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FINANCIAL STATEMENT

ANALYSIS OF VARUN
BEVERAGES LTD.
SUBMITTED TO
DR. NEERAJ SANGHI

SUBMITTED BY
ABHINEET MISHRA
(BM-015009)

INTRODUCTION ABOUT COMPANY

In 1960 Firmly ventured in beverage bottling with its first plant in Agra
In 1991 Exclusive bottling agreement with PepsiCo through existing plant
Agra
In 1995 Devyani Beverages Ltd (DBL) started its operations through its
first plant at Greater Noida
In 1996 New plant under Varun Beverages Ltd (VBL) started its
operations at Jaipur

In 1998 Acquired Nepal territory renamed as Varun Beverages (Nepal) Pvt


Ltd.
- PepsiCo acquired 26% shares in VBL

In 1999 operations in Alwar, Jodhpur & Kosi

In 2000 Acquired Goa territory under Goa Bottling Co. Ltd (GBCL)
In 2004 Devyani Beverages Limited got merged with Varun
Beverages Limited

In 2008 Acquired North East territory through North East Pure


Drinks Pvt Ltd (NEPD)
In 2009 Acquired West Bengal territory from PepsiCo
In 2010 a) Sri Lanka Territory from Ole Spring Bottlers
b)GBCL renamed to Varun Beverages International Ltd (VBIL)

In 2011 NEPD merged in VBIL

In 2012 VBIL acquired PepsiCos 26% stake in VBL

In 2013-VBL acquired Delhi territory from Pearl Drinks Ltd


-VBIL merged with VBL and all overseas subsidiaries became subsidiaries
of VBL

In 2015Acquired 6 territories (UP, Uttarakhand, Himachal, Punjab,


Haryana and Chandigarh) and 4 bottling plants from PepsiCo

Products Manufactured by
Varun Beverages
Carbonated
Drinks

Non
carbonated
Drinks
Juice Based
Drink
Packaged

Manufacturing
Units
India-16
Overseas-2

Upcomin
g Plants

1.
2.
3.
4.
5.
6.
7.

Uttarakhand- Bazpur
Haryana-Panipat, Nuh
Uttar Pradesh- Greater Noida-Unit 1 & Unit 2,Sathariya, Jainpur,Kosi
Rajasthan- Jaipur, Jodhpur, Alwar, Bhiwadi
West Bengal- Kolkata
Assam- Guwahati
Goa- Madgaon, Sanguem
Greater Noida Unit 2
was acquired from
Overseas
Pearl Drinks Ltd. in
Nepal- Kathmandu
February 2013
Sri Lanka- Colombo
Uttar PradeshFaizabad
Punjab- Phillor,

Products manufactured in Greater


Noida Unit 2
PET Packs
400 ml

PET Packs
1.25 litres, 2 litres, 2.25 litres

PET Packs
600 ml

PET Packs
750 ml

RGB (Returnable Glass Bottles)


200 ml

Objective of project

General objective

The key objective of the report is to analyze the financial performance of VARUN
BEVERAGES Limited.

Specific objectives

To analyze and interpret the financial statements of VARUN BEERAGES Limited.

To calculate the different financial ratios to know about the performance of the
company.

To understand the implications in analyzing and interpreting the financial ratios.

To identify the findings and raise possible recommendations for VARUN BEVERAGES Ltd.

Research Methodology

Type of research- Descriptive

Sources of data

Primary sources-Conversations
with the different officials of
VARUN BEVERAGES Ltd

Secondary source

Take expert opinion from the


officers.

Direct Observation.

Informal Discussion.

Annual report of VARUN BEVERAGES Ltd.


Various reports and articles related to study.
Some of my course elements as related to this
report.
Web base support from the internet and intranet.

