India Bulls

A Project Study Report On
Titled ANALYSIS OF FINANCIAL RATIOS OF TOP 5 NON-BANKING FINANCIAL COMPANIES OF INDIA
Submitted in partial fulfillment for the Award of degree of Master of Business Administration
Submitted By:NEERAJ VIJAY MBA IV th sem
Submitted To:MS. VIJETA JHA (D.I.M.S)
2008-2010 DEEPSHIKHA INSTITUTE OF MANAMGENT STUDIES

ISI-17,RICCO INSTITUTIONAL AREA,SITAPURA, JAIPUR (RAJ.).
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DECLARATION
I Neeraj Vijay, S/o Mr. Prahlad Vijay declare that the project report tittled ANALYSIS OF FINANCIAL RATIOS OF TOP 5 NON-BANKING FINANCIAL COMPANIES OF INDIA is based on my project study. This project report is my original work and this has not been used for any purpose anywhere.
Neeraj Vijay MBA IVsem
PREFACE
For a management student theoretical knowledge as well as practically orientation exposes oneself to experiences, one can again be mastering it is best possible time. MBA curriculum has been fine-tuned in such a way that a student not applies the theoretical knowledge but also gain it in a practical sense. Thus objective can be attained through application of theory tools concepts and techniques of Management. Balanced theoretical and practical knowledge are essential for every student and MBA curriculum is conceived in such a way so as to facilitate practical purpose. To procure this objective the research undertook the project ANALYSIS OF FINANCIAL RATIOS OF TOP 5 NON-BANKING FINANCIAL COMPANIES OF INDIA Secondary data were collected from Website, and journal of IRDA. Researcher has tried to satisfy the topic of report by help of facts and findings.
ACKNOWLEDGEMENT
I express my sincere thanks to my project guide, Mr. Ashish kataria Designation Team leader, Deptt. Sales promotion, for guiding me right from the inception till the successful completion of the project. I sincerely acknowledge him for extending their valuable guidance, support for literature, critical reviews of project and the report and above all the moral support he had provided to me with all stages of this project.
I would also like to thank the supporting staff Mr.Anupam Singh, and Mr.kaushal pal for their help and cooperation throughout our project.
Neeraj Vijay MBA IV sem
EXECUTIVE SUMMARY
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A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company). The primary objective of study is to evaluate the different financial ratios of Indiabulls along with other non banking financial companies and to compare them. After comparing them valid reasons are given as to why there are variations between the ratios. Furthermore suggestions have been given where it is felt necessary when Indiabulls is a step behind other companies. Various point have been mentioned as to what necessary steps are to be taken. The secondary objective of the study is to describe the nature and functioning of non banking financial companies. This has been mentioned in detail in the introduction part. Also differences have been mentioned in this part as to how are NBFCs are different from banks. Or what are the differences between the functioning of NBFCs and banks. This information has been taken from the website www.rbi.org. Indiabulls is at the top of the table among the five companies (according to market capitalization). The other four players are India Infoline, Edelweiss Capital, Motilal Oswal Financial Services and Future Capital Holdings. These four players have been taken as competitors of Indiabulls and comparisons have been drawn therewith. Information has been gathered from different sources including time to time suggestions from seniors in the company. Various websites were visited like www.investopedia.com,
www.moneycontrol.com to gather relevant and updated information. Assistance has also been taken from the annual report of Indiabulls of financial year 2007-08. Assistance of various books of accountancy is also taken for reference
CONTENT
1.Introduction to the Industry
7 . 23 ... 59
2.Introduction to the Organization
3.Research Methodology
3.1
Objective
3.2 Importance .. 64 .. 69 112
4.Facts and Findings
5.Analysis 6.Swot analysis
7.Conclusions and Recommendations 116 . 120
8.Bibliography
INTRODUCTION NON BANKING FINANCIAL COMPANIES FORWORD
The Reserve Bank of India is entrusted with the responsibility of regulating and supervising the Non-Banking Financial Companies by virtue of powers vested in Chapter III B of the Reserve Bank of India Act, 1934. The regulatory and supervisory objective, is to: a) ensure healthy growth of the financial companies;
b) ensure that these companies function as a part of the financial system within the policy framework, in such a manner that their existence and functioning do not lead to systemic aberrations; and that c) the quality of surveillance and supervision exercised by the Bank over the NBFCs is sustained by keeping pace with the developments that take place in this sector of the financial system. It has been felt necessary to explain the rationale underlying the regulatory changes and provide clarification on certain operational matters for the benefit of the NBFCs, members of public, rating agencies, Chartered Accountants etc. To meet this need, the clarifications in the form of questions and answers, is being brought out by the Reserve Bank of India (Department of NonBanking Supervision) with the hope that it will provide better understanding of the regulatory framework. The information given in the FAQ is of general nature for the benefit of depositors/public and the clarifications given do not substitute the extant regulatory directions/instructions issued by the Bank to the NBFCs.
COMPANY HISTORY
Indiabulls Financial Services Limited was incorporated on January 10, 2000 as M/s Orbis Infotech Private Limited at New Delhi under the Companies Act, 1956 with Registration No. 55 - 103183. The name of Company was changed to M/s. Indiabulls Financial Services Private Limited on March 16, 2001 due to change in the main objects of the Company from Infotech business to Investment & Financial Services business. It became a Public Limited Company on February 27, 2004 and the name of Company was changed to M/s. Indiabulls Financial Services Limited. The Company was promoted by three engineers from IIT Delhi, and has attracted more than Rs.700 million as investments from venture capital, private equity and institutional investors such as LNM India Internet Ventures Ltd., Transatlantic Corporation Ltd., Farallon Capital Partners, L.P., R R Capital Partners L.P., and Infinity Technology Trustee Pvt. Ltd. and has developed significant relationships with large commercial banks such as Citibank, HDFC Bank, Union Bank, ICICI Bank, ABN Amro Bank, Standard Chartered Bank, Lord Krishna Bank and IL&FS. The Company and its subsidiaries have facilities from the above mentioned banks and financial institutions aggregating to Rs. 1760 million. The Company headquarters are co-located in Mumbai and Delhi, allowing it to access the two most important regions for Indian financial markets, the Western region including Mumbai, rest of Maharashtra and Gujarat; and the Northern region, including the National Capital Territory of Delhi, nearby cities, parts of Haryana, Uttar Pradesh and Punjab; and access the highly skilled and educated workforce in these cities. The Marketing and Sales efforts are headquartered out of Mumbai, with a regional headquarter in Delhi; and its back office, risk management, internal finances etc. are headquartered out of Delhi, allowing The Company to scale these processes efficiently for the nationwide network,- Indiabulls Financial Services Ltd fixes an issue price of Rs 19 per share for its initial public offering (IPO), which was oversubscribed 18.5 times.Indiabulls Financial Services IPO closed on September 10, with an impressive response from all categories of investors. The book was finally subscribed 18.5 times with over 1.3 lakh bids. The institutional portion was subscribed more than 12 times, the retail portion 25 times and the non-institutional portion 24 times.
Listing Details - Indiabulls Financial Services Key Dates Year Ending Month Mar AGM Date (Month) Sep Book Closure Date (Month) Aug/Sep Listing Information Face Value Of Equity Shares 2 Market Lot Of Equity Shares 1 BSE Code 532544 NSE Code INDIABULLS BSE Group A Whether The Company Forms A Part Of The Following Indices Sensex No Nifty No BSE-100 Yes BSE-200 Yes S&P CNX 500 Yes CNX Midcap No CNX FMCG No Listing On Listed On The Stock Exchange, Mumbai, National Stock Exchange of India Ltd., Luxembourg Stock Exchange
Frequently Asked Questions on NBFCs
QUES -1 What is a Non-Banking Financial Company (NBFC)? ANS -1 A Non-Banking Financial Company (NBFC) is a company registered under the Companies Act, 1956 and is engaged in the business of loans and advances, acquisition of shares/stock/bonds/debentures/securities issued by Government or local authority or other securities of like marketable nature, leasing, hire-purchase, insurance business, chit business but does not include any institution whose principal business is that of agriculture activity, industrial activity, sale/purchase/construction of immovable property. A non-banking institution which is a company and which has its principal business of receiving deposits under any scheme or arrangement or any other manner, or lending in any manner is also a non-banking financial company (Residuary non-banking company).
QUES 2. NBFCs are doing functions similar to banks. What is difference between banks & NBFCs ? ANS 2. NBFCs are doing functions akin to that of banks; however there are a few differences: (i) an NBFC cannot accept demand deposits; (ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself; and (iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks.
QUES-3. Is it necessary that every NBFC should be registered with RBI? ANS 3. In terms of Section 45-IA of the RBI Act, 1934, it is mandatory that every NBFC should be registered with RBI to commence or carry on any business of non-banking financial institution as defined in clause (a) of Section 45 I of the RBI Act, 1934.
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However, to obviate dual regulation, certain categories of NBFCs which are regulated by other regulators are exempted from the requirement of registration with RBI viz. Venture Capital Fund/Merchant Banking companies/Stock broking companies registered with SEBI, Insurance Company holding a valid Certificate of Registration issued by IRDA, Nidhi companies as notified under Section 620A of the Companies Act, 1956, Chit companies as defined in clause (b) of Section 2 of the Chit Funds Act, 1982 or Housing Finance Companies regulated by National Housing Bank.
QUES 4. What are the different types of NBFCs registered with RBI? ANS 4. Originally, NBFCs registered with RBI were classified as: (i) equipment leasing company; (ii) hire-purchase company; (iii) loan company; (iv) investment company. However, with effect from December 6, 2006 the above NBFCs registered with RBI have been reclassified as (i) Asset Finance Company (AFC) (ii) Investment Company (IC) (iii) Loan Company (LC) AFC would be defined as any company which is a financial institution carrying on as its principal business the financing of physical assets supporting productive/economic activity, such as automobiles, tractors, lathe machines, generator sets, earth moving and material handling equipments, moving on own power and general purpose industrial machines. Principal business for this purpose is defined as aggregate of financing real/physical assets supporting economic activity and income arising therefrom is not less than 60% of its total assets and total income respectively. The above type of companies may be further classified into those accepting deposits or those not accepting deposits.
QUES 5. Updated on February 10, 2009 What are the requirements / is the procedure for registration with RBI? ANS 5. A company incorporated under the Companies Act, 1956 and desirous of commencing business of non-banking financial institution as defined under Section 45 I(a) of the RBI Act, 1934 should have a minimum net owned fund of Rs 25 lakh (raised to Rs 200 lakh w.e.f April 21, 1999). The company is required to submit its application online by accessing RBIs secured website https://secweb.rbi.org.in/COSMOS/rbilogin.do (the applicant companies do not need to log on to the COSMOS application and hence user ids for these companies are not required). The company has to click on CLICK for Company Registration on the login page. A window showing the Excel
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application forms available for download would be displayed. The company can then download suitable application form (i.e. NBFC or SC/RC) from the above website, key in the data and upload the application form. The company may note to indicate the name of the correct Regional Office in the field C-8 of the Annx-Identification Particulars worksheet of the Excel application form. The company would then get a Company Application Reference Number for the CoR application filed on-line. Thereafter, the company has to submit the hard copy of the application form (indicating the Company Application Reference Number of its on-line application), along with the supporting documents, to the concerned Regional Office. The company can then check the status of the application based on the acknowledgement number. The Bank would issue Certificate of Registration after satisfying itself that the conditions as enumerated in Section 45-IA of the RBI Act, 1934 are satisfied.
QUES 6. Where can one find list of Registered NBFCs and instructions issued to NBFCs? ANS 6. The list of registered NBFCs is available on the web site of Reserve Bank of India and can be viewed at www.rbi.org.in. The instructions issued to NBFCs from time to time are also hosted at the above site. Besides, instructions are also issued through Official Gazette notifications. Press Release is also issued to draw attention of the public/NBFCs.
QUES 7. Can all NBFCs accept deposits and what are the requirements for accepting Public Deposits? ANS 7. All NBFCs are not entitled to accept public deposits. Only those NBFCs holding a valid Certificate of Registration with authorisation to accept Public Deposits can accept/hold public deposits. NBFCs authorised to accept/hold public deposits besides having minimum stipulated Net Owned Fund (NOF) should also comply with the Directions such as investing part of the funds in liquid assets, maintain reserves, rating etc. issued by the Bank.
QUES 8. Is there any ceiling on acceptance of Public Deposits? What is the rate of interest and period of deposit which NBFCs can accept? ANS 8. Yes, there is a ceiling on acceptance of Public Deposits. An NBFC maintaining required NOF/Capital to Risk Assets Ratio (CRAR) and complying with the prudential norms can accept public deposits as follows:
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Category of NBFC having minimum NOF of Rs 200 lakhs AFC* maintaining CRAR of 15% without credit rating
Ceiling on public deposit 1.5 times of NOF or Rs 10 crore whichever is less
AFC with CRAR of 12% and having minimum investment grade 4 times of NOF credit rating LC/IC** with CRAR of 15% and having minimum investment grade 1.5 times of NOF credit rating * AFC = Asset Finance Company ** LC/IC = Loan company/Investment Company
As has been notified on June 17, 2008 the ceiling on level of public deposits for NBFCs accepting deposits but not having minimum Net Owned Fund of Rs 200 lakh is revised as under: Category of NBFC having NOF more Revised Ceiling on public than Rs 25 lakh but less than Rs 200 lakh deposits AFCs maintaining CRAR of 15% without credit rating and Equal to NOF AFCs with CRAR of 12% and having minimum investment grade 1.5 times of NOF credit rating LCs/ICs with CRAR of 15% and having minimum investment Equal to NOF grade credit rating Presently, the maximum rate of interest an NBFC can offer is 12.5%. The interest may be paid or compounded at rests not shorter than monthly rests.
The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. The RNBCs have different norms for acceptance of deposits which are explained elsewhere in this booklet.
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QUES 9. What are the salient features of NBFCs regulations which the depositor may note at the times of investment? ANS 9. Some of the important regulations relating to acceptance of deposits by NBFCs are as under: i. The NBFCs are allowed to accept/renew public deposits for a minimum period of 12 months and maximum period of 60 months. They cannot accept deposits repayable on demand. NBFCs cannot offer interest rates higher than the ceiling rate prescribed by RBI from time to time. The present ceiling is 12.5 per cent per annum. The interest may be paid or compounded at rests not shorter than monthly rests. NBFCs cannot offer gifts/incentives or any other additional benefit to the depositors. NBFCs (except certain AFCs) should have minimum investment grade credit rating. The deposits with NBFCs are not insured. The repayment of deposits by NBFCs is not guaranteed by RBI. Certain mandatory disclosures are to be made about the company in the Application Form issued by the company soliciting deposits.
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iii. iv. v. vi. vii.
QUES 10. What is deposit and public deposit? Is it defined anywhere? ANS 10. The term deposit is defined under Section 45 I(bb) of the RBI Act, 1934. Deposit includes and shall be deemed always to have included any receipt of money by way of deposit or loan or in any other form but does not include:

