Surplus carried to Balance Sheet (Loss) / Earnings per share (in Rupees) Basic Diluted Nominal value of shares
-6.07 -6.07
58.45
-1.65
25.44
-2.98
53.12 53
206.47 45.00 5.00 0.85
99.64 100
208.74 5.00 8.83 1.50
-464.45
-25.34
-241.60
-8.05
14.63
-11.72
57
129.47 0.00 1.00 0.13
22
185.15 0.00 1.00 0.14
-490
293.05
-250
-185.69
3
-435.33
185.15
206.47
208.74
10.62 10.62 10
293.05
18.44 18.44 10
-196.74
-83.23 -83.23 10
-435.34
-42.42 -42.42 10
-432.42
-2.64 -2.64 10
22