Instruments used for analysis


I have used these major tools to analyze the financial performance of VARUN

BEVERAGES Ltd. This are

Ratio analysis
Trend Analysis
Horizontal analysis
Comparative balance sheet analysis
Comparative income statement analysis
Vertical analysis
Common size balance sheet analysis
Common size income statement analysis
Other instruments

Analysis
HORIZONTAL ANALYSIS
(COMPARATIVE BALANCE SHEET ANALYSIS)
Changes over years in balace sheet
40000
35000
30000
25000
20000
15000
10000
5000
0
2015

2014

2013

2012

Interpretation: It is appeared that


from 2012 to 2013 companys
current
assets
is
decreasing
because company has paid of its
current liability. And in 2013 to
2014 company invested in current
assets and company didnt pay
their current liabilities. Again in
2014 to 2015 company paid its
current liability from its current
assets. And from 2012 to 2015
company is regularly investing in
fixed assets and company is taking
loan for purchasing fixed assets.
This will result in expansion of
business

Percentage change over the years

Particulars

2015

2014

2013

2012

Current assets

-17%

83%

-13%

11%

Fixed assets

63%

3%

22%

100%

Total assets

44%

15%

15%

73%

Current liabilities

17%

27%

0%

45%

Long term liabilities

45%

0%

19%

93%

Total liabilities

36%

8%

13%

74%

Total shareholder's equity

90%

110%

22%

61%

Total liabilities and equity

44%

15%

15%

73%

Interpretation: Both assets and liabilities


werehigheratpercentageof72%in2012but
droppedto15%in2013.In2104currentassets
is significantly increased to 83%.It indicates
that Varun beverages recovered the losses of
2013andmadeasustainableandpositiveflow
in assets generating. And in 2015 company
paid its current liabilities from the current
assets.

COMPANYS INCOME STATEMENT ANALYSIS

35000

Interpretation: Hereinthisgraphitcan

30000

be seen that as the total operating income


increases profit increases. So here profit
and operating income is directly
proportionateexceptintheyear2013.The
reasonoflossin2013isthenon-operating
income. Because in 2013 Non-operating
income is very less as compare to other
years.

25000

20000

15000

10000

5000

-5000

2011

2012

2013

2014

2015

VERTICAL ANALYSIS
(Common size balance sheet
analysis)
80%
70%
60%
50%
40%
30%
20%
10%
0%

2011

2012

2013

2014

2015

COMMON SIZE INCOME


STATEMENT ANALYSIS
120%

Interpretation: It is appeared that the

100%

80%

60%

40%

20%

0%

-20%

2011

2012

2013

2014

2015

largest portion of revenues is used for


operating expenses. Operating expenses
are fluctuating every year. From 2011 to
2012ithasdecreasedfrom99%to97%.In
theyearsof2012to2013ithasincreased
by 4%.In the year from 2013 to 2014
operatingexpensesdecreasedto98%from
101% and again in 2105 it has decreased
to 92% from 98%.So here it can be seen
that operating expenses are very high. So
here company should focus on how to
reduce the operating expenses so that
profitcanbemaximize

RATIO ANALYSIS
Paid up capital and reserve and surplus
Paid up Capital

Reserve & surplus

7000
5837.66

6000
5000
4000

3337.66
2766.55

3000
2000

1509.5
1022.57

1000
0

80
2011

1337.66
823.02

1199.17

267.53
2012

2013

2014

2015

ThePaidupCapitalandReserve&surplusissufficientlyincreaseperyearthatisapositivesignforVARUNBEVERAGES
LTD. From 2011 to 2015 it increase approximately eleven times and it can be increase more by proper increasing paid up
capital.

ANALYZING LIQUIDITY RATIOS

Current ratio

0.9
0.84
0.8

0.81

0.7
0.65

0.6

0.57

0.56

0.5
0.4
0.3
0.2
0.1
0

3
Current ratio

Company is paying of its debtors but


notinefficientmanner.RecentlyVBL
is doing public issue which will help
in raising funds and because of that
there is a chance for better current
ratioinupcomingyears.

ANALYZING LIQUIDITY RATIOS

Liquid ratio
0.6
0.55
0.5
0.47

Iftheacid-testratioismuchlowerthanthe
currentratio,itmeanscurrentassetsarehighly
dependentoninventory.