amount raised by way of share capital, or contributed as capital by partners of a firm; amount received from scheduled bank, co-operative bank, a banking company, State Financial Corporation, IDBI or any other institution specified by RBI; amount received in ordinary course of business by way of security deposit, dealership deposit, earnest money, advance against orders for goods, properties or services; amount received by a registered money lender other than a body corporate; amount received by way of subscriptions in respect of a Chit.
Paragraph 2(1)(xii) of the Non-Banking Financial Companies Acceptance of Public Deposits ( Reserve Bank) Directions, 1998 defines a public deposit as a deposit as defined under Section 45 I(bb) of the RBI Act, 1934 and further excludes the following:
amount received from the Central/State Government or any other source where repayment is guaranteed by Central/State Government or any amount received from local authority or foreign government or any foreign citizen/authority/person; any amount received from financial institutions; any amount received from other company as inter-corporate deposit; amount received by way of subscriptions to shares, stock, bonds or debentures pending allotment or by way of calls in advance if such amount is not repayable to the members under the articles of association of the company; amount received from shareholders by private company;
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amount received from directors or relative of the director of an NBFC; amount raised by issue of bonds or debentures secured by mortgage of any immovable property or other asset of the company subject to conditions; the amount brought in by the promoters by way of unsecured loan; amount received from a mutual fund; any amount received as hybrid debt or subordinated debt; any amount received by issuance of Commercial Paper.
Thus, the directions exclude from the definition of public deposit, amount raised from certain set of informed lenders who can make independent decision .
QUES 11. Are Secured debentures treated as Public Deposit? If not who regulates them? ANS 11. Debentures secured by the mortgage of any immovable property or other asset of the company, if the amount raised does not exceed the market value of the said immovable property or other asset, are excluded from the definition of Public Deposit in terms of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998. Secured debentures are debt instruments and are regulated by Securities & Exchange Board of India.
QUES 12. Whether NBFCs can accept deposits from NRIs? ANS 12. Effective from April 24, 2004, NBFCs cannot accept deposits from NRIs except deposits by debit to NRO account of NRI provided such amount does not represent inward remittance or transfer from NRE/FCNR (B) account. However, the existing NRI deposits can be renewed.
QUES 13 Is nomination facility available to the Depositors of NBFCs? ANS 13. Yes, nomination facility is available to the depositors of NBFCs. The Rules for nomination facility are provided for in section 45QB of the Reserve Bank of India Act, 1934. Non-Banking Financial Companies have been advised to adopt the Banking Companies (Nomination) Rules, 1985 made under Section 45ZA of the Banking Regulation Act, 1949. Accordingly, depositor/s of NBFCs are permitted to nominate one person to whom the NBFC can return the deposit in the event of the death of the depositor/s. NBFCs are advised to accept nominations made by the depositors in the form similar to one specified under the said rules, viz Form DA 1 for the purpose of nomination, and Form DA2 and DA3 for cancellation of nomination and change of nomination respectively.
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QUES 14. What else should a depositor bear in mind while depositing money with NBFCs? ANS 14. While making deposits with an NBFC, the following aspects should be borne in mind: (i) Public deposits are unsecured. (ii) A proper deposit receipt which should, besides the name of the depositor/s, state the date of deposit, the amount in words and figures, rate of interest payable and the date of maturity. Depositor/s should insist on the above and also ensure that the receipt is duly signed by an officer authorised by the company in that behalf.
(iii) The Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of the liabilities by the company. QUES 15. It is said that rating of NBFCs is necessary before it accepts deposit? Is it true? Who rates them? ANS 15. An unrated NBFC, except certain Asset Finance companies (AFC), cannot accept public deposits. An exception is made in case of unrated AFC companies with CRAR of 15% which can accept public deposit without having a credit rating upto a certain ceiling depending upon its Net Owned Funds (c.f Ans to Q 8). AN NBFC may get itself rated by any of the four rating agencies namely, CRISIL, CARE, ICRA and FITCH Ratings India Pvt. Ltd.
QUES 16. What are the symbols of minimum investment grade rating of different companies? ANS 16. The symbols of minimum investment grade rating of the Credit rating agencies are:
Name of rating agencies Nomenclature of minimum investment grade credit rating (MIGR) CRISIL FA- (FA MINUS) ICRA MA- (MA MINUS) CARE CARE BBB (FD) FITCH Ratings India Pvt. Ltd. tA-(ind)(FD) It may be added that A- is not equivalent to A, AA- is not equivalent to AA and AAA- is not equivalent to AAA.
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QUES 17. Can an NBFC which is yet to be rated accept public deposit? ANS 17. No, an NBFC cannot accept deposit without rating (except an Asset Finance Company complying with prudential norms and having CRAR of 15%, as explained above at Ans. to Q 8).
QUES 18. When a companys rating is downgraded, does it have to bring down its level of public deposits immediately or over a period of time? ANS 18. If rating of an NBFC is downgraded to below minimum investment grade rating, it has to stop accepting public deposit, report the position within fifteen working days to the RBI and reduce within three years from the date of such downgrading of credit rating, the amount of excess public deposit to nil or to the appropriate extent permissible under paragraph 4(4) of Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998.
QUES 19. In case an NBFC defaults in repayment of deposit what course of action can be taken by depositors? ANS 19. If an NBFC defaults in repayment of deposit, the depositor can approach Company Law Board or Consumer Forum or file a civil suit in a court of law to recover the deposits.
QUES 20. What is the role of Company Law Board in protecting the interest of depositors? How one can approach it? ANS 20. Where an NBFC fails to repay any deposit or part thereof in accordance with the terms and conditions of such deposit, the Company Law Board (CLB) either on its own motion or on an application from the depositor, directs by order the non-banking financial company to make repayment of such deposit or part thereof forthwith or within such time and subject to such conditions as may be specified in the order. As explained above, the depositor can approach CLB by mailing an application in prescribed form to the appropriate bench of the Company Law Board according to its territorial jurisdiction alongwith the prescribed fee.
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QUES 21. Can you give the addresses of the various benches of the Company Law Board (CLB) indicating their respective jurisdiction?
ANS 21. The details of addresses and territorial jurisdiction of the bench officers of CLB are as under: Sr.No. Addresses 1. Bench Officer, Company Law Board, Northern Region Bench, Shastri Bhavan, A Wing, 5th Floor, Dr. Rajendra Prasad Road, New Delhi 110 001. 2. Bench Officer, Company Law Board, Southern Region Bench, Shastri Bhavan, A Wing, 5th Floor, Block 8, No 26, Haddows Road, Chennai 600 006. 3. Bench Officer, Company Law Board, Western Region Bench, 2nd Floor, N.T.C. House, 15, Narottam Morarjee Marg, Ballard Estate, Mumbai-400 038. 4. Bench Officer, Company Law Board, Eastern Region Bench, 9, Old Post Office Street, 6th Floor, Kolkata 700 001. 5. Bench Officer, Company Law Board, Principal Bench at New Delhi, Shastri Bhavan, A Wing, 5th Floor, Dr. Rajendra Prasad Road, New Delhi 110 001. Territorial Jurisdiction Uttar Pradesh, Jammu & Kashmir, Punjab, Himachal Pradesh, Rajasthan, Haryana and Union Territories of Chandigarh and Delhi
Tamil Nadu, Andhra Pradesh, Kerala, Karnataka, Union Territories of Amindivi, Minicoy and Lakshadweep Islands and Pondicherry
Maharashtra, Gujarat, Madhya Pradesh, Goa and Union Territories of Dadra & Nagar Haveli, Daman and Diu.
West Bengal, Orissa, Bihar, Assam, Tripura, Manipur, Nagaland, Meghalaya, Arunachal Pradesh, Mizoram, Union Territories of Andaman and Nicobar Islands. All Principal Bench matters all over India.
QUES 22. We hear that in a number of cases official liquidators have been appointed on the defaulting NBFCs. What is their role and how one can approach them? ANS 22. Official Liquidator is appointed by the court after giving the company reasonable opportunity of being heard in a winding up petition. The liquidator performs duties of winding up and such duties in reference thereto as the court may impose. Where the court has appointed an official liquidator or provisional liquidator, he becomes custodian of the property of the company and runs the day-to-day affairs of the company. He has to draw up a statement of affairs of the company in prescribed form containing particulars of assets of the company, its debts and liabilities, names/residences/occupations of its creditors, the debts due to
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the company and such other information as may be prescribed. The scheme is drawn up by the liquidator and same is put up to the court for approval. The liquidator realizes the assets of the company and arranges to repay the creditors according to the scheme approved by the court. The liquidator generally inserts advertisement in the newspaper inviting claims from depositors/investors in compliance with court orders. Therefore, the investors/depositors should file the claims within due time as per such notices of the liquidator. The Reserve Bank also provides assistance to the depositors in furnishing addresses of the official liquidator.
QUES 23. Consumer Court play useful role in attending to depositors problems. Can one approach Consumer Forum, Civil Court, CLB simultaneously? ANS 23. Yes, a depositor can approach any or all of the redressal authorities i.e consumer forum, court or CLB.
QUES 24. Is there an Ombudsman for hearing complaints against NBFCs? ANS 24. No, there is no Ombudsman for hearing complaints against NBFCs. However, in respect of credit card operations of an NBFC, if a complainant does not get satisfactory response from the NBFC within a maximum period of thirty (30) days from the date of lodging the complaint, the customer will have the option to approach the Office of the concerned Banking Ombudsman for redressal of his grievance/s.
QUES 25. What are various prudential regulations applicable to NBFCs? ANS 25. The Bank has issued detailed directions on prudential norms, vide Non-Banking Financial Companies Prudential Norms (Reserve Bank) Directions, 1998. The directions interalia, prescribe guidelines on income recognition, asset classification and provisioning requirements applicable to NBFCs, exposure norms, constitution of audit committee, disclosures in the balance sheet, requirement of capital adequacy, restrictions on investments in land and building and unquoted shares.
QUES 26. Please explain the terms owned fund and net owned fund in relation to NBFCs? ANS 26. Owned Fund means aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the company after deducting therefrom accumulated balance of loss, deferred revenue expenditure and other intangible assets. 'Net Owned Fund' is the amount as arrived at above minus the amount of investments of such company in shares of its subsidiaries, companies in the same group and all other NBFCs and the book value of debentures, bonds, outstanding loans and advances made to and deposits with subsidiaries and companies in the same group, to the extent it exceeds 10% of the owned fund.
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QUES 27. What are the responsibilities of the NBFCs accepting/holding public deposits with regard to submission of Returns and other information to RBI? ANS 27. The NBFCs accepting public deposits should furnish to RBI i. Audited balance sheet of each financial year and an audited profit and loss account in respect of that year as passed in the annual general meeting together with a copy of the report of the Board of Directors and a copy of the report and the notes on accounts furnished by its Auditors; Statutory Annual Return on deposits - NBS 1; Certificate from the Auditors that the company is in a position to repay the deposits as and when the claims arise; Quarterly Return on liquid assets; Half-yearly Return on prudential norms; Half-yearly ALM Returns by companies having public deposits of Rs. 20 crore and above or with assets of Rs. 100 crore and above irrespective of the size of deposits ; Monthly return on exposure to capital market by companies having public deposits of Rs. 50 crore and above; and A copy of the Credit Rating obtained once a year along with one of the Half-yearly Returns on prudential norms as at (v) above.
ii. iii. iv. v. vi. vii. viii.
QUES 28. What are the documents or the compliance required to be submitted to the Reserve Bank of India by the NBFCs not accepting/holding public deposits? ANS 28. The NBFCs having assets of Rs. 100 crore and above but not accepting public deposits are required to submit a Monthly Return on important financial parameters of the company. All companies not accepting public deposits have to pass a board resolution to the effect that they have neither accepted public deposit nor would accept any public deposit during the year. However, all the NBFCs (other than those exempted) are required to be registered with RBI and also make sure that they continue to be eligible to retain the Registration. Further, all NBFCs (including non-deposit taking) should submit a certificate from their Statutory Auditors every year to the effect that they continue to undertake the business of NBFI requiring holding of CoR under Section 45-IA of the RBI Act, 1934. RBI has powers to cause Inspection of the books of any company and call for any other information about its business activities. For this purpose, the NBFC is required to furnish the information in respect of any change in the composition of its Board of Directors, address of the company and its Directors and the name/s and official designations of its principal officers and the name and office address of its Auditors. With effect from April 1, 2007, non-deposit taking NBFCs with assets of Rs 100 crore and above were advised to maintain minimum CRAR of 10% and also comply with single/group exposure norms. The companies have to achieve CRAR of 12% by March 31, 2009 and 15% by March 31, 2010.
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QUES 29. The NBFCs have been made liable to pay interest on the overdue matured deposits if the company has not been able to repay the matured public deposits on receipt of a claim from the depositor. Please elaborate the provisions. ANS 29. As per Reserve Banks Directions, overdue interest is payable to the depositors in case the company has delayed the repayment of matured deposits, and such interest is payable from the date of receipt of such claim by the company or the date of maturity of the deposit whichever is later, till the date of actual payment. If the depositor has lodged his claim after the date of maturity, the company would be liable to pay interest for the period from the date of claim till the date of repayment. For the period between the date of maturity and the date of claim it is the discretion of the company to pay interest.
QUES 30. Can a company pre-pay its public deposits? ANS 30. AN NBFC accepts deposits under a mutual contract with its depositors. In case a depositor requests for pre-mature payment, Reserve Bank of India has prescribed Regulations for such an eventuality in the Non-Banking Financial Companies Acceptance of Public Deposits (Reserve Bank) Directions, 1998 wherein it is specified that NBFCs cannot grant any loan against a public deposit or make premature repayment of a public deposit within a period of three months (lock-in period) from the date of its acceptance. However, in the event of death of a depositor, the company may, even within the lock-in period, repay the deposit at the request of the joint holders with survivor clause / nominee / legal heir only against submission of relevant proof, to the satisfaction of the company. An NBFC subject to above provisions, which is not a problem company, may permit after the lock in period, premature repayment of a public deposit at its sole discretion, at the rate of interest prescribed by the Bank. A problem NBFC is prohibited from making premature repayment of any deposits or granting any loan against public deposit/deposits, as the case may be. The prohibition shall not, however, apply in the case of death of depositor or repayment of tiny deposits i.e. up to Rs. 10000/- subject to lock in period of 3 months in the latter case.
QUES 31. What is the liquid asset requirement for the deposit taking companies? Where these assets are kept? Do depositors have any claims on them? ANS 31. In terms of Section 45-IB of the RBI Act, 1934, the minimum level of liquid asset to be maintained by NBFCs is 15 per cent of public deposits outstanding as on the last working day of the second preceding quarter. Of the 15%, NBFCs are required to invest not less than ten percent in approved securities and the remaining 5% can be in unencumbered term deposits with any scheduled commercial bank. Thus, the liquid assets may consist of Government securities, Government guaranteed bonds and term deposits with any scheduled commercial bank. The investment in Government securities should be in dematerialised form which can be maintained in Constituents Subsidiary General Ledger (CSGL) Account with a scheduled commercial bank (SCB) / Stock Holding Corporation of India Limited (SHICL). In case of
21
Government guaranteed bonds the same may be kept in dematerialised form with SCB/SHCIL or in a dematerialised account with depositories [National Securities Depository Ltd. (NSDL)/Central Depository Services (India) Ltd. (CDSL)] through a depository participant registered with Securities & Exchange Board of India (SEBI). However in case there are Government bonds which are in physical form the same may be kept in safe custody of SCB/SHCIL. NBFCs have been directed to maintain the mandated liquid asset securities in a dematerialised form with the entities stated above at a place where the registered office of the company is situated. However, if an NBFC intends to entrust the securities at a place other than the place at which its registered office is located, it may do so after obtaining the permission of RBI in writing. It may be noted that liquid assets in approved securities will have to be maintained in dematerialised form only. The liquid assets maintained as above are to be utilised for payment of claims of depositors. However, deposit being unsecured in nature, depositors do not have direct claim on liquid assets.
QUES 32. Please tell us something about the companies which are NBFCs, but are exempted from registration? ANS 32. Housing Finance Companies, Merchant Banking Companies, Stock Exchanges, Companies engaged in the business of stock-broking/sub-broking, Venture Capital Fund Companies, Nidhi Companies, Insurance companies and Chit Fund Companies are NBFCs but they have been exempted from the requirement of registration under Section 45-IA of the RBI Act, 1934 subject to certain conditions. Housing Finance Companies are regulated by National Housing Bank, Merchant Banker/Venture Capital Fund Company/stock-exchanges/stock brokers/sub-brokers are regulated by Securities and Exchange Board of India, and Insurance companies are regulated by Insurance Regulatory and Development Authority. Similarly, Chit Fund Companies are regulated by the respective State Governments and Nidhi Companies are regulated by Ministry of Corporate Affairs, Government of India. It may also be mentioned that Mortgage Guarantee Companies have been notified as NonBanking Financial Companies under Section 45 I(f)(iii) of the RBI Act, 1934.
QUES 33. There are some entities (not companies) which carry on activities like that of NBFCs. Are they allowed to take deposits? Who regulates them? ANS 33. Any person who is an individual or a firm or unincorporated association of individuals cannot accept deposits except by way of loan from relatives, if his/its business wholly or partly includes loan, investment, hire-purchase or leasing activity or principal business is that of receiving of deposits under any scheme or arrangement or in any manner or lending in any manner.
22
QUES 34. What is a Residuary Non-Banking Company (RNBC)? In what way it is different from other NBFCs? ANS 34. Residuary Non-Banking Company is a class of NBFC which is a company and has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner and not being Investment, Asset Financing, Loan Company. These companies are required to maintain investments as per directions of RBI, in addition to liquid assets. The functioning of these companies is different from those of NBFCs in terms of method of mobilisation of deposits and requirement of deployment of depositors' funds as per Directions. Besides, Prudential Norms Directions are applicable to these companies also.
QUES 35. We understand that there is no ceiling on raising of deposits by RNBCs, then how safe is deposit with them? ANS 35. It is true that there is no ceiling on raising of deposits by RNBCs but every RNBC has to ensure that the amounts deposited and investments made by the company are not less than the aggregate amount of liabilities to the depositors. To secure the interest of depositor, such companies are required to invest in a portfolio comprising of highly liquid and secure instruments viz. Central/State Government securities, fixed deposits with scheduled commercial banks (SCB), Certificate of deposits of SCB/FIs, units of Mutual Funds, etc.
QUES 36. Can RNBC forfeit deposit if deposit installments are not paid regularly or discontinued? ANS 36. No Residuary Non-Banking Company shall forfeit any amount deposited by the depositor, or any interest, premium, bonus or other advantage accrued thereon.
QUES 37. Please tell us something on rate of interest payable by RNBCs on deposits and maturity period of deposits? ANS 37. The amount payable by way of interest, premium, bonus or other advantage, by whatever name called by a RNBC in respect of deposits received shall not be less than the amount calculated at the rate of 5% (to be compounded annually) on the amount deposited in lump sum or at monthly or longer intervals; and at the rate of 3.5% (to be compounded annually) on the amount deposited under daily deposit scheme. Further, a RNBC can accept deposits for a minimum period of 12 months and maximum period of 84 months from the date of receipt of such deposit. They cannot accept deposits repayable on demand.
23
COMPANY FACTS
Registered Address
F-60, Malhotra Building, IInd Floor, Connaught Place, New Delhi Delhi 110001 Tel: 011-51523700 011-1600-11-11-30 Fax: 011-51529071 Email: ipo@indiabulls.com Website: http://www.indiabulls.com Explore Indiabulls connections Registrars Karvy Computershare Private Ltd. Plot No.17-24, Vittalrao Nagar, Madhapur
Tel: 23420815 - 820 Fax: 23420814 Email: einward.ris@karvy.com Website: http://www.karvycomputershare.com
24
Management - Indiabulls
Name Sameer Gehlaut Saurabh K Mittal Aishwarya Katoch Karan Singh Name Rajiv Rattan Gagan Banga Designation Chairman / Chair Person Director Director Director Designation Director Director & CEO
25
INDIABULLS FINANCIAL SERVICES LTD.

Profit & Loss account ------------------- in Rs. Cr. ------------------Mar '04 Mar '05 Mar '06 Mar '07 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 12 mths 12 mths 12 mths
Mar '08 12 mths
71.92 0.00 71.92 0.00 0.00 71.92
167.57 0.00 167.57 0.51 0.00 168.08
610.29 0.00 610.29 2.78 0.00 613.07
1240.95 0.00 1240.95 0.74 0.00 1241.69
1686.25 0.00 1686.25 -258.82 0.00 1427.43
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 10.94 22.31 79.89 234.25 238.92 11.96 22.02 54.79 84.74 42.63 7.96 7.55 29.79 101.07 136.94 2.70 6.11 25.08 40.39 17.63 0.00 0.00 0.00 0.00 0.00 33.56 57.99 189.55 460.45 436.12 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 12 mths 12 mths 109.58 110.09 17.99 92.10 2.17 0.90 89.03 0.27 89.30 33.30 56.71 57.98 5.43 0.00 0.71 1332.39 3.85 0.00 33.65 12 mths 420.74 423.52 57.94 365.58 7.25 0.95 357.38 0.04 357.42 120.00 253.37 189.54 0.54 29.06 4.15 1602.25 15.78 90.00 81.85 12 mths 780.50 781.24 103.09 678.15 17.69 0.11 660.35 1.18 661.53 218.14 443.39 460.45 11.53 55.41 10.09 1832.75 23.56 150.00 81.82 12 mths 1250.13 991.31 413.74 577.57 7.16 0.70 569.71 -2.11 567.60 248.24 580.64 436.11 9.11 215.41 41.43 2534.27 22.55 425.00 128.20
Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs)
38.36 38.36 6.32 32.04 1.11 0.05 30.88 0.03 30.91 11.54 19.35 33.57 0.62 0.00 0.08 815.63 2.30 0.00 6.92
26
INDIABULLS FINANCIAL SERVICES LTD.

BALANCE SHEET
------------------- in Rs. Cr. ------------------Mar '04 Mar '05 Mar '06 Mar '07 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 12 mths 12 mths 12 mths Mar '08 12 mths
16.31 26.65 32.05 384.42 207.55 16.31 26.65 32.05 36.66 50.69 0.00 0.00 16.72 13.49 0.00 0.00 0.00 0.00 347.76 156.87 40.11 421.77 1279.39 1462.99 3198.22 0.00 0.00 0.00 0.00 0.00 56.42 448.42 1328.16 1860.90 3405.77 83.03 382.18 2.97 335.79 3883.59 84.57 224.48 669.70 1076.06 7433.01 167.60 606.66 672.67 1411.85 11316.60 224.02 1055.08 2000.83 3272.75 14722.37 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 12 mths 12 mths 12 mths 12 mths 12 mths
Application Of Funds Gross Block Less: Accum. Depreciation Net Block Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs)
18.33 3.93 14.40 0.00 0.00 1.15 134.72 66.78 202.65 39.82 20.48 262.95 0.00 39.64 13.68 53.32 209.63 0.00 224.03 0.19 6.92
44.89 6.10 38.79 1.65 0.72 0.00 1.18 269.86 271.04 847.23 62.72 1180.99 0.00 121.23 45.84 167.07 1013.92 0.00 1055.08 0.62 33.65
82.59 13.35 69.24 3.21 267.42 0.01 81.90 486.62 568.53 1247.85 404.41 2220.79 0.00 389.35 170.49 559.84 1660.95 0.00 2000.82 1.50 81.85
175.81 30.97 144.84 9.21 584.58 0.00 103.35 313.35 416.70 2444.81 492.10 3353.61 0.00 621.49 198.00 819.49 2534.12 0.00 3272.75 3.08 81.82
58.95 11.02 47.93 1.84 512.74 0.00 14.44 3654.38 3668.82 8441.31 3555.09 15665.22 0.00 1038.72 466.65 1505.37 14159.85 0.00 14722.36 2.34 128.20
27
INDIA INFOLINE
Profit & Loss account ------------------- in Rs. Cr. ------------------Mar '04 Mar '05 Mar '06 Mar '07 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 12 mths 12 mths 12 mths Mar '08 12 mths
8.86 0.00 8.86 0.87 0.00 9.73
21.22 0.00 21.22 1.02 0.00 22.24
44.70 0.00 44.70 3.77 0.00 48.47
272.12 0.00 272.12 14.59 0.00 286.71
616.11 0.00 616.11 27.29 0.00 643.40
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.36 1.60 2.99 56.22 128.79 0.00 0.00 0.30 38.62 105.93 0.50 0.31 1.10 68.66 119.13 0.11 0.73 0.65 22.91 39.67 0.00 0.00 0.00 0.00 0.00 0.97 2.64 5.04 186.41 393.52 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 12 mths 12 mths 18.58 19.60 0.06 19.54 0.52 0.00 19.02 0.00 19.02 1.54 17.47 2.64 0.00 0.00 0.00 316.22 5.53 0.00 16.55 12 mths 39.66 43.43 2.20 41.23 1.47 0.00 39.76 0.00 39.76 13.28 26.47 5.05 0.00 13.33 1.87 451.01 5.87 30.00 37.46 12 mths 85.71 100.30 8.35 91.95 12.33 0.00 79.62 0.00 79.62 27.50 52.12 186.42 0.00 14.96 2.10 501.67 10.39 30.00 56.88 12 mths 222.59 249.88 22.82 227.06 19.44 0.00 207.62 -0.53 207.09 78.39 157.73 393.53 0.00 34.26 5.82 571.03 27.62 60.00 173.35
7.89 8.76 0.00 8.76 1.94 0.00 6.82 0.00 6.82 0.05 6.77 0.96 0.00 0.00 0.00 264.22 2.56 0.00 11.22
28
INDIA INFOLINE
BALANCE SHEET ------------------- in Rs. Cr. ------------------Mar '04 Mar '05 Mar '06 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities 12 mths 12 mths Mar '07 12 mths Mar '08 12 mths
26.42 26.42 0.00 0.00 3.23 0.00 29.65 0.09 0.00 0.09 29.74 Mar '04 12 mths
31.62 31.62 0.00 0.00 20.70 0.00 52.32 1.37 0.20 1.57 53.89 Mar '05 12 mths
45.10 45.10 4.42 0.00 123.83 0.00 173.35 1.50 80.89 82.39 255.74 Mar '06 12 mths
50.17 50.17 4.42 0.00 235.18 0.00 289.77 44.68 36.27 80.95 370.72 Mar '07 12 mths
57.10 57.10 59.77 0.00 932.75 0.00 1049.62 0.00 130.57 130.57 1180.19 Mar '08 12 mths
3.26 2.94 0.32 0.00 25.32 0.00 0.40 0.07 0.47 3.62 2.05 6.14 0.00 1.87 0.18 2.05 4.09 0.00 29.73 0.00 11.22
4.47 3.76 0.71 0.00 40.31 0.00 1.49 0.18 1.67 13.38 1.85 16.90 0.00 2.39 1.65 4.04 12.86 0.00 53.88 3.50 16.55
8.75 5.23 3.52 0.00 100.25 0.00 5.49 0.15 5.64 172.36 1.95 179.95 0.00 7.67 20.30 27.97 151.98 0.00 255.75 73.00 37.46
73.10 24.38 48.72 0.00 171.45 0.00 130.72 27.12 157.84 220.32 67.96 446.12 0.00 244.54 51.03 295.57 150.55 0.00 370.72 8.00 56.88
98.32 35.08 63.24 0.49 915.68 1.31 342.81 61.62 405.74 313.89 152.75 872.38 0.00 514.85 156.74 671.59 200.79 0.00 1180.20 8.00 173.35
29
EDELWEISS CAPITAL
Profit & Loss account ------------------- in Rs. Cr. ------------------Mar '04 Mar '05 Mar '06 Mar '07 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 12 mths 12 mths 12 mths Mar '08 12 mths
10.38 0.00 10.38 0.08 0.00 10.46
26.67 0.00 26.67 0.65 0.00 27.32
31.14 0.00 31.14 0.01 0.00 31.15
73.59 0.00 73.59 1.72 0.00 75.31
187.47 0.00 187.47 0.18 0.00 187.65
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.23 8.60 11.36 23.21 41.11 2.27 4.85 6.94 0.16 1.28 0.00 0.00 0.00 11.15 24.61 0.00 0.00 0.00 1.13 2.68 0.00 0.00 0.00 0.00 0.00 4.50 13.45 18.30 35.65 69.68 Mar '04 Mar '05 Mar '06 Mar '07 Mar '08 12 mths 12 mths 13.22 13.87 0.27 13.60 0.79 0.00 12.81 0.00 12.81 3.11 9.71 13.44 0.00 0.28 0.04 57.20 16.97 10.00 67.37 12 mths 12.84 12.85 0.03 12.82 1.03 0.00 11.79 0.00 11.79 4.56 7.24 18.29 0.00 0.49 0.08 75.68 9.56 13.00 171.50 12 mths 37.94 39.66 2.13 37.53 1.02 0.00 36.51 0.00 36.51 9.44 27.06 35.65 0.00 1.13 0.16 449.17 6.03 25.00 100.03 12 mths 117.79 117.97 77.32 40.65 1.32 0.00 39.33 0.00 39.33 10.54 28.78 69.68 0.00 15.02 2.55 749.33 3.84 40.00 180.09
5.88 5.96 0.26 5.70 0.46 0.00 5.24 0.00 5.24 0.93 4.32 4.50 0.00 0.21 0.03 55.00 7.85 8.00 50.21
30
EDELWEISS CAPITAL
BALANCE SHEET
------------------- in Rs. Cr. ------------------Mar '04 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Mar '05 12 mths Mar '06 12 mths Mar '07 12 mths Mar '08 12 mths
2.75 2.75 0.06 0.00 24.87 0.00 27.68 0.00 8.86 8.86 36.54 Mar '04 12 mths
2.86 2.86 0.01 0.00 35.68 0.00 38.55 0.16 0.00 0.16 38.71 Mar '05 12 mths
3.78 3.78 0.00 0.00 126.01 0.00 129.79 0.30 0.00 0.30 130.09 Mar '06 12 mths
5.04 4.49 0.25 0.55 444.83 0.00 450.12 0.93 180.00 180.93 631.05 Mar '07 12 mths
37.73 37.47 0.60 0.26 1312.03 0.00 1350.36 127.12 975.81 1102.93 2453.29 Mar '08 12 mths
2.39 1.28 1.11 0.00 29.91 0.15 0.21 1.62 1.98 7.44 0.00 9.42 0.00 3.46 0.44 3.90 5.52 0.00 36.54 0.00 50.21
3.72 1.31 2.41 0.00 15.72 0.00 0.61 0.95 1.56 24.84 0.00 26.40 0.00 4.28 1.53 5.81 20.59 0.00 38.72 0.00 67.37
4.50 2.34 2.16 0.00 75.98 0.00 6.93 0.01 6.94 56.43 0.00 63.37 0.00 8.56 2.87 11.43 51.94 0.00 130.08 0.00 171.50
4.65 3.36 1.29 0.96 247.93 0.00 7.27 2.94 10.21 392.88 0.00 403.09 0.00 21.90 0.31 22.21 380.88 0.00 631.06 375.23 100.03
12.28 4.60 7.68 1.60 1059.23 0.00 8.08 3.42 11.50 1341.42 111.21 1464.13 0.00 61.18 18.18 79.36 1384.77 0.00 2453.28 735.29 180.09
31
MOTILAL OSWAL FINANCIAL SERVICES

Profit & Loss account ------------------- in Rs. Cr. ------------------Mar '06 Mar '07 Mar '08 12 mths Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses 12 mths 12 mths
0.02 0.00 0.02 0.00 0.00 0.02
10.75 0.00 10.75 -4.03 0.00 6.72
32.10 0.00 32.10 3.48 0.00 35.58
0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.37 1.43 0.00 0.00 0.01 0.00 0.79 4.93 0.26 0.06 0.28 0.00 0.00 0.00 0.26 2.22 6.65 Mar '06 Mar '07 Mar '08 12 mths 12 mths 8.53 4.50 0.20 4.30 0.00 0.00 4.30 -0.54 3.76 2.81 0.95 2.22 0.00 0.00 0.00 254.21 0.37 0.00 62.81 12 mths 25.45 28.93 4.46 24.47 0.00 0.00 24.47 0.11 24.58 7.28 17.29 6.65 0.00 11.36 0.00 284.04 6.09 80.00 140.80
-0.24 -0.24 0.00 -0.24 0.00 0.00 -0.24 0.00 -0.24 -0.05 -0.19 0.26 0.00 0.00 0.00 112.40 -0.17 0.00 4.83
32
MOTILAL OSWAL FINANCIAL SERVICES

BALANCE SHEET
------------------- in Rs. Cr. ------------------Mar '06 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities Mar '07 12 mths Mar '08 12 mths
5.62 5.62 0.00 0.00 -0.19 0.00 5.43 0.00 0.00 0.00 5.43 Mar '06 12 mths
12.71 12.71 0.00 0.00 146.96 0.00 159.67 0.00 0.00 0.00 159.67 Mar '07 12 mths
14.20 14.20 0.00 0.00 385.72 0.00 399.92 0.00 0.00 0.00 399.92 Mar '08 12 mths
0.00 0.00 0.00 0.00 1.95 0.00 0.00 0.00 0.00 3.53 0.00 3.53 0.00 0.05 0.00 0.05 3.48 0.00 5.43 0.00 4.83
0.00 0.00 0.00 0.00 47.55 0.00 0.00 7.16 7.16 108.59 0.00 115.75 0.00 0.52 3.12 3.64 112.11 0.00 159.66 71.20 62.81
0.01 0.00 0.01 0.00 135.40 1.63 0.00 0.45 2.08 284.04 0.62 286.74 0.00 0.39 21.83 22.22 264.52 0.00 399.93 4.70 140.80
FUTURE CAPITAL HOLDINGS
33
Profit & Loss account
------------------- in Rs. Cr. ------------------Mar '06 Mar '07 Mar '08 12 mths 12 mths 12 mths
Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses
0.03 0.00 0.03 0.00 0.00 0.03
9.27 0.00 9.27 0.00 0.00 9.27
81.31 0.00 81.31 -0.43 0.00 80.88
0.00 0.00 0.00 0.00 0.00 0.00 0.00 5.10 28.85 0.00 0.00 0.00 0.00 2.97 35.09 0.00 0.89 5.38 0.00 0.00 0.00 0.00 8.96 69.32 Mar '06 Mar '07 Mar '08 12 mths 12 mths 0.31 0.31 0.00 0.31 0.07 0.00 0.24 0.00 0.24 0.08 0.16 8.97 0.00 0.00 0.00 444.45 0.03 0.00 20.72 12 mths 11.99 11.56 0.72 10.84 1.65 0.00 9.19 0.00 9.19 0.30 8.89 69.32 0.00 0.00 0.00 632.28 1.41 0.00 114.52
0.03 0.03 0.00 0.03 0.00 0.03 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 21.50 0.00 0.00 10.00
34
FUTURE CAPITAL HOLDINGS

BALANCE SHEET Mar '06 12 mths Sources Of Funds Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Networth Secured Loans Unsecured Loans Total Debt Total Liabilities in Rs. Cr. Mar '07 12 mths Mar '08 12 mths
2.15 2.15 0.00 0.00 0.00 0.00 2.15 0.00 0.04 0.04 2.19 Mar '06 12 mths
44.44 44.44 11.05 0.00 47.64 0.00 103.13 0.00 0.00 0.00 103.13 Mar '07 12 mths
63.23 63.23 0.00 0.00 660.87 0.00 724.10 50.00 50.00 100.00 824.10 Mar '08 12 mths
0.00 0.00 0.00 0.00 0.00 0.00 0.00 2.18 2.18 0.02 0.00 2.20 0.00 0.00 0.01 0.01 2.19 0.00 2.19 0.00 10.00
3.08 0.07 3.01 0.29 54.34 0.00 4.56 0.57 5.13 44.95 0.00 50.08 0.00 4.57 0.02 4.59 45.49 0.00 103.13 1.00 20.72
16.48 1.71 14.77 1.46 563.35 0.00 13.45 31.16 44.61 252.08 55.00 351.69 0.00 107.00 0.19 107.19 244.50 0.00 824.08 0.41 114.52
35
RATIOS LIQUIDITY RATIOS ANALYSIS FOR SHORT-TERM CREDITORS