0.4
0.37
0.3

0.28
0.21

0.2

0.1

0
2011

2012

2013
Liquid ratio

2014

2015

ANALYZING ACTIVITY RATIOS

Fixed assets turnover


1.8
1.6
1.54
1.4
1.2

1.19

1.16
1.01

0.98

0.8
0.6
0.4
0.2
0
2011

2012

2013
Fixed assets turnover

2014

2015

As it is shown in above the Company is


using its assets specially fixed assets more
efficiently in the year 2011 but also has a
regular decrement in this ratio. The reason
behind this is that they have overestimated
the demand for their product. It is also
going low because of manufacturing
problems of bottleneck in the value chain
that held up production during the year
and resulted in fewer than anticipated
sales.

ANALYZING ACTIVITY RATIOS

Total assets turnover


1
0.91
0.9
0.8
0.7

0.67

0.69

0.7

0.69

2012

2013

2014

2015

0.6
0.5
0.4
0.3
0.2
0.1
0
2011

Total assets turnover

VBLs total assets turnover express that it


turneditsassetsover0.6867timesduringthe
year 2015.This means that each rupee 1 of
assets earns rupee 0.6867 paisa of revenues.
Isatotalassetsturnoverof0.6867isgoodor
bad?Itissafetosaythatallcompaniesdesire
a high total assets turnover .Like many ratio
analyses, however a companys total assets
turnover must be interpreted in comparison
with that of prior years. VBLs total assets
turnoverof2015isapproximatelysamefrom
the previous years and VBLs total assets
turnover is stable year by year. It indicated
VBLisbeingefficientinoperationandearns
revenuesbyusingitstotalasset.

ANALYZING ACTIVITY RATIOS

Stock turnover ratio


7
6

5.68

5.92
5.27

4.89

4.14
4
3
2
1
0

3
Stock turnover ratio

For the Beverage industry the inventory


turnoverratioshouldbe15:1. Low inventory
turnover ratioisasignalofinefficiency,since
inventoryusuallyhasarateofreturnofzero.It
also implies either poor sales or excess
inventory. A low turnover rate can indicate
poor liquidity, possible overstocking, and
obsolescence,butitmayalsoreflectaplanned
inventory buildup in the case of material
shortages or in anticipation of rapidly rising
prices. Here in this case the reason of low
inventoryturnoverratioistheoffseasonsales.
In off season sale of cold drinks is very low
whicheffectsthestockturnoverinacompany
andalsobethereasonofreductioninsales.

ANALYZING ACTIVITY RATIOS

DTR,DCP

CTR,APP

70
65.17

65.71

30
26.28
25

60
50

48.27

27.14
25.25

40
30
25.82

22.12

22.02

16.5

16.58

20
15
13.89

27.39

14.45

13.45

10

20
14.13
10
0
2011

13.32

5
7.56

2012

2013
DTR

DCP

5.6

5.55

2014

2015

0
2011

2012

2013
CTR

2014
APP

2015

ANALYZING ACTIVITY RATIOS

Working capital turnover


0
2011
-2

2012

2013

-6.97

-6.82

2014

2015

-4
-6
-8

-8.07

-10
-12
-14

-14.84

-16
-17.78
-18
-20
Working capital turnover

ANALYZING ACTIVITY RATIOS

Capital turnover ratio


1.2
1.05
1
0.87
0.8
0.72

0.74

0.6

0.59

0.4
0.2
0
2011

2012

2013
Capital turnover ratio

2014

2015

ANALYZING DEBT RATIO

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Inthisdiagramtheorangecolorareaindicates
the portion of total assets contributed by
owners and pink color area indicates the
portion of total assets contributed by
creditors. From that graph it appeared that
maximum area is covered by debt ration
that means VBLs lion share of total assets
is contributed by creditors.VBLsdebtratio
was91%andequitywas1%in2011andin
2015debtratiocameto79%andequityratio
came to 3%. The trend of debts and equity
ratio tells that the debt ratio is in decreasing
trend and equity ratio is in increasing trend
whichisagoodsignforacompany.