A class of financial metrics that is used to determine a company's ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. Common liquidity ratios include the current ratio, the quick ratio and the operating cash flow ratio. Different analysts consider different assets to be relevant in calculating liquidity. Some analysts will calculate only the sum of cash and equivalents divided by current liabilities because they feel that they are the most liquid assets, and would be the most likely to be used to cover short-term debts in an emergency. A company's ability to turn short-term assets into cash to cover debts is of the utmost importance when creditors are seeking payment. Bankruptcy analysts and mortgage originators frequently use the liquidity ratios to determine whether a company will be able to continue as a going concern.
CURRENT RATIO
The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better. Formula:
The current ratio is used extensively in financial reporting. However, while easy to understand, it can be misleading in both a positive and negative sense - i.e., a high current ratio is not necessarily good, and a low current ratio is not necessarily bad (see chart below).
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Here's why: Contrary to popular perception, the ubiquitous current ratio, as an indicator of liquidity, is flawed because it's conceptually based on the liquidation of all of a company's current assets to meet all of its current liabilities. In reality, this is not likely to occur. Investors have to look at a company as a going concern. It's the time it takes to convert a company's working capital assets into cash to pay its current obligations that is the key to its liquidity. In a word, the current ratio can be "misleading." A simplistic, but accurate, comparison of two companies' current position will illustrate the weakness of relying on the current ratio or a working capital number (current assets minus current liabilities) as a sole indicator of liquidity:
-Current Assets Current Liabilities Working Capital Current Ratio
Company ABC $600 $300 $300 2.0
Company XYZ $300 $300 $0 1.0
Company ABC looks like an easy winner in a liquidity contest. It has an ample margin of current assets over current liabilities, a seemingly good current ratio, and working capital of $300. Company XYZ has no current asset/liability margin of safety, a weak current ratio, and no working capital. However, to prove the point, what if: (1) both companies' current liabilities have an average payment period of 30 days; (2) Company ABC needs six months (180 days) to collect its account receivables, and its inventory turns over just once a year (365 days); and (3) Company XYZ is paid cash by its customers, and its inventory turns over 24 times a year (every 15 days). In this contrived example, Company ABC is very illiquid and would not be able to operate under the conditions described. Its bills are coming due faster than its generation of cash. You can't pay bills with working capital; you pay bills with cash! Company's XYZ's seemingly tight current position is, in effect, much more liquid because of its quicker cash conversion.
When looking at the current ratio, it is important that a company's current assets can cover its current liabilities; however, investors should be aware that this is not the whole story on company liquidity. Try to understand the types of current assets the company has and how quickly these can be converted into cash to meet current liabilities. This important perspective can be seen through the cash conversion cycle (read the chapter on CCC now). By digging deeper into the current assets, you will gain a greater understanding of a company's true liquidity.
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Company ABC looks like an easy winner in a liquidity contest. It has an ample margin of current assets over current liabilities, a seemingly good current ratio, and working capital of $300. Company XYZ has no current asset/liability margin of safety, a weak current ratio, and no working capital. However, to prove the point, what if: (1) both companies' current liabilities have an average payment period of 30 days; (2) Company ABC needs six months (180 days) to collect its account receivables, and its inventory turns over just once a year (365 days); and (3) Company XYZ is paid cash by its customers, and its inventory turns over 24 times a year (every 15 days). In this contrived example, Company ABC is very illiquid and would not be able to operate under the conditions described. Its bills are coming due faster than its generation of cash. You can't pay bills with working capital; you pay bills with cash! Company's XYZ's seemingly tight current position is, in effect, much more liquid because of its quicker cash conversion.
When looking at the current ratio, it is important that a company's current assets can cover its current liabilities; however, investors should be aware that this is not the whole story on company liquidity. Try to understand the types of current assets the company has and how quickly these can be converted into cash to meet current liabilities. This important perspective can be seen through the cash conversion cycle (read the chapter on CCC now). By digging deeper into the current assets, you will gain a greater understanding of a company's true liquidity.
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QUICK RATIO
The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.
Formula =
Current Ratio - Inventories Current Liabilities
Formula:
Variations:
Some presentations of the quick ratio calculate quick assets (the formula's numerator) by simply subtracting the inventory figure from the total current assets figure. The assumption is that by excluding relatively less-liquid (harder to turn into cash) inventory, the remaining current assets are all of the more-liquid variety. Generally, this is close to the truth, but not always.
Commentary:
As previously mentioned, the quick ratio is a more conservative measure of liquidity than the current ratio as it removes inventory from the current assets used in the ratio's formula. By excluding inventory, the quick ratio focuses on the more-liquid assets of a company. The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets. Another beneficial use is to compare the quick ratio with the current ratio. If the current ratio is significantly higher, it is a clear indication that the company's current assets are dependent on inventory. While considered more stringent than the current ratio, the quick ratio, because of its accounts receivable component, suffers from the same deficiencies as the current ratio - albeit somewhat less.. In brief, both the quick and the current ratios assume a liquidation of accounts receivable and inventory as the basis for measuring liquidity. While theoretically feasible, as a going concern a company must focus on the time it takes to
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convert its working capital assets to cash - that is the true measure of liquidity. Thus, if accounts receivable, as a component of the quick ratio, have, let's say, a conversion time of several months rather than several days, the "quickness" attribute of this ratio is questionable. Investors need to be aware that the conventional wisdom regarding both the current and quick ratios as indicators of a company's liquidity can be misleading. As previously mentioned, the quick ratio is a more conservative measure of liquidity than the current ratio as it removes inventory from the current assets used in the ratio's formula. By excluding inventory, the quick ratio focuses on the more-liquid assets of a company. The basics and use of this ratio are similar to the current ratio in that it gives users an idea of the ability of a company to meet its short-term liabilities with its short-term assets. Another beneficial use is to compare the quick ratio with the current ratio. If the current ratio is significantly higher, it is a clear indication that the company's current assets are dependent on inventory. While considered more stringent than the current ratio, the quick ratio, because of its accounts receivable component, suffers from the same deficiencies as the current ratio - albeit somewhat less.. In brief, both the quick and the current ratios assume a liquidation of accounts receivable and inventory as the basis for measuring liquidity. While theoretically feasible, as a going concern a company must focus on the time it takes to
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CASH RATIO
The cash ratio is an indicator of a company's liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash, cash equivalents or invested funds there are in current assets to cover current liabilities. Formula:
Current Assets - (Inventories + Sundry Debtors + Loans & Advances) Current Liabilities
Commentary:
The cash ratio is the most stringent and conservative of the three short-term liquidity ratios (current, quick and cash). It only looks at the most liquid short-term assets of the company, which are those that can be most easily used to pay off current obligations. It also ignores inventory and receivables, as there are no assurances that these two accounts can be converted to cash in a timely matter to meet current liabilities. Very few companies will have enough cash and cash equivalents to fully cover current liabilities, which isn't necessarily a bad thing, so don't focus on this ratio being above 1:1. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. The reason being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. While providing an interesting liquidity perspective, the usefulness of this ratio is limited
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SOLVENCY RATIOS AN ANALYSIS FOR LONG TERM CREDITORS DEBT RATIOS

Before discussing the various financial debt ratios, we need to clear up the terminology used with "debt" as this concept relates to financial statement presentations. In addition, the debt-related topics of "funded debt" and credit ratings are discussed below. There are two types of liabilities - operational and debt. The former includes balance sheet accounts, such as accounts payable, accrued expenses, taxes payable, pension obligations, etc. The latter includes notes payable and other short-term borrowings, the current portion of long-term borrowings, and long-term borrowings. Often times, in investment literature, "debt" is used synonymously with total liabilities. In other instances, it only refers to a company's indebtedness. The debt ratios that are explained herein are those that are most commonly used. However, what companies, financial analysts and investment research services use as components to calculate these ratios is far from standardized. In the definition paragraph for each ratio, no matter how the ratio is titled, we will clearly indicate what type of debt is being used in our measurements.
Getting the Terms Straight

In general, debt analysis can be broken down into three categories, or interpretations: liberal, moderate and conservative. Since we will use this language in our commentary paragraphs, it's worthwhile explaining how these interpretations of debt apply.

Liberal - This approach tends to minimize the amount of debt. It includes only long-term debt as it is recorded in the balance sheet under non-current liabilities. Moderate - This approach includes current borrowings (notes payable) and the current portion of long-term debt, which appear in the balance sheet's current liabilities; and, of course, the long-term debt recorded in non-current liabilities previously mentioned. In addition, redeemable preferred stock, because of its debt-like quality, is considered to be debt. Lastly, as general rule, two-thirds (roughly one-third goes to interest expense) of the outstanding balance of operating leases, which do not appear in the balance sheet, are considered debt principal. The relevant figure will be found in the notes to financial statements and identified as "future minimum lease payments required under operating leases that have initial or remaining non-cancel-able lease terms in excess of one year." Conservative - This approach includes all the items used in the moderate interpretation of debt, as well as such non-current operational liabilities such as deferred taxes, pension liabilities and other post-retirement employee benefits.
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Note: New accounting standards, which are currently under active consideration in the U.S. by the Financial Accounting Standards Board (FASB) and internationally by the International Accounting Standards Board (IASB), will eventually put the debt principal of operating leases and unfunded pension liabilities in the balance sheet as debt liabilities. Formal "Discussion Papers" on these issues are planned by FASB and IASB in 2008, with adoption of the changes following the discussion phase expected in 2009. Investors may want to look to the middle ground when deciding what to include in a company's debt position. With the exception of unfunded pension liabilities, a company's non-current operational liabilities represent obligations that will be around, at one level or another, forever - at least until the company ceases to be a going concern and is liquidated. Also, unlike debt, there are no fixed payments or interest expenses associated with non-current operational liabilities. In other words, it is more meaningful for investors to view a company's indebtedness and obligations through the company as a going concern, and therefore, to use the moderate approach to defining debt in their leverage calculations. So-called "funded debt" is a term that is seldom used in financial reporting. Technically, funded debt refers to that portion of a company's debt comprised, generally, of long-term, fixed maturity, contractual borrowings. No matter how problematic a company's financial condition, holders of these obligations, typically bonds, cannot demand payment as long as the company pays the interest on its funded debt. In contrast, long-term bank debt is usually subject to acceleration clauses and/or restrictive covenants that allow a lender to call its loan, i.e., demand its immediate payment. From an investor's perspective, the greater the percentage of funded debt in the company's total debt, the better. Lastly, credit ratings are formal risk evaluations by credit agencies - Moody's, Standard & Poor's, Duff & Phelps, and Fitch - of a company's ability to repay principal and interest on its debt obligations, principally bonds and commercial paper. Obviously, investors in both bonds and stocks follow these ratings rather closely as indicators of a company's investment quality. If the company's credit ratings are not mentioned in their financial reporting, it's easy to obtain them from the company's investor relations department
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DEBT EQUITY RATIO

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.
Formula =
Long-term Liabilities Equity (Net Worth)
Variations:
A conservative variation of this ratio, which is seldom seen, involves reducing a company's equity position by its intangible assets to arrive at a tangible equity, or tangible net worth, figure. Companies with a large amount of purchased goodwill form heavy acquisition activity can end up with a negative equity position.
Commentary:
The debt-equity ratio appears frequently in investment literature. However, like the debt ratio, this ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities. Nevertheless, this easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. The debt-equity ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage. For example, IBM's debt ratio of 69% seems less onerous than its debt-equity ratio of 220%, which means that creditors have more than twice as
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much money in the company than equity holders (both ratios are for FY 2005). Merck comes off a little better at 150%. These indicators are not atypical for large companies with prime credit credentials. Relatively small companies, such as Eagle Materials and Lincoln Electric, cannot command these high leverage positions, which is reflected in their debt-equity ratio percentages (FY 2006 and FY 2005) of 91% and 78%, respectively The debt-equity ratio appears frequently in investment literature. However, like the debt ratio, this ratio is not a pure measurement of a company's debt because it includes operational liabilities in total liabilities. Nevertheless, this easy-to-calculate ratio provides a general indication of a company's equity-liability relationship and is helpful to investors looking for a quick take on a company's leverage. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. The debt-equity ratio percentage provides a much more dramatic perspective on a company's leverage position than the debt ratio percentage. For example, IBM's debt ratio of 69% seems less onerous than its debt-equity ratio of 220%, which means that creditors have more than twice as much money in the company than equity holders (both ratios are for FY 2005). Merck comes off a little better at 150%. These indicators are not atypical for large companies with prime credit credentials. Relatively small companies, such as Eagle Materials and Lincoln Electric, cannot command these high leverage positions, which is reflected in their debt-equity ratio percentages (FY 2006 and FY 2005) of 91% and 78%, respectively
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INTEREST COVERAGE RATIO

The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable.
Formula:
Commentary:
The ability to stay current with interest payment obligations is absolutely critical for a company as a going concern. While the non-payment of debt principal is a seriously negative condition, a company finding itself in financial/operational difficulties can stay alive for quite some time as long as it is able to service its interest expenses. In a more positive sense, prudent borrowing makes sense for most companies, but the operative word here is "prudent." Interest expenses affect a company's profitability, so the costbenefit analysis dictates that borrowing money to fund a company's assets has to have a positive effect. An ample interest coverage ratio would be an indicator of this circumstance, as well as indicating substantial additional debt capacity. Obviously, in this category of investment quality, Zimmer Holdings would go to the head of the class. Let's see how the interest coverage ratio works out for IBM, Merck, Eagle Materials and Lincoln Electric: 57, 20, 39 and 20, respectively. By any standard, all of these companies, as measured by their latest FY earnings performances, have very high interest coverage ratios. It is worthwhile noting that this is one of the reasons why companies like IBM and Merck have such large borrowings - because in a word, they can. Creditors have a high comfort level with companies that can easily service debt interest payments. Here again, Zimmer Holdings, in this regard, is in an enviable position
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DEBT TO TOTAL FUNDS RATIO

The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.
Formula:
Commentary:
The easy-to-calculate debt ratio is helpful to investors looking for a quick take on a company's leverage. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The more debt compared to assets a company has, which is signaled by a high debt ratio, the more leveraged it is and the riskier it is considered to be. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. However, one thing to note with this ratio: it isn't a pure measure of a company's debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable. Companies use these operational liabilities as going concerns to fund the day-to-day operations of the business and aren't really "debts" in the leverage sense of this ratio. Basically, even if you took the same company and had one version with zero financial debt and another version with substantial financial debt, these operational liabilities would still be there, which in some sense can muddle this ratio. For example, IBM and Merck, both large, blue-chip companies, which are components of the Dow Jones Index, have debt ratios (FY 2005) of 69% and 60%, respectively. In contrast, Eagle Materials, a small construction supply company, has a debt ratio (FY 2006) of 48%; Lincoln Electric, a small supplier of welding equipment and products, runs a debt ratio (FY 2005) in the range of 44%. Obviously, Zimmer Holdings' debt ratio of 18% is very much on the low side. The use of leverage, as displayed by the debt ratio, can be a double-edged sword for companies. If the company manages to generate returns above their cost of capital, investors will benefit. However, with the added risk of the debt on its books, a company can be easily hurt by this leverage if it is unable to generate returns above the cost of capital. Basically, any gains or losses are magnified by the use of leverage in the company's capital structure.
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The easy-to-calculate debt ratio is helpful to investors looking for a quick take on a company's leverage. The debt ratio gives users a quick measure of the amount of debt that the company has on its balance sheets compared to its assets. The more debt compared to assets a company has, which is signaled by a high debt ratio, the more leveraged it is and the riskier it is considered to be. Generally, large, well-established companies can push the liability component of their balance sheet structure to higher percentages without getting into trouble. However, one thing to note with this ratio: it isn't a pure measure of a company's debt (or indebtedness), as it also includes operational liabilities, such as accounts payable and taxes payable. Companies use these operational liabilities as going concerns to fund the day-to-day operations of the business and aren't really "debts" in the leverage sense of this ratio. Basically, even if you took the same company and had one version with zero financial debt and another version with substantial financial debt, these operational liabilities would still be there, which in some sense can muddle this ratio. For example, IBM and Merck, both large, blue-chip companies, which are components of the Dow Jones Index, have debt ratios (FY 2005) of 69% and 60%, respectively. In contrast, Eagle Materials, a small construction supply company, has a debt ratio (FY 2006) of 48%; Lincoln Electric, a small supplier of welding equipment and products, runs a debt ratio (FY 2005) in the range of 44%. Obviously, Zimmer Holdings' debt ratio of 18% is very much on the low side. The use of leverage, as displayed by the debt ratio, can be a double-edged sword for companies. If the company manages to generate returns above their cost of capital, investors will benefit. However, with the added risk of the debt on its books, a company can be easily hurt by this leverage if it is unable to generate returns above the cost of capital. Basically, any gains or losses are magnified by the use of leverage in the company's capital structure.
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ACTIVITY RATIOS
CAPITAL TURNOVER RATIO

This ratio measures the effectiveness with which a firm uses financial resources at its disposal. An enterprise must make full use of assets at its disposal, must maintain stocks at proper levels and debts must be realized in time. Variations in capital turnover ratio must be properly looked into.
Formula =
Net Sales or Cost of Sales or Cost of Goods Sold Capital Employed or Owner's Equity
Net sales means total sales less sales returns. Cost of goods sold = Opening Stock + Purchases + Direct Expenses Closing Stock Or Sales - Gross Profit Capital Employed is computed as either the total of: Equity share capital and Preference share capital; Reserves and Surplus ; and Long-term Loans, eg. Debentures and other long term loans Less: Ficticious assets like Preliminary Expenses, discount on issue of shares or debentures, any deffered revenue expenditure Non-operating assets like investments made outside the business. Or the sum total of: Net Fixed Assets Working capital A low ratio may signify that the capital is lying idle or that there is a fall in sales revenue or that the sales have been suppressed or that any of the constituents of capital employed has been inflated. Management sometimes suppresses sales by resorting to deliberate manipulations. Sales relating to current year may be shown as sales of the next accounting period. A high capital turnover ratio indicates that either the business firm is over trading to the extent thats its financial health is at risk or danger or there is a manipulation in the figures.
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FIXED ASSETS TURNOVER RATIO

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant and equipment or PP&E) with respect to generating sales. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Simply put, the higher the yearly turnover rate, the better. Formula:
Variations: Instead of using fixed assets, some asset-turnover ratios would use total assets. We prefer to focus on the former because, as a significant component in the balance sheet, it represents a multiplicity of management decisions on capital expenditures. Thus, this capital investment, and more importantly, its results, is a better performance indicator than that evidenced in total asset turnover. Commentary: There is no exact number that determines whether a company is doing a good job of generating revenue from its investment in fixed assets. This makes it important to compare the most recent ratio to both the historical levels of the company along with peer company and/or industry averages. Before putting too much weight into this ratio, it's important to determine the type of company that you are using the ratio on because a company's investment in fixed assets is very much linked to the requirements of the industry in which it conducts its business. Fixed assets vary greatly among companies. For example, an internet company, like Google, has less of a fixed-asset base than a heavy manufacturer like Caterpillar. Obviously, the fixed-asset ratio for Google will have less relevance than that for Caterpillar.
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NET WORKING CAPITAL TURNOVER RATIO

A measurement comparing the depletion of working capital to the generation of sales over a given period. This provides some useful information as to how effectively a company is using its working capital to generate sales.
Formula =
Net Sales Net Working Capital
A company uses working capital (current assets - current liabilities) to fund operations and purchase inventory. These operations and inventory are then converted into sales revenue for the company. The working capital turnover ratio is used to analyze the relationship between the money used to fund operations and the sales generated from these operations. In a general sense, the higher the working capital turnover, the better because it means that the company is generating a lot of sales compared to the money it uses to fund the sales. For example, if a company has current assets of $10 million and current liabilities of $9 million, its working capital is $1 million. When compared to sales of $15 million, the working capital turnover ratio for the period is 15 ($15M/$1M). When used in fundamental analysis, this ratio can be compared to that of similar companies or to the company's own historical working capital turnovers. What Does Current Assets Mean? 1. A balance sheet account that represents the value of all assets that are reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash. 2. In personal finance, current assets are all assets that a person can readily convert to cash to pay outstanding debts and cover liabilities without having to sell fixed assets. In the United Kingdom, current assets are also known as "current accounts".
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Current Assets
1. Current assets are important to businesses because they are the assets that are used to fund day-to-day operations and pay ongoing expenses. Depending on the nature of the business, current assets can range from barrels of crude oil, to baked goods, to foreign currency. 2. In personal finance, current assets include cash on hand and in the bank, and marketable securities that are not tied up in long-term investments. In other words, current assets are anything of value that is highly liquid. What Does Current Liabilities Mean? A company's debts or obligations that are due within one year. Current liabilities appear on the company's balance sheet and include short term debt, accounts payable, accrued liabilities and other debts.
Current Liabilities
Essentially, these are bills that are due to creditors and suppliers within a short period of time. Normally, companies withdraw or cash current assets in order to pay their current liabilities. Analysts and creditors will often use the current ratio, (which divides current assets by liabilities), or the quick ratio, (which divides current assets minus inventories by current liabilities), to determine whether a company has the ability to pay off its current liabilities. What Does Working Capital Mean? A measure of both a company's efficiency and its short-term financial health. The working capital ratio is calculated as:
Positive working capital means that the company is able to pay off its short-term liabilities. Negative working capital means that a company currently is unable to meet its short-term liabilities with its current assets (cash, accounts receivable and inventory). Also known as "net working capital", or the "working capital ratio".
Working Capital
If a company's current assets do not exceed its current liabilities, then it may run into trouble paying back creditors in the short term. The worst-case scenario is bankruptcy. A declining working capital ratio over a longer time period could also be a red flag that warrants further analysis. For example, it could be that the company's sales volumes are decreasing and, as a result, its accounts receivables number continues to get smaller and smaller. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company cannot be used to pay off any of the company's obligations. So, if a company is not operating in the most efficient manner (slow collection), it will show up as an increase in the working capital. This can be seen by comparing the working capital from one period to another; slow collection may signal an underlying problem in the company's operations.
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PROFITABILITY RATIOS
These ratios, much like the operational performance ratios, give users a good understanding of how well the company utilized its resources in generating profit and shareholder value. The long-term profitability of a company is vital for both the survivability of the company as well as the benefit received by shareholders. It is these ratios that can give insight into the all important "profit". In this section, we will look at four important profit margins, which display the amount of profit a company generates on its sales at the different stages of an income statement. We'll also show you how to calculate the effective tax rate of a company. The last three ratios covered in this section - Return on Assets, Return on Equity and Return on Capital Employed - detail how effective a company is at generating income from its resources.
PROFIT MARGIN ANALYSIS

In the income statement, there are four levels of profit or profit margins - gross profit, operating profit, pretax profit and net profit. The term "margin" can apply to the absolute number for a given profit level and/or the number as a percentage of net sales/revenues. Profit margin analysis uses the percentage calculation to provide a comprehensive measure of a company's profitability on a historical basis (3-5 years) and in comparison to peer companies and industry benchmarks. Basically, it is the amount of profit (at the gross, operating, pretax or net income level) generated by the company as a percent of the sales generated. The objective of margin analysis is to detect consistency or positive/negative trends in a company's earnings. Positive profit margin analysis translates into positive investment quality. To a large degree, it is the quality, and growth, of a company's earnings that drive its stock price. First, a few remarks about the mechanics of these ratios are in order. When it comes to finding the relevant numbers for margin analysis, we remind readers that the terms: "income", "profits" and "earnings" are used interchangeably in financial reporting. Also, the account captions for the various profit levels can vary, but generally are self-evident no matter what terminology is used. Second, income statements in the multi-step format clearly identify the four profit levels. However, with the single-step format the investor must calculate the gross profit and operating profit margin numbers.
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To obtain the gross profit amount, simply subtract the cost of sales (cost of goods sold) from net sales/revenues. The operating profit amount is obtained by subtracting the sum of the company's operating expenses from the gross profit amount. Generally, operating expenses would include such account captions as selling, marketing and administrative, research and development, depreciation and amortization, rental properties, etc.
Third, investors need to understand that the absolute numbers in the income statement don't tell us very much, which is why we must look to margin analysis to discern a company's true profitability. These ratios help us to keep score, as measured over time, of management's ability to manage costs and expenses and generate profits. The success, or lack thereof, of this important management function is what determines a company's profitability. A large growth in sales will do little for a company's earnings if costs and expenses grow disproportionately. Lastly, the profit margin percentage for all the levels of income can easily be translated into a handy metric used frequently by analysts and often mentioned in investment literature. The ratio's percentage represents the number of pennies there are in each dollar of sales.
NET PROFIT MARGIN

Net Profit Margin - Often referred to simply as a company's profit margin, the so-called bottom line is the most often mentioned when discussing a company's profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company's profit margins on a systematic basis.
Formula =
Net Profit Net Sales
x 100
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OPERATING RATIO
What Does Operating Ratio Mean? A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. Calculated as:
Formula =
Cost of Goods Sold + Operaing Expenses Sales
Investopedia explains Operating Ratio The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account. What Does Operating Expense Mean? A category of expenditure that a business incurs as a result of performing its normal business operations. One of the typical responsibilities that management must contend with is determining how low operating expenses can be reduced without significantly affecting the firm's ability to compete with its competitors. Also known as "OPEX". Operating Expense For example, the payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses. While laying off employees and reducing product quality can initially boost earnings and may even be necessary in cases where a company has lost its competitiveness, there are only so many operating expenses that management can cut before the quality of business operations is damaged.
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PRETAX PROFIT MARGIN

Pretax Profit Margin - Again many investment analysts prefer to use a pretax income number for reasons similar to those mentioned for operating income. In this case a company has access to a variety of tax-management techniques, which allow it to manipulate the timing and magnitude of its taxable income.
Formula =
Profit before Tax (PBT) Net Sales
x 100
RETURN ON INVESTMENT
Return on investment is the basic profitability ratio. It is found out by comparing the profit earned and capital employed to earn it. This ratio is normally expressed in the form of a percentage and is called as Rate of Return or Net Profit to capital employed or Yield on capital or Return on Investment. The objective of calculating this ratio is to find out how much income the use of Rs. 100 of capital generates. This is the broadest measure of overall profitability of the business. It is also a very significant measure for inter-firm caparison and of evaluation of performances of various units within a firm.
Formula =
PBDIT Capital Employed
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Return on Equity
This ratio indicates how profitable a company is by comparing its net income to its shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors.
Formula =
Net Profit - Preference Dividend Equity Share Capital + Reserves
If the company has issued preferred stock, investors wishing to see the return on just common equity may modify the formula by subtracting the preferred dividends, which are not paid to common shareholders, from net income and reducing shareholders' equity by the outstanding amount of preferred equity. Commentary: Widely used by investors, the ROE ratio is an important measure of a company's earnings performance. The ROE tells common shareholders how effectively their money is being employed. Peer company, industry and overall market comparisons are appropriate; however, it should be recognized that there are variations in ROEs among some types of businesses. In general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality. While highly regarded as a profitability indicator, the ROE metric does have a recognized weakness. Investors need to be aware that a disproportionate amount of debt in a company's capital structure would translate into a smaller equity base. Thus, a small amount of net income (the numerator) could still produce a high ROE off a modest equity base (the denominator).
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EXPENSE RATIOS
Key indicator of the economic efficiency of a marketing organization, such as the ratio of advertising expense to product sales. A significant rise in the advertising expense-to-sales ratio may indicate that the advertising is less cost-effective than it could be. It may also represent a temporary fluctuation in demand, or it may be an early warning of a new environmental threat. Minor fluctuations in the ratio are normal and not cause for concern. If the ratio were plotted over time, variations from the average should resemble an automobile's path down a highway with slight variations from the midpoint without actually crossing into the next lane. Slight variations that build over time, either increasing or decreasing, should prompt action.
Formula =
Selliing & Distribution Expenses Sales
x 100
Formula =
Employee Cost Sales

Total Expenses Sales
x 100
Formula =
x 100
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RESEARCH METHODOLOGY
Thorough research has been conducted on the findings of results as to probe the reasons for their evaluation through financial statements of companies, annual report. Various suggestions and help given by company seniors have also been quite helpful in making the completion of the project successful. For main reasons of varying of results of the companies, information has also been gathered from Principles and Practice Of Accountancy, a book by R L Gupta and V K Gupta and published by Sultan Chand and Sons. Vast amounts of information has been drawn from this book as it contains very relevant and useful material. Requirement of updated information has been fulfilled by various sites which are full of useful material. For gathering information on various, data has been collected from the above mentioned book and site www.investopedia.com. Financial statements, company info, company history and other relevant data has been gathered from www.moneycontrol.com. Book on annual report of Indiabulls for financial year 2007-08 has also been used to collect various data which was very valuable and helpful for detailed information on Balance Sheet and Profit and Loss Account (Financial Statements). Assistance has also been taken from the book Analysis of Financial Statements, by T.S. Grewal. To get information on NBFCs and their functioning, data has been collected from the website www.rbi.org.
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TITLE OF THE STUDY

ANALYSIS OF FINANCIAL RATIOS OF TOP 5 NON-BANKING FINANCIAL COMPANIES OF INDIA
DUR ATION OF THE STUDY

The study was carried out for a period 15 days..
SCOPE OF THE STUDY

This study shows the sales promotion of Nokia mobiles. This study tries to focus on customer buying behaviour. This study also tries to focus on motivating the customer to buy Nokia mobiles. This project study also focus on importance of growth of organization.
SAMPLE SIZE
The sample size is the total number count of the number of total respondents covered for the research purposes. Total sample size =100 Male 88 Female- 12
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TYPES OF RESEARCH
PRIMARY DATA
Primary data was collected through the administration of questionnaires to the sample units and conducting a pilot study to ascertain the worth of the questionnaire. Questionnaire Design Questionnaire Administration Scoring Procedure Pilot study
SECONDARY DATA
Secondary data would be collected from internet, industry journals and magazines. This information and the previous research papers will help in designing the questionnaires and various attributes on which the companies are to be assessed. The company dealers also provided valuable information
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OBJECTIVE
The objective of the project is to find out the differences in the financial ratios of the top five NONBANKING FINANCIAL COMPANIES (according to market capitalization).Following are the top five companies.
COMPANY NAME Indiabulls Financial Services Ltd. India Infoline Edelweiss Capital Motilal Oswal Financial Services Future Capital
As on June 26, 2009 Market Capitalisation (Rs Cr.) 4697.22 3535.42 3072.63 1951.35 1571.36
Various financial ratios like liquidity ratios, solvency ratios, activity based ratios and profitability ratios are to be calculated of these NBFCs and to draw various differences through charts and tables. Further reasons for differences are to be found out and studied carefully with special emphasis on Indiabulls Financial Services Ltd. After analyzing the aforesaid differences and if there are any limitations found as to why Indiabulls is not the forefront runner in each of the ratios, reasons are to be evolved out after careful studies of the Financial Statements of the companies and by other means. For eg. If it is found that the Net Profit Margin of Indiabulls is less than one of the companies mentioned above, reasons are to be found out and interpreted. After this various suggestions can be given as to how Indiabulls can achieve the top most position. If the case is that Indiabulls is leading from the front in the above mentioned ratio, still reasons for differences are to be evaluated as to what are the reasons for its lead position. Finally suggestions are to be given at the end of the project.
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LIMITATIONS
There are countless ratios to be calculated, that is , the list is endless. But only those ratios have been taken into account which have been taught to us during our curriculum. Still these ratios are ample which can be taken into consideration. On www.moneycontrol.com , all the list of ratios are given and have been calculated. But while going through them, there was a misprint in two of the ratios, namely current and quick ratio, their numbers were interchanged. Thus this raised skeptics in the mind that one cannot entirely depend on a particular site for the information. Thus all the ratios have been calculated manually. Limitation proved to be an advantage as now all the ratios have been calculated manually and basis for calculation for each of them has also been given. A lot was learnt while calculating the ratios again.
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FACTS AND FINDINGS
The main finding was the difference between the NBFCs and banks. NBFCs are doing functions akin to that of banks; however there are a few differences: (i) an NBFC cannot accept demand deposits; (ii) an NBFC is not a part of the payment and settlement system and as such an NBFC cannot issue cheques drawn on itself; and (iii) deposit insurance facility of Deposit Insurance and Credit Guarantee Corporation is not available for NBFC depositors unlike in case of banks. Another interesting finding is that all the ratios calculated are interlinked with one another somehow. That is, the performance of one ratio affects the performance of the other to some extent. For eg interest coverage ratio can be improved or increased if there is an increase in net profit ratio. Capital turnover ratio can be increased by either increasing sales or by reducing debt-equity ratio. Thus all the ratios are dependent on one another somehow. Also a lot of findings can be accessed in the introduction section where information regarding NBFCs is given. This information was gathered from the website www.rbi.org which gives very vital information on the regulations, descriptions and working of NBFCs. It has also been found out that NBFCs usually do not have a high amount of inventories. Either they have quite low or no inventories. Same is the case with fixed assets. Thats why these companies have higher fixed asset turnover ratios. Preference share capital has been treated as a debt as it is redeemable.
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ANNUAL REPORT
Directors Report Year End : Mar '08 The Directors have great pleasure in presenting the 9th Annual Report together with audited statement of accounts for the financial year ended March 31, 2008. FINANCIAL RESULTS The highlights of the financial results of the Company for the financial year ended March 31, 2008 are as under: Amount (in Rs.) Particulars For the year ended For the year ended March 31,2008 March 31,2007 572,91,39,462 6,05,11,284 566,86,28,178 184,84,50,731 382,01,77,447 4,77,592 30,29,58,501 232,18,46,504 1,24,69.477 230,93,77,027 77,83,45,158
Profit before Depreciation Less: Depreciation Profit before Tax Less: Provision for Tax Profit after Tax Prior period adjustment Add brought forward balance
153,10,31,869 -15,90,257
Addition/Deduction pursuant to the Scheme of Arrangement: Add: Transfer from ICSL under Amalgamation 870,900,645 Less: The difference between the face value of shares issued and the 375,862,816
--
--
book value of net assets taken over from ICSL after accounting for the cancellation of investment in and after crediting the Reserve Fund Securities Premium Account Amount available for appropriation 4,617,696,185
153,26,22,126
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Appropriation Dividend on Preference Shares 9,10,76,206 11,52,84,823 35,93,50,756
Interim Dividend paid on Equity Shares
Proposed Final Dividend on Equity Shares 215,41,29,407 Dividend on Equity Shares issued after the year end on account of 2,79,70,903 GDR / Warrants. Corporate Dividend Tax on: - Dividend on Preference Shares - Interim Dividend paid on Equity Shares
19,47,75,378
--
1,54,78,401
174,42,069
5.03,98,944 3,31,02,075
- Dividend proposed on Equity Shares 36,60,94,293 - Dividend on Equity Shares issued after the year end on account of GDR / Warrants. 47,53,655 Transfer to Reserve Fund (u/s 45IC of the R.B.I Act, 1934) 76,40,35,489 Transfer to General Reserve Balance carried to Balance Sheet. 381,970,000 812,187,831
--
30,62,06,380 15,31.03,200 30,29,58,501
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REVIEW OF OPERATIONS
The Revenue of the Company for the year increased by over 275% from Rs 353.74 crore to Rs. 1327.85 crore. The Companys net profit for the year was Rs 382.02 crore (last year Rs. 153.10 crore) thereby registering an annual growth of 150%. The consolidated revenues and PAT of the Company along with its subsidiaries for the year ended March 31,2008 was Rs. 1688.76 crore and Rs. 580.64 crore respectively. The consolidated revenues and PAT grew by 36% and 31% respectively for the year ended March 31,2008. The consolidated Earning Per Share (EPS) for the year was Rs. 22.84. The current year figures are inclusive of the figures for Indiabulls Credit Services Limited which got merged with the Company with effect from December 24,2007, pursuant to the court approved scheme of arrangement.
BUSINESS HIGHLIGHTS
D Total outstanding & serviced loans as on March 31,2008 were Rs. 10,441 crore compared to total outstanding & serviced loans of Rs 3,097.9 crore as on March 31,2007 (a growth of over 237.03% yoy). Average annualized yield on Rs 10,441 crore outstanding and serviced portfolio is 20.01%. The Company continued to show strong momentum in the mortgage and commercial credit businesses, with strong growth in both segments making them the largest and fastest growing loan segments. In light of deteriorating credit markets globally, the Company has adopted a cautious approach and has tightened its credit policies further for fresh disbursements and as a result the Mortgage portfolio now stands at an average Loan to Value (LTV) of 42.73%. Total outstanding small ticket personal loans were Rs. 383.5 crore as on March 31, 2008 which, constitutes about 3 7% of the current loan portfolio. The Company believes that its strong balance sheet and liquidity provide a strong competitive advantage in the current market environment and allow it to maintain its leadership position in the financial services business. The Company substantially increased the cash it carries on its balance sheet both as a prudent measure given the global liquidity and credit crisis and to benefit from the significant growth opportunities available. Although cash on Balance Sheet earned a lower interest rate than the corporate borrowing rate, it has enabled the Company to continue to seek strong growth and benefit from the current environment.
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DIVIDEND
The Board of Directors of your Company recommend a final dividend of Rs. 8.50 per share (425% on the face value of Rs. 2 per share), which, if approved at the ensuing Annual General Meeting, will be paid to (i) all those Members whose names appear in the Register of Members as on the Book Closure date indicated in the Notice Convening the AGM which forms a part of the Annual Report and (ii) all those Members whose names appear on that date as beneficial owner as furnished by National Securities Depository Limited and Central Depository Services (India) Limited. In addition to the above, the Company had paid a preference dividend @ 5% upto February 02,2008 and thereafter 10% aggregating Rs. 9,10,76,206/-to Oberon Limited, a foreign entity.
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ANALYSIS AND INTERPRETATION
MANAGEMENT DISCUSSION & ANALYSIS REPORT