ANALYZING DEBT RATIO


Debt-Equity Ratio
8
7

6.82

6.89

6
5.09
5
4
3.29

3
2

1.75

1
0
2011

2012

2013

2014

2015

Debt-Equity Ratio

Creditorsusuallylikealowdebttoequityratiobecausealowratio(lessthan1)istheindicationofgreaterprotectiontotheir
money.Butstockholdersliketogetbenefitfromthefundsprovidedbythecreditorsthereforetheywouldlikeahighdebtto
equityratio.Debtequityratiovaryfromindustrytoindustry.Forthepointofviewofplathighdebtequityratioisnotgood.
Butaccordingtotrendcompanyisdoingwellbecausedebtequityratioisdecreasingperyear.

ANALYZING DEBT RATIO

Time interest earning ratio


2
1.69
1.5

0.5
0.17
0
2011

0.46

2012

0.34

2013
-0.17

-0.5
Time interest earning ratio

2014

2015

VBLearns0.17timesin2011,0.45timesin
2012, -0.16 times in 2013, 0.33 times in
2014and1.69timesin2015.Theseratiosare
notgoodforthecompanyexceptfortheyear
2015.ThetrendtimeinterestearnedofVBL
has started upward from 2013.It indicates
VBLis efficiently payingits fixedexpenses
ascomparetopastyears

ANALYZING PROFITABILITY
RATIO:

Net profit Margin


6%
5%

5%
4%
3%
2%

2%

2%

1%
1%
0%
2011

2012

2013
0%

-1%
Net profit Margin

2014

2015

ANALYZING PROFITABILITY
RATIO:

ROI
4%
4%

4%
3%
3%
2%
2%

2%

1%

1%
1%
1%
0%
2011
-1%

2012

2013
0%

-1%
ROI

2014

2015

ANALYZING PROFITABILITY
RATIO:

ROCE
7%
6%

6%
5%
4%
3%

3%

3%

2%
1%
1%
0%
2011
-1%

2012

2013
-1%
ROCE

2014

2015

ANALYZING PROFITABILITY
RATIO:

ROE
20%
18%

17%
15%
10%

10%

7%
5%
0%
2011
-5%

2012

2013
-4%

-10%
ROE

2014

2015

ANALYZING PROFITABILITY
RATIO:

EPS
14
12

11.34

11.18

10
9.72
8
6
4

3.24

2
0
2011

2012

-0.64
2013

-2
EPS

2014

2015

ANALYZING PROFITABILITY
RATIO:

Operating ratio
86%
85%
84%

85%

85%

82%

81%

80%
78%
77%
76%
74%
72%
2011

2012

2013

2014

2015

Thisratioindicatedthatin2011,85%ofthe
net sales have been consumed by cost of
goods sold, administrative expenses and
selling and distribution expenses. The
remaining. 25% indicatesafirm's abilityto
cover the interest charges, income tax
payableanddividendpayable.Sameforthe
years2012and2013.Butin20114,2015it
isregularlydecreasingwhichisagoodsign
for the company. This trend in VBL is
showingthatcompanysabilitytocoverthe
interestcharges,Incometaxanddividendis
regularlyincreasingfrom2013.

ANALYZING PROFITABILITY
RATIO:

Operating profit ratio


25%
23%
20%

15%
15%

19%
15%

15%

2012

2013

10%

5%

0%
2011

Operating profit ratio

2014

2015

Analyzing Cash flow

300

200

100

-100

-200

-300

2011

2012

2013

2014

2015

Inthisgraphithasbeenseenthat
the total cash is increased over
fiveyearsbutthenetcashflowis
fluctuating over the five years. In
2011and2014thenetcashflowis
dropped badly. In 2012 the VBL
has generated enough cash from
theprofitandlossaccountrelated
operating activities. In 2012 and
2015 both net cash and total cash
flow increased.in 2013 net cash
decreased but total cash flow
increasedthenpreviousyear.

Cash flow on total sales

25%

20%

15%

10%
8%

5%

0%
2011

Cash flow on Total assets= (Cash flow from operations/Average


total assets)*100
VBL have an operating cash flow to sales
ratio of 8% in 2011.It means that for
every 1 rupee that it earns in sales
Cashflow to sales
therefore gives it 8 paisa of cash flow
that it can then use to pay suppliers and
20%
employees, invest in equipment and
16%
distribute to shareholders as dividends. In
15%
2012 it is highest over the 5 years. If we
12%
talk about current year this ratio is 15%
which means that for every 1 rupee that
it earns in sales therefore gives 15 paisa
of cash flow. The trend indicates that the
company has enough cash flow to pay
2012
2013
2014
2015

Debt settlement period

Debt settlement period= (Total liabilities/Cash available from


operating activities)

In2011itisshowingthat approx.11(in
Debt settlement period(in years)
12
11.1
10

9.48

8
6

6.05

6.49

6.43

2014

2015

4
2
0
2011

2012

2013

years) the enterprise will take to repay all


its commitments from the current level of
cash flow available from operating
activities. In 2012 it will take 6 year, in
2013 it will take 9 years, in 2014 it will
take 6.5 years and in 2015 it will take 6
years. The trend is indicating that time
period is regularly decreasing which is
good for the company. The shorter the
repaymentperiod,thestrongertheposition
oftheenterprise.

Cash interest cover

Cash interest cover=cash generated from operating and


investing activities/Interest paid in cash
Cash interest cover

1.5
1.16

1
0.5
0
2011
-0.5

2012

2013

-0.79

-1
-1.5
-2
-2.5
-2.76
-3

2014

-1.3

-1.26

2015

In this ratio the trend indicates


that from 2011 to 2014 company
was not able to pay interest due
to its creditors. But if we draw a
trendlineitwillgoupwardwhich
is showing positive sign that
company is doing well and in
2015 it is showing that the cash
interestcoverispositivewhichis
goodforthecompany.Soallover
itisshowingapositivetrend.

OPERATING INDEX (CASH


REALIZATION RATE)

Operating Index (Cash realization rate) =Cash generated from


operations/ Profit before investment income, interest and
taxation on continuing activities
Operating index

10
8.49

7.61

7.27

5
2.33
0
2011

2012

2013

-5

-10

-15

-9.67

2014

2015

The ratio measures the capacity of


the enterprise to generate cash from
continuing operations. In 2011 the
capacity of generating cash from
operationswas8.48%whichisgood
forabeverageindustry.Butthetrend
is indicating that the capacity is
fluctuating and in recent year it
decreasedto2.33%from7.26%.

FINDINGS AND RECOMMENDATIONS

The net working capital (NWC) of VBL is not at the satisfactory position all the
last five years from 2011 to 2015, because it showed a negative networking
capital which indicates a less liquidity reserve of the company.

The fixed assets of VBL are efficiently used to generate sales.

VBL is in the better condition regarding the operating efficiency during the
last five years as it has produced the acceptable operating profit margin.

VBL has not achieved an enough return on investment, which indicates the
bad management in generating profits with its available assets.

VBL has a low return on capital employed which indicates the less effective
management in generating profits with its total capital employed during
2011-2015

RECOMMENDATIONS

VBL can increase its current assets more by enhancing the accounts
receivable and can decrease its current liabilities by reducing its short
term loan

The Company can try to increase its quick assets like-cash, accounts
receivable and marketable securities.

It also can reduce inventory to improve its inventory turnover ratio.

Companys management should be more efficient in utilizing the


companys capital to generate sales.

The Companys management should be more efficient in utilizing the


companys total assets to generate sales.

RECOMMENDATIONS

It should aim to achieve optimum capital structure by reducing debt capital as well as by
increasing equity capital to finance its total assets.

The Company ought to enhance its earnings by accelerating its sales as well as by
minimizing its operating costs in order to get adequate earnings.

VBL should make an effort to increase its sales and manage its cost of goods sold efficiently.

The Company can enhance its sales by managing the operating cost efficiently.

It should amplify its managements ability to operate the business by enhancing sales with
the cost price effectiveness of the operation.

The Company should try hard to intensify its efficiency in utilizing the firms assets to
generate adequate profitability.

LIMITATIONS

Limitations of financial statements

Problems of price level changes

Lack of adequate standard

Limited use of single ratios

Personal bias

Incomparable:

Time frame of this report was very limited. It was really tough to know details about a
giant company like- VARUN BEVERAGES Ltd within a short span of time.

Sometimes I could not communicate with the respective personnel of VARUN


BEVERAGES Ltd properly as they are very busy.

CONCLUSION?

THANK

YOU