Managements Discussion and Analysis Report for the year under review, as stipulated under Clause 49 of the Listing Agreement with the Stock Exchanges in India, is presented in a separate section forming part of the Annual Report.
SIGNIFICANT DEVELOPMENTS
Scheme of Arrangement (the Scheme): The Scheme providing for amalgamation of Indiabulls Credit Services Limited (ICSL) with the Company and the demerger of the securities broking and advisory business of the Company as a going concern, to Indiabulls Securities Limited (ISL) and their respective shareholders and creditors under sections 391-394 of the Companies Act, 1956, had been sanctioned by the Honble High Court of Judicature at Delhi on November 23, 2007. Upon coming into effect of the Scheme on December 24, 2007 and with effect from the Appointed Date on April 1, 2007, ICSL stands amalgamated with the Company and the securities broking and advisory business of the Company stands demerged from IBFSL and transferred to and vested in ISL on a going concern basis. 2,56,80,708 fully paid Equity Shares of Rs. 2/- each were issued to the shareholders of ICSL pursuant to the Scheme, Consequent to the said allotment the paid up equity capital of the Company increased to Rs. 50,68,53,978 divided into 25,34,26,989 equity shares of Rs. 2/ - each. Life Insurance Venture: The Company has signed a joint venture agreement with Sogecap, the insurance arm of Societe Generale (SocGen) for its upcoming life insurance venture. Sogecap will invest Rs. 150 crore to subscribe to 26% of the paid up capital in the Joint Venture. The Company has already got approval from the Reserve Bank of India for holding 49.5% equity stake in the life insurance venture, and has also been issued R1 by IRDA, the insurance regulator, for initiating necessary regulatory approvals.
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Commodities Exchange: The Company has entered into a Memorandum of Understanding with MMTC Limited, the largest commodity trading business in India to establish a Commodities Exchange with 26% ownership with MMTC. Forward Markets Commission, Department of Consumer Affairs, Govt, of India has conveyed the in-principal approval of the Government on MMTC proposal for setting up Nationwide Multi Commodity Exchange in partnership with the Company. Asset Management Business: Securities and Exchange Board of India (SEBI) has approved the setting up of an Asset Management Company and a Trustee Company for setting up a Mutual Fund. As a result thereof, the Company is in the process of setting up an Asset Management Company and a Trustee Company for setting up the Mutual Fund.
UTILISATION OF ISSUE PROCEEDS

The details of utilisation of proceeds of the money raised by the Company through GDR, ESOS, Preference Shares. Preferential Allotment and Warrants are as under: Amount (in Rs.) March 31, 2008 March 31, 2007
Balance amount to be utilized in the beginning of the year 6,411,799,743 Gross Proceeds of Issue raised through GDR 12,235,062,493 Gross Proceeds of Issue raised through ESOP Gross Proceeds of Issue raised through Preference Shares Gross Proceeds of Issue raised through Preferential allotment to Crown Capital Gross Proceeds of Issue raised through conversion of Warrants
2,487,326,006
--
9,600,000
6,440,000,100
3,023,250,000
902,000,000
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Gross Proceeds of Issue raised through conversion of Warrants II 1,213,800,000 Total Proceeds raised (A)
250,000,000
19,860,662,236 13,112,176,106
Less: Utilization of Issue Proceeds Share issue expenses-GDR Investment in Subsidiary Investment in Associate.... Investment in Debentures of Associate Companies Loans to Subsidiaries................ Amount transferred.to Indiabulls Reai Estate Ltd............. lnyestment..in.lndiabulls .Real Estate.Ltd,.................. (337,260,354) --
(1,000,000) (2,565,062,000) (189,584,000)
(380,168,000)
(1,559,826,852)
(1,981,708,934)
(500,000) (25,000,000) -
Transferred to ISL under demerger
Security deposit for expansion of offices. (108,520,705) Purchase of fixed assets (162,843,352)
(3,735,000)
(19,791,577) (6,700,376,363)
Total Utilization of Proceeds (B)... (634,624,411) Balance amount being temporary utilization of Proceeds 19,226,037,825
6,411,799,743
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EMPLOYEES STOCK OPTION

In compliance with the terms of the court approved Scheme of Arrangement, which came into effect on December 24,2007, the Company had adopted and created Employee Stock Option Schemes for the benefit of Indiabulls Credit Services Limited (ICSL) option holders, who were granted options under the ESOP Schemes of ICSL. Accordingly an aggregate of 36 lacs options were granted on equally favourable terms as that under the ESOP Schemes of ICSL. The Company has also proposed amendments in the terms of its existing Employee Stock Option Schemes, the details whereof are given in the AGM Notice. The disclosures required to be made in the Directors Report in respect to the stock options, in terms of the SEBI (Employee Stock Option Scheme and Stock Purchase Scheme) Guidelines, 1999, are as per the Annexure forming part of the Directors Report.
SUBSIDIARIES
The statement pursuant to Section 212( 1) (e) of the Companies Act, 1956 relating to subsidiary companies forms a part of the financial statements. In terms of approval granted by the Ministry of Company Affairs, Government of India vide letter No. 47/286/2008 CL-III dated 9th May, 2008, under Section 212(8) of the Companies Act, 1956, copies of the Balance Sheet, Profit and Loss Account, Reports of the Board of Directors and Auditors of the subsidiaries of the Company as of March 31,2008 have not been attached with the Balance Sheet of the Company. These documents will be made available upon request by any Member of the Company interested in obtaining the same. However, as directed by the Ministry of Company Affairs, the financial data of the subsidiaries have been furnished under Details of Subsidiaries forming a part of the Annual Report. Further, pursuant to Accounting Standard AS-21 issued by The Institute of Chartered Accountants of India, Consolidated Financial Statements presented by the Company includes financial information of its subsidiaries.
FIXED DEPOSITS
The Company has not accepted any fixed deposits from the public during the year.
DIRECTORS
During the year Mr. Rajiv Rattan, one of the Whole-time Directors, has been designated as the Vice Chairman of the Company.
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In accordance with the provisions of Sections 255 and 256 of the Companies Act, 1956 and Article 121 of the Companys Articles of Association, Mr. Shamsher Singh and Mr. Saurabh K. Mittal, Directors, retire by rotation and, being eligible, offer themselves for reappointment at the ensuing Annual General Meeting. Brief resume of the Directors proposed to be reappointed, nature of their expertise in specific functional areas and names of companies in which they hold directorships and memberships/ chairmanships of Board Committees, as stipulated under Clause 49 of Listing Agreement with the Stock Exchanges in India, are provided in the Report on Corporate Governance forming part of the Annual Report.
In accordance with the provisions of Sections 255 and 256 of the Companies Act, 1956 and Article 121 of the Companys Articles of Association, Mr. Shamsher Singh and Mr. Saurabh K. Mittal, Directors, retire by rotation and, being eligible, offer themselves for reappointment at the ensuing Annual General Meeting. Brief resume of the Directors proposed to be reappointed, nature of their expertise in specific functional areas and names of companies in which they hold directorships and memberships/ chairmanships of Board Committees, as stipulated under Clause 49 of Listing Agreement with the Stock Exchanges in India, are provided in the Report on Corporate Governance forming part of the Annual Report. the Directors have taken proper and sufficient care for maintaining adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and
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DIRECTORS RESPONSIBILITY STATEMENT

As required under Section 217 (2AA) of the Companies Act, 1956, your Directors confirm that: 1. in the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures from the same; 2. the Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as at 31 st March, 2008 and the profit of the Company for the year ended on that date; 3. the Directors have taken proper and sufficient care for maintaining adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and 4. the Directors have prepared the Annual Accounts of the Company on a going concern basis.
AUDITORS & AUDITORS REPORT

M/s. Deloitte Haskins & Sells, Chartered Accountants, Statutory Auditors of the company, will retire at the conclusion of the ensuing Annual General Meeting and, being eligible, offer themselves for reappointment. The Company has received a certificate from the Auditors to the effect that their reappointment, if made would be in accordance with the limits specified under Section 224(1 B) of the Companies Act, 1956. The Board recommends their re-appointment. The Notes to the Accounts referred to in the Auditors Report are self explanatory and, therefore, do not call for any further explanation.
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LISTING WITH STOCK EXCHANGES

The equity shares of the Company continue to remain listed with the Bombay Stock Exchange Limited (BSE) and the National Stock Exchange of India Limited (NSE). The listing fees payable to both the exchanges for the financial year 2008-09 have been paid. Global Depositary Receipts (GDRs) of the Company continued to be listed on Luxembourg Stock Exchange.
CORPORATE GOVERNANCE REPORT

Pursuant to clause 49 of the Listing Agreements with the Stock Exchanges, a detailed report on Corporate Governance is included in the Annual Report. A Practicing Company Secretarys Certificate certifying the Companys compliance with the requirements of Corporate Governance stipulated under Clause 49 of the Listing Agreement is attached with the Corporate Governance Report. A Practicing Company Secretarys Certificate certifying the Companys compliance with the requirements of Corporate Governance stipulated under Clause 49 of the Listing Agreement is attached with the Corporate Governance Report.
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INFORMATION PURSUANT TO SECTION 217 OF THE COMPANIES ACT, 1956

The information required to be disclosed under Section 217 (1) (e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1988 with respect to conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo, is given in the Annexure and forms a part of this Report. In terms of the provisions of Section 217 (2A) of the Companies Act, 1956 read with the Companies (Particulars of Employees) Rules, 1975 as amended, the names and other particulars of the employees are required to be set out in the Annexure to the Directors Report. However, as per the provisions of Section 219(1)(b)(iv) of the said Act, the Annual Report excluding the aforesaid information is being sent to all the Members of the Company and others entitled thereto. Any member interested in obtaining such particulars may write to the Company Secretary at the Registered Office of the Company.
ACKNOWLEDGEMENT
Your Directors wish to express their gratitude for the continuous assistance and support received from the investors, clients, bankers, regulatory and government authorities, during the year. Your Directors also wish to place on record their deep sense of appreciation for the contributions made and committed services rendered by the employees of the Company.
For and on behalf of the Board of Directors Date : 25th July, 2008 Sameer Gehlaut Place: New Delhi Chairman
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ANALYSIS LIQUIDITY MEASUREMENT RATIOS
An analysis for short term creditors
CURRENT RATIO
The current ratio is a popular financial ratio used to test a company's liquidity (also referred to as its current or working capital position) by deriving the proportion of current assets available to cover current liabilities. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better. Formula:
Current Ratio
20 Current Ratio 15 10 5 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital
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Current Ratio
35 30 Current Ratio 25 20 15 10 5 0 2007 2008 Motilal Oswal Future Capital
Year Company Indiabulls India Infoline Edelweiss Capital Motilal Oswal Future Capital
2005 4.93 2.99 2.41
CURRENT RATIO 2006 2007 2008 2009 7.06 4.18 4.54 3.96 6.43 5.54 70.6 220 4.09 1.5 18.14 31.79 10.91 10.4 1.29 18.44 12.9 3.28
Current ratio It is clearly seen that Edelweiss Capital has been maintaining a good current ratio for the past couple of years. Motilal Oswal is too on the higher side since two years. In comparison, Indiabulls pulled up socks in 2008 and increased its current ratio by a considerable amount. The reason here is very interesting which will be become clear in Cash Ratio and Quick Ratio. This was a very positive move by Indiabulls when seen from the view of world recession. But is has its limitations also. It is surprising to see that India Infoline, the second largest NBFC by market capitalization, has a very low current ratio. Therefore short term creditors might be a bit wary to lend to this company. India Infoline is a well established company, that will work to its advantage. Since current assets are used to cover current liabilities, every company is fully padded up in this regard except for Infoline and Future Capital to some extent. Indiabulls has the advantage over its closest rival in this case.
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ACID TEST RATIO or LIQUID RATIO or QUICK RATIO
The quick ratio - aka the quick assets ratio or the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. The quick ratio is more conservative than the current ratio because it excludes inventory and other current assets, which are more difficult to turn into cash. Therefore, a higher ratio means a more liquid current position.
Quick Ratio =
Current Assets - (Stock in Trade + Prepaid Expenses) Current Liabilities
Quick Ratio
20 Quick Ratio 15 10 5 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital
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Quick Ratio
35 30 Quick Ratio 25 20 15 10 5 0 2007 2008 Motilal Oswal Future Capital
2004 4.9 2.77 2.37
QUICK RATIO 2005 2006 2007 7.06 2.43 4.54 3.96 5.65 5.54 70.6 220 4.09 1.16 18.14 31.79 10.91
2008 10.4 1.11 18.44 12.9 3.28
Quick ratio Quick ratio is a better way of judging the financial strength of a business than current ratio. Here the picture here is not different of what was seen in current ratio. Since quick assets are found after deducting inventories and prepaid expenses from current assets, all the companies present a same picture as in current ratio, that is they have no exposure to inventories. Thus it would not be wrong to judge that financial companies do not maintain inventories or require them. This shows that Indiabulls, Edelweiss Capital and Motilal Oswal are financially sound for the short term period. Their current liabilities are fully covered by current assets by numerous number of times.
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CASH RATIO
The cash ratio is an indicator of a company's liquidity that further refines both the current ratio and the quick ratio by measuring the amount of cash, cash equivalents or invested funds there are in current assets to cover current liabilities. The cash ratio is seldom used in financial reporting or by analysts in the fundamental analysis of a company. It is not realistic for a company to purposefully maintain high levels of cash assets to cover current liabilities. The reason being that it's often seen as poor asset utilization for a company to hold large amounts of cash on its balance sheet, as this money could be returned to shareholders or used elsewhere to generate higher returns. While providing an interesting liquidity perspective, the usefulness of this ratio is limited.
Cash Ratio =
Current Assets - (Inventories + Sundry Debtors + Loans and Advances) Current Liabilities
Cash Ratio
6 5 Cash Ratio 4 3 2 1 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital
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Cash Ratio
2.5 2 Cash Ratio 1.5 1 0.5 0 2007 Year 2008 Motilal Oswal Future Capital
2004 1.63 1.03 0.41
CASH RATIO 2005 2006 2007 1.99 0.5 0.16 218 1.59 0.07 0 0.98 0.32 0.13 1.96 0.12
2008 4.78 0.31 1.44 0.04 0.8
Cash Ratio cash ratio takes into account short term liquid assets which can be easily converted into cash. This ratio even ignores sundry debtors, inventories and loans and advances. Thus this ratio is a further refinement of current and quick ratio. The picture here tells a very different story from the previous two ratios. Indiabulls is a giant step ahead when its comes to have liquid assets in your kitty. Indiabulls has the highest cash ratio of 4.78, making it the biggest player when it comes to have cash reserves. Edelweiss Capital comes second with 1.44. Indiabulls infused a lot of cash in its balance sheet when it saw that world recession was round the corner. About Rs 7000 crore was infused by Indiabulls in cash as it could foresee that liquidity crisis was just ahead.
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DEBT RATIOS An Analysis for Long-Term Creditors Debt-Equity Ratio

The debt-equity ratio is another leverage ratio that compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position.
Debt-Equity Ratio =
Long term Liabilities Equity (Net Worth)
Debt-Equity Ratio
4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 2006 Year 2007 2008 Debt-Equity Ratio
Indiabulls India Infoline Edelweiss Capital
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Debt-Equity Ratio
0.14 Debt-Equity Ratio 0.12 0.1 0.08 0.06 0.04 0.02 0 2006 2007 Year 2008 Motilal Oswal Future Capital
2004 2.97 0 0.32
DEBT EQUITY RATIO 2005 2006 2007 1.35 0.03 0 0.5 0.49 0 0 0.01 1.16 0.28 0.4 0 0
2008 3.53 0.13 0.81 0 0.13
Debt-Equity ratio- Since this ratio establishes the ratio of long term debts to companys net worth, creditors always like to see that the company has a maximum exposure in this (i.e. proprietors stake or equity should be more than the debt). This is because the more the owners have a stake in their business, more of their risk is increased and it provides a margin of safety to the creditors. Here, Indiabulls has the maximum debt-equity ratio. Indiabulls borrowed to a large extent in the form of secured and unsecured loans in 2008. It would be pretty clear from here that the cash shield which Indiabulls generated to tide over the financial crisis, the source was a long term debt. This has brought the debt-equity ratio of Indiabulls to the highest, 3.53. Edelweiss Capital is second with 0.81 Long term creditors will be wary to further lend to Indiabulls due to its poor debt-equity ratio. The only thing which will work to Indiabulls advantage is that the ripples of world economic crisis is not greatly felt in India. Also India along with China are the two fastest growing economies of the world. Since the recovery from the financial depression has begun, Indiabulls would like to repay its debt within a couple of years. This will bring down its debt equity ratio, at par with other companies.
84
NET INCOME TO DEBT SERVICE RATIO OR INTEREST COVERAGE RATIO

The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. The ability to stay current with interest payment obligations is absolutely critical for a company as a going concern. While the non-payment of debt principal is a seriously negative condition, a company finding itself in financial/operational difficulties can stay alive for quite some time as long as it is able to service its interest expenses.
Formula =
Net income before charging interest and tax Periodic interest on long-term debts
Interest Coverage Ratio

500 Interest Coverage Ratio 400 300 Indiabulls 200 100 0 2004 2005 2006 Year 2007 2008 India Infoline Edelweiss Capital
85

20 Interest Coverage Ratio 15 10 5 0 2007 Year 2008 Indiabulls India Infoline Edelweiss Capital

25 Interest Coverage Ratio 20 15 10 5 0 -5 2006 2007 Year 2008 Motilal Oswal Future Capital
86
2004 5.88 6.82 21.19
2005 6 318 48.48
2006 7.44 19.07 394.33 -0.24 0
2007 7.41 10.53 18.13 22.5 0.24
2008 3 10.09 1.5 6.48 13.76
Interest coverage ratio- Indiabulls is among the lowest along with Edelweiss Capital having the lowest interest-coverage ratio. The point of concern for Indiabulls is that it has the highest debt-equity ratios and among the lowest interest coverage ratios. That is, the operating profit of Indiabulls is just 3 times the interest it has to pay for long term debts. India Infoline has an interest coverage of 10.09, and Motilal Oswal and Future Capital have 6.48 and 13.76 respectively. Edelweiss does have the lowest interest coverage, but its exposure to debt is minimal compared to Indiabulls. Thus Indiabulls has to look into this matter, as this will affect its profits. A large amount of interest has to be paid out of operating profits. Note- Preference Share Capital of Indiabulls has been treated as a debt as it is redeemable within a period of 12 years. This is because redeemable preference share capital is treated as a debt. Irredeemable preference capital is treated as net worth of a company, and not debt.
87
DEBT TO TOTAL FUNDS RATIO

The debt ratio compares a company's total debt to its total assets, which is used to gain a general idea as to the amount of leverage being used by a company. A low percentage means that the company is less dependent on leverage, i.e., money borrowed from and/or owed to others. The lower the percentage, the less leverage a company is using and the stronger its equity position. In general, the higher the ratio, the more risk that company is considered to have taken on.
Formula =
Total Liabilities Total Assets
Debt to Total Funds Ratio

Debt to Total Funds Ratio 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital
88
Debt to Total Funds Ratio

Debt to Total Funds Ratio 0.6 0.5 0.4 0.3 0.2 0.1 0 2006 2007 Year 2008 Motilal Oswal Future Capital
2004 0.79 0.33 1.21
Debt to Total Funds Ratio 2005 2006 2007 0.63 0.31 0.2 0.53 0.6 0.17 0.01 0.02 0.73 0.76 0.5 0.03 0.08
2008 0.82 0.86 0.8 0.07 0.56
Debt to Total Funds Ratio - The easy-to-calculate debt ratio is helpful to investors looking for a quick take on a company's leverage.
89
ACITIVITY RATIOS AN ANALYSIS FOR MEASURING THE MOVEMENT OF CURRENT ASSETS CAPITAL TURNOVER RATIO
The return on capital employed (ROCE) ratio or Capital turnover ratio, expressed as a percentage, complements the return on equity (ROE) ratio by adding a company's debt liabilities, or funded debt, to equity to reflect a company's total "capital employed". This measure narrows the focus to gain a better understanding of a company's ability to generate returns from its available capital base. By comparing net income to the sum of a company's debt and equity capital, investors can get a clear picture of how the use of leverage impacts a company's profitability. Financial analysts consider the ROCE measurement to be a more comprehensive profitability indicator because it gauges management's ability to generate earnings from a company's total pool of capital.
Formula =
Net Sales Capital Employed
Capital Turnover Ratio

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2004 2005 2006 Year 2007 2008 Capital Turnover Ratio
90

0.1 Capital Turnover Ratio 0.08 0.06 0.04 0.02 0 2006 2007 Year 2008 Motilal Oswal Future Capital
2004 0.32 0.29 0.28
Capital Turnover Ratio 2005 2006 2007 0.15 0.39 0.68 0.3 0.17 0.23 0 0.01 0.37 0.73 0.11 0.06 0.08
2008 0.11 0.52 0.07 0.08 0.09
Capital Turnover Ratio India Infoline has the highest capital turnover ratio of 0.52 followed by Indiabulls(0.11) and others. This means that India Infoline is effectively utilizing its capital employed which has increased its turnover ratio. The proportion of net sales to capital employed is more for Infoline than other companies. When we have a look at past five years figures, India Infoline has always maintained an impressive capital turnover ratio, always higher than its rivals. Obviously with the coming of recession, this turnover has declined or remained the same for all companies. Indiabulls has to catch up with its nearest rival in this regard.
91
FIXED ASSETS TURNOVER RATIO

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant and equipment or PP&E) with respect to generating sales. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Simply put, the higher the yearly turnover rate, the better.
Formula =
Net Sales Net Fixed Assets
Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio 60 50 40 30 20 10 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital Future Capital
92
Fixed Assets Turnover Ratio

Fixed Assets Turnover Ratio 3500 3000 2500 2000 1500 1000 500 0 2006 2007 Year 2008
Motilal Oswal
2004 4.99 27.68 9.35
Fixed Assets Turnover Ratio 2005 2006 2007 4.31 29.88 11.06 8.81 12.69 14.41 0 0.03 8.56 5.58 57.04 0 3.07
2008 35.18 9.74 24.41 3210 5.05
Fixed Assets Turnover Ratio Indiabulls has the highest fixed assets turnover ratio(Motilal Oswal being an exceptional case) of 35.18. This means that for every rupee invested in fixed assets, it generates higher sales for Indiabulls. Following Indiabulls is Edelweiss Capital with turnover of 24.41. Note Motilal Oswal has no or very little exposure to fixed assets, thus its not considered.
93
NET WORKING CAPITAL TURNOVER RATIO

The Working Capital Turnover ratio measures the company's Net Sales from the Working Capital generated. A high, or increasing Working Capital Turnover is usually a positive sign, showing the company is better able to generate sales from its Working Capital. Either the company has been able to gain more Net Sales with the same or smaller amount of Working Capital, or it has been able to reduce its Working Capital while being able to maintain its sales. Efforts to streamline the operations of the company will often show favorably in this ratio.
Formula =
Net Sales Net Working Capital
Net Working Capital Turnover Ratio

Net Working Capital Turnover Ratio 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 2006 Year 2007 2008
94
Net Working Capital Turnover Ratio

Net Working Capital Turnover Ratio 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 2006 2007 Year 2008
Motilal Oswal Future Capital
Net Working Capital Turnover Ratio 2004 2005 2006 0.34 2.16 1.88 0.16 1.65 1.29 0.36 0.29 0.59 0 0.01
2007 0.48 1.8 0.19 0.09 0.2
2008 0.11 3.06 0.13 0.12 0.33
Net Working Capital Turnover Ratio Indiabulls lags behind in this ratio with ratio of 0.11. India Infoline is right at the top with 3.06. This means that working capital is efficiently utilized and quick turnover of debtors and inventories. All other companies including indiabulls have a very low working capital turnover ratio compared to India Infoline. When it comes to the utilization of capital, be it short term or long term, India Infoline has left everyone behind. Indiabulls has to take a cue from Infoline in this regard.
95
PROFITABILITY RATIOS NET PROFIT MARGIN

Often referred to simply as a company's profit margin, the so-called bottom line is the most often mentioned when discussing a company's profitability. While undeniably an important number, investors can easily see from a complete profit margin analysis that there are several income and expense operating elements in an income statement that determine a net profit margin. It behooves investors to take a comprehensive look at a company's profit margins on a systematic basis.
Formula =
Net Profit Net Sales
x 100
Net Profit Margin

Net Profit Margin (in %) 100 80 60 Indiabulls 40 20 0 2004 2005 2006 Year 2007 2008 India Infoline Edelweiss Capital
96
Net Profit Margin

60 Net Profit Margin (in %) 50 40 30 20 10 0 2007 2008 Motilal Oswal Future Capital
2004 26.9 76.41 41.61
Net Profit Margin 2005 2006 2007 33.95 82.32 36.4 41.51 59.21 23.24 -950 0 35.72 19.15 36.77 8.83 1.72
2008 34.43 25.6 15.35 53.86 10.93
Net Profit Margin Indiabulls has been quite stable in maintaining its net profit margin around mid thirties. It has a net profit margin of 34.43%, just below Motilal Oswals 53.86%. Net profit margin for India Infoline has risen by about 6%. Motilal Oswal has the highest margin of 53.86%. That is for every Rs100 sales, Motilal earned a profit of Rs53 in 2008. Indiabulls has to make extra efforts to increase its net profits.
97
OPERATING RATIO
A ratio that shows the efficiency of a company's management by comparing operating expense to net sales. The payment of employees' wages and funds allocated toward research and development are operating expenses. In the absence of raising prices or finding new markets or product channels in order to raise profits, some businesses attempt to increase the bottom line purely by cutting expenses. While laying off employees and reducing product quality can initially boost earnings and may even be necessary in cases where a company has lost its competitiveness, there are only so many operating expenses that management can cut before the quality of business operations is damaged. The smaller the ratio, the greater the organization's ability to generate profit if revenues decrease. When using this ratio, however, investors should be aware that it doesn't take debt repayment or expansion into account.
Formula =
Cost of Goods Sold + Operaing Expenses Sales
Operating Ratio
100 Operating Ratio (in%) 80 60 Indiabulls 40 20 0 2004 2005 2006 Year 2007 2008 India Infoline Edelweiss Capital
98
Operating Ratio
Operating Ratio (in %) 120 100 80 60 40 20 0 2007 Year 2008 Motilal Oswal Future Capital
2004 73.03 33.40 59.24
Operating Ratio 2005 2006 66.50 22.43 66.06 61.40 49.19 76.81 1050.00 0.00
2007 64.41 86.20 65.55 48.65 98.27
2008 65.54 83.45 84.73 57.28 88.53
Operating Ratio Indiabulls has done well to keep its operating expenses under control which denotes management efficiency. Operating ratio refers to the ratio of operating expenses to sales. The lower the ratio, better is the company able to control its costs. Indiabulls has an operating ratio of 65.54%, which is quite lower compared to India Infolines 83.45% and Edelweiss Capitals 84.73%. Future capital has the highest operating ratio of 88.53% and Motilal Oswal has the lowest with 57.28%. Looking from the point of view of capital turnover ratio, Indiabulls has a ratio of 0.11, less than India Infolines 0.52.
99
PRETAX PROFIT MARGIN
Again many investment analysts prefer to use a pretax income number for reasons similar to those mentioned for operating income. In this case a company has access to a variety of taxmanagement techniques, which allow it to manipulate the timing and magnitude of its taxable income.
Formula =
Profit before Tax (PBT) Net Sales
x 100
Pretax Profit Margin

100 Pretax Profit Margin (in %) 80 60 40 20 0 2004 2005 2006 2007 2008 Indiabulls India Infoline Edelweiss Capital
100
Pretax Profit Margin

90 80 70 60 50 40 30 20 10 0 2007 2008 Pretax Profit Margin (in %)
Motilal Oswal Future Capital
2004 42.93 76.97 50.48
Pretax Profit Margin 2005 2006 2007 53.13 89.63 48.03 58.55 88.94 37.86 -1200 0 53.21 29.25 49.61 40 2.58
2008 33.78 33.69 39.33 76.23 11.3
Pretax Profit Margin There isnt any contrast between net profit margins and pre-tax profit margin. That is position for the companies remain the same in both the margins or ratios. Here too, Motilal Oswal scores over other companies like in net profit margin. Next to follow is Edelweiss with a margin of 39.33 % while Indiabulls and India Infoline are almost clubbed together at third spot.
101
RETURN ON INVESTMENT
Return on investment is the basic profitability ratio. It is found out by comparing the profit earned and capital employed to earn it. This ratio is normally expressed in the form of a percentage and is called as Rate of Return or Net Profit to capital employed or Yield on capital or Return on Investment. The objective of calculating this ratio is to find out how much income the use of Rs. 100 of capital generates. This is the broadest measure of overall profitability of the business. It is also a very significant measure for inter-firm caparison and of evaluation of performances of various units within a firm.
Formula =
PBDIT Capital Employed
Return On Investment
40 Return on Investment (in %) 35 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 India Infoline Indiabulls Edelweiss Capital
102
Return On Investment
8 Return on Investment (in %) 6 4 2 0 -2 -4 -6 Year 2006 2007 2008 Motilal Oswal Future Capital
Return on Investment This ratio indicates the overall profitability of the business. This is the broadest measure of overall performance of an enterprise. India Infoline has the highest return on investment ratio of 21.17%. Not surprisingly, Indiabulls has amongst the lowest ratio of 6.73 %. This is because of the large exposure to long term debts in 2008. When we take a look at FY 2006-07, Indiabulls had amongst the highest ratios, just behind India Infolines 27.05 %. Future Capital is at the bottom of the table with 1.4 %.
103
RETURN ON EQUITY
This ratio indicates how profitable a company is by comparing its net income to its average shareholders' equity. The return on equity ratio (ROE) measures how much the shareholders earned for their investment in the company. The higher the ratio percentage, the more efficient management is in utilizing its equity base and the better return is to investors. Widely used by investors, the ROE ratio is an important measure of a company's earnings performance. The ROE tells common shareholders how effectively their money is being employed. Peer company, industry and overall market comparisons are appropriate; however, it should be recognized that there are variations in ROEs among some types of businesses. In general, financial analysts consider return on equity ratios in the 15-20% range as representing attractive levels of investment quality
Formula =
Net Profit - Preference Dividend Equity Share Capital + Reserves
Return On Equity
40 35 30 25 20 15 10 5 0 2004 2005 2006 Year 2007 2008 Return on Equity (in %)
104
Return On Equity
6 Return on Equity (in %) 4 2 Motilal Oswal 0 2006 -2 -4 Year 2007 2008 Future Capital
2004 33.19 22.83 15.6
Return on Equity 2005 2006 11.43 33.39 25.18 19.03 15.26 5.57 -3.49 0
2007 28.54 17.98 6.01 0.59 0.15
2008 17.59 15.02 2.13 4.32 1.22
Return on Equity Indiabulls has a return on equity of 17.59% which reflects a fair earning capacity of equity share capital over its nearest rivals. India Infoline has a return on equity of 15.02% followed by Motilal Oswals 4.32%. Indiabulls needs to maintain its ratio at higher levels as it has the maximum exposure to equity share capital, thus to keep faith alive in the shareholders. Indiabulls has faired consistently well during the last three years by keeping its return on equity at good levels.
105
SELLING AND DISTRIBUTION EXPENSES TO SALES

Indiabulls has the lowest of selling and distribution expenses to sales in 2008. In comparison, Future Capital has the highest ratio. In 2007-08, the rate of growth in sales of all the companies have declined. An interesting point to note is that the two smaller players (Motilal Oswal and Future Capital) have increased their selling and distribution expenses in this very year while the top three companies have either reduced their expenses or kept them stable. This shows the willingness of these two players to grow at a fast pace. Also the dip in their sales growth is minimum among the five players. Top three players, Indiabulls, India Infoline and Edelweiss Capital are in the maturity stage whereas the other two in growth stage. Thus growing players are incurring more expenses than the mature players.
Formula =
Selliing & Distribution Expenses Sales
x 100
Selling & Distribution Expenses To Sales

Selling and Distribution Expenses to Sales 30 25 20 15 10 5 0 2004 2005 2006 2007 2008 Indiabulls India Infoline Edelweiss Capital
106
Selling & Distribution Expenses To Sales (in %)

Selling and Distribution Expenses to Sales 50 40 30 20 10 0 2006 2007 Year 2008 Motilal Oswal Future Capital
Selling & Distribution Expenses to Sales Ratio 2004 2005 2006 2007 2008 11.06 5.64 0.00 4.50 1.46 0.00 4.88 2.46 0.00 0.00 0.00 8.14 25.23 15.15 7.34 32.03 8.12 19.33 13.12 15.35 43.15
107
EMPLOYEE COST TO SALES

Here too, Future Capital has incurred maximum amount of employee expenses in relation to their sales. That is, its sales represent the highest portion of these expenses among all the players. Surprisingly Motilal Oswal kept these very expenses to a low ratio on sales. Edelweiss Capital and India Infoline were among the other big spenders on employees in relation to sales after Future Capital.
Formula =
Employee Cost Sales
x 100
Employee Cost To Sales

40 35 30 25 20 15 10 5 0 2004 2005 2006 Year 2007 2008 Employee Cost to Sales
108
Employee Cost To Sales

60 Employee Cost to Sales 50 40 30 20 10 0 2006 2007 Year 2008 Motilal Oswal Future Capital
109
TOTAL EXPENSES TO SALES
Formula =
Total Expenses Sales
x 100
Total expenses are also operating expenses which are incurred for the main purpose of the business. Here too, Future Capital has spend a total of 85% as expenses on its sales. This also increased its sales by more than eight times in 2007-08. Indiabulls was among the lowest to incur just 25.85% expenses of its sales. Also its sales grew by just 1.35 times, the lowest among the five players. Motilal oswal spent just 20% expenses of its sales, still its sales grew by nearly 3 times compared to last year. Question arises if both Motilal Oswal and Indiabulls have incurred such low expenses, then why did it increased the formers sales by a considerable amount and latters by a small amount. The reason could be, that Motilal Oswal spent more on selling and distribution expenses than Indiabulls. The other reason could be that the former is still in a growth stage while the latter in a maturity or stable stage. Indiabulls has to increase its spending or expenses to keep its sales growth rate at a higher level.
Total Expenses To Sales (in %)

Total Expenses to Sales Ratio (in %) 80 70 60 50 40 30 20 10 0 2004 2005 2006 Year 2007 2008 Indiabulls India Infoline Edelweiss Capital
110
Total Expenses To Sales (in %)

Total Expenses to Sales (in %) 120 100 80 60 40 20 0 2007 Year 2008 Motilal Oswal Future Capital
Total Expenses to Sales (in %) 2004 2005 2006 2007 46.66 10.94 43.35 34.6 12.44 50.43 31.05 11.27 58.76 1300 0 37.1 68.5 48.44 20.65 96.65
2008 25.86 63.87 37.16 20.71 85.25
Question arises if both Motilal Oswal and Indiabulls have incurred such low expenses, then why did it increased the formers sales by a considerable amount and latters by a small amount. The reason could be, that Motilal Oswal spent more on selling and distribution expenses than Indiabulls. The other reason could be that the former is still in a growth stage while the latter in a maturity or stable stage. Indiabulls has to increase its spending or expenses to keep its sales growth rate at a higher level.
111
SWOT ANALYSIS
STRENGTHS
Distribution Network: The Company has a strong and reliable distribution network. The
network is formed on the basis of the time of consumption and the amount of sales yielded by a particular customer in one transaction. It has a distribution network consisting of a number of efficient salesmen, 700,000 retail outlets and 8000 distributors. The distribution fleet includes different modes of distribution, from 10-tonne trucks to open-bay three wheelers that can navigate through narrow alleyways of Indian cities and trademarked tricycles and pushcarts.
Strong Brands: The products produced and marketed by the Company have a strong brand
image. People all around the world recognize the brands marketed by the Company. Strong brand names like Sprite, Fanta, Limca, Thums Up and Maaza add up to the brand name of the CocaCola Company as a whole. The red and white Coca-Cola is one of the very few things that are recognized by people all over the world. Coca-Cola has been named the world's top brand for a fourth consecutive year in a survey by consultancy Interbrand. It was estimated that the Coca-Cola brand was worth $70.45billion.
Low Cost of Operations: The production, marketing and distribution systems are very efficient
due to forward planning and maintenance of consistency of operations which minimizes wastage of both time and resources leads to lowering of costs.
112
WEAKNESSES
Low Export Levels: The brands produced by the company are brands produced world wide
thereby making the export levels very low. In India, there exists a major controversy concerning pesticides and other harmful chemicals in bottled products including Coca-Cola. In 2003, the Centre for Science and Environment (CSE), a non-governmental organization in New Delhi, said aerated waters produced by soft drinks manufacturers in India, including multinational giants PepsiCo and Coca-Cola, contained toxins including lindane, DDT, malathion and chlorpyrifospesticides that can contribute to cancer and a breakdown of the immune system. Therefore, people abroad, are apprehensive about Coca-Cola products from India.
Small Scale Sector Reservations Limit Ability To Invest And Achieve Economies Of
Scale: The Companys operations are carried out on a small scale and due to Government restrictions and red-tapism, the Company finds it very difficult to invest in technological advancements and achieve economies of scale.
OPPORTUNITIES
Large Domestic Markets: The domestic market for the products of the Company is very high
as compared to any other soft drink manufacturer. Coca-Cola India claims a 58 per cent share of the soft drinks market; this includes a 42 per cent share of the cola market. Other products account for 16 per cent market share, chiefly led by Limca. The company appointed 50,000 new outlets in the first two months of this year, as part of its plans to cover one lakh outlets for the coming summer season and this also covered 3,500 new villages. In Bangalore, Coca-Cola amounts for 74% of the beverage market.
Export Potential: The Company can come up with new products which are not manufactured
abroad, like Maaza etc and export them to foreign nations. It can come up with strategies to eliminate apprehension from the minds of the people towards the Coke products produced in India so that there will be a considerable amount of exports and it is yet another opportunity to broaden future prospects and cater to the global markets rather than just domestic market.
113
Higher Income Among People: Development of India as a whole has lead to an increase in
the per capita income thereby causing an increase in disposable income. Unlike olden times, people now have the power of buying goods of their choice without having to worry much about the flow of their income. The beverage industry can take advantage of such a situation and enhance their sales.
THREATS
Imports: As India is developing at a fast pace, the per capita income has increased over the
years and a majority of the people are educated, the export levels have gone high. People understand trade to a large extent and the demand for foreign goods has increased over the years. If consumers shift onto imported beverages rather than have beverages manufactured within the country, it could pose a threat to the Indian beverage industry as a whole in turn affecting the sales of the Company.
Tax and Regulatory Sector: The tax system in India is accompanied by a variety of
regulations at each stage on the consequence from production to consumption. When a license is issued, the production capacity is mentioned on the license and every time the production capacity needs to be increased, the license poses a problem. Renewing or updating a license every now and then is difficult. Therefore, this can limit the growth of the Company and pose problems.
Slowdown in Rural Demand: The rural market may be alluring but it is not without its
problems: Low per capita disposable incomes that is half the urban disposable income; large number of daily wage earners, acute dependence on the vagaries of the monsoon; seasonal consumption linked to harvests and festivals and special occasions; poor roads; power problems; and inaccessibility to conventional advertising media. All these problems might lead to a slowdown in the demand for the companys products.
114
CONCLUSION
The quick ratios and cash ratios of Indiabulls increased due to unsecured long term loans to infuse liquidity into the system for turbulent times ahead like the current financial turmoil. That is why Indiabulls presents the highest cash ratio among its competitors. This drives us to the conclusion that Indiabulls must have a high interest coverage ratio to repay interest on long term loans which is not the case. In fact is has a low coverage ratio than other companies. Another driving point linked to the aforesaid conclusion is that return on investment of Indiabulls is quite low compared to India Info line. From operating ratios point of view, it is among the lowest in Indiabulls. Contrary to that Future Capital Holdings has the highest operating ratios. Selling and distribution expenses of Indiabulls were quite low and so as the growth rate of sales compared to its competitors.
115
SUGGESTIONS
To tide over the financial crisis, Indiabulls injected more than Rs 7000 crore in cash in the financial year 2007-08. The source of this cash was unsecured loans to a large extent. This probably increased its Quick and Cash ratio. It points to the fact that Indiabull has excess liquidity to meet its current or long term liabilities. But this eventually increased its Debt- Equity ratio to 3.53 which is quite high compared to other companies. Creditors always favour that a promoters and owners have maximum exposure to the company which increases the owners risk and provides a margin of safety to creditors.
Debt-Equity Ratio
4 3.5 3 2.5 2 1.5 1 0.5 0 2004 2005 2006 Year 2007 2008 Debt-Equity Ratio
Indiabulls also has to increase its Interest Coverage Ratio in order to pay interest on long term loans. The interest coverage ratio for Indiabulls is just 3:1. This must be higher than other companies as Indiabull has the maximum exposure to long term debts. Interest Coverage Ratio can be increased by increasing profits.
116

20 18 16 14 12 10 8 6 4 2 0 2007 Year 2008 Interest Coverage Ratio
This brings us to the point that sales should be increased. A look at figures shows that the rate of growth of sales of Indiabulls was lowest among its competitors in 2007-08. In connection with this Indiabulls has the lowest selling and distribution expenses to sales ratios among its counterparts. Also total expenses are among the lowest in this category. This brings us to the point that sales should be increased. A look at figures shows that the rate of growth of sales of Indiabulls was lowest among its competitors in 2007-08. In connection with this Indiabulls has the lowest selling and distribution expenses to sales ratios among its counterparts. Also total expenses are among the lowest in this category
117
Growth in Sales (times)

12 Growth in Sales (times) 10 8 Edelweiss Capital 6 4 2 0 2005 2006 2007 2008 India Infoline Indiabulls
Selling & Distribution Expenses To Sales (in %)

Selling and Distribution Expenses to Sales 30 25 20 Indiabulls 15 10 5 0 2004 2005 2006 2007 2008 India Infoline Edelweiss Capital
118
Thus, if Indiabulls can increase its spending on selling and other promotional expenses, this will help in boosting sales, thus increase in profits and increase in interest coverage ratio. All these points are interconnected. Expenses can be financed through the large liquidity room which it has in its kitty. This will also help in boosting the capital turnover ratio. The commendable thing about Indiabulls is that it has among the lowest of operating ratios which shows its managerial efficiency in controlling its operating costs and expenses. Therefore it should move ahead to incur more expenses (selling and distribution).

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 2004 2005 2006 Year 2007 2008 Capital Turnover Ratio
Future Capital Holdings incurred maximum amount of operating expenses which increased its sales manifold during the last two years.
119
BIBLIOGRAPHY
For getting information on financial statements of various companies, current rankings according to their market capitalization, data has been gathered from www.moneycontrol.com. This site is a behemoth of information which was primarily collected for research purposes. Book on Annual Report of Indiabulls Financial Services Ltd. (FY 2007-08)was gone through to go into detailed description of company history, financial statements etc. To get information on various ratios in detailed form, www.investopedia.com and book on Principles and Practice of Accountancy by R.L. Gupta were used. Suggestions given by seniors from time to time was also quite helpful. www.rbi.org was helpful in providing information on Non Banking Financial Companies and their functioning and other features. Analysis of Financial Statements, a book by T.S.Grewal was also looked into to take assistance on description of financial ratios.
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A Project Study Report On

Titled ANALYSIS OF FINANCIAL RATIOS OF TOP 5 NON-BANKING FINANCIAL COMPANIES OF INDIA

Submitted By:NEERAJ VIJAY MBA IV th sem

Submitted To:MS. VIJETA JHA (D.I.M.S)

2008-2010 DEEPSHIKHA INSTITUTE OF MANAMGENT STUDIES

Neeraj Vijay MBA IVsem

Neeraj Vijay MBA IV sem

1.Introduction to the Industry

2.Introduction to the Organization

3.2 Importance .. 64 .. 69 112

4.Facts and Findings

5.Analysis 6.Swot analysis

7.Conclusions and Recommendations 116 . 120

INTRODUCTION NON BANKING FINANCIAL COMPANIES FORWORD

Frequently Asked Questions on NBFCs

Ceiling on public deposit 1.5 times of NOF or Rs 10 crore whichever is less

iii. iv. v. vi. vii.

ii. iii. iv. v. vi. vii. viii.

Tel: 23420815 - 820 Fax: 23420814 Email: einward.ris@karvy.com Website: http://www.karvycomputershare.com

INDIABULLS FINANCIAL SERVICES LTD.

Mar '08 12 mths

71.92 0.00 71.92 0.00 0.00 71.92

167.57 0.00 167.57 0.51 0.00 168.08

610.29 0.00 610.29 2.78 0.00 613.07

1240.95 0.00 1240.95 0.74 0.00 1241.69

1686.25 0.00 1686.25 -258.82 0.00 1427.43

INDIABULLS FINANCIAL SERVICES LTD.

8.86 0.00 8.86 0.87 0.00 9.73

21.22 0.00 21.22 1.02 0.00 22.24

44.70 0.00 44.70 3.77 0.00 48.47

272.12 0.00 272.12 14.59 0.00 286.71

616.11 0.00 616.11 27.29 0.00 643.40

10.38 0.00 10.38 0.08 0.00 10.46

26.67 0.00 26.67 0.65 0.00 27.32

31.14 0.00 31.14 0.01 0.00 31.15

73.59 0.00 73.59 1.72 0.00 75.31

187.47 0.00 187.47 0.18 0.00 187.65

MOTILAL OSWAL FINANCIAL SERVICES

0.02 0.00 0.02 0.00 0.00 0.02

10.75 0.00 10.75 -4.03 0.00 6.72

32.10 0.00 32.10 3.48 0.00 35.58

MOTILAL OSWAL FINANCIAL SERVICES

FUTURE CAPITAL HOLDINGS

Profit & Loss account

0.03 0.00 0.03 0.00 0.00 0.03

9.27 0.00 9.27 0.00 0.00 9.27

81.31 0.00 81.31 -0.43 0.00 80.88

FUTURE CAPITAL HOLDINGS

RATIOS LIQUIDITY RATIOS ANALYSIS FOR SHORT-TERM CREDITORS

-Current Assets Current Liabilities Working Capital Current Ratio

Company ABC $600 $300 $300 2.0

Company XYZ $300 $300 $0 1.0

Current Ratio - Inventories Current Liabilities

SOLVENCY RATIOS AN ANALYSIS FOR LONG TERM CREDITORS DEBT RATIOS

Getting the Terms Straight

DEBT EQUITY RATIO

Long-term Liabilities Equity (Net Worth)

INTEREST COVERAGE RATIO

DEBT TO TOTAL FUNDS RATIO

CAPITAL TURNOVER RATIO

FIXED ASSETS TURNOVER RATIO

NET WORKING CAPITAL TURNOVER RATIO

Net Sales Net Working Capital