Chapter – 1

Introduction

1
1. OBJECTIVE OF THE STUDY

Financial statement analysis is an important part of overall financial statement. It refers to

an assessment of the viability, stability and profitability of a business, sub-business or
project. This study has been undertaken with a view to achieve the following objectives:

• Reviewing the Earning Capacity Or Profitability

• Reviewing the Short & Long- Term Solvency Of The Concern
• Analyzing operational efficiency of the business.
• Intra firm comparison of firm.
• To gain in-depth knowledge about the financial statements and their use
in decision making.

NEED FOR STUDY

The project titled “Financial Analysis of HAVELLS is the study on the recent trends and
developments happening in the field of finance in HAVELLS. This study tells about the
financial statements of HAVELLS INDIA LTD. To know about the profitability and
efficiency of the company this study was to be undertaken.

SCOPE OF STUDY

For doing the financial analysis of HAVELLS INDIA LTD. the whole organization has
been taken and not only a single unit. The consolidated balance sheets and profit & loss
account from 2006-2009 has been taken into account for the analysis. Financial analysis
helps to assess profitability, liquidity, solvency and stability of a concern. This study will
help me a lot as I will be able to analyze a company’s financial position in the market.

2
2. INTRODUCTION OF PROJECT

Financial data summarized in the form of financial statements are of outstanding

significance to the various parties interested in and concerned with (directly or indirectly)
the operation and the financial growth of business concern. These financial documents
act as ‘beackonlight’ to the business executives in chalking out the various effective
policies and in assessing the results of their efforts. In fact, these financial statements
render a Yeoman’s service to owners, suppliers, govt. agencies, employees, customers
and even common public in their respective fields of interest. But, however mere
presentation of these statements does not serve the purpose of none of the aforesaid
parties in any way.

In other words, the significance of these statements lies not in their preparation but in
their analysis and interpretation. Financial analysis is also known as interpretation of
financial statements. It refers to the process of determining financial strengths and
weakness of firm by establishing strategic relationship between the items of balance
sheet, profit and loss account and other operative data.

It is only by interpreting the balance sheet and the profit & loss account the figures
appearing there are made to tell the story of actual progress and financial position of a
business concern in a clear and simple language easily understood by the layman who is
typically the most typical shareholder in our country. Financial analysis involves the
division of facts on the basis of some definite plans, classifying them into classes on the
basis of certain conditions and presenting them in most convenient, simple and
understandable form. Not only this, Analysis attempts to study the relationship between
different items of financial data and factors.

The process of analysis may partake the varying types and normally it is classified into
different categories on the basis of information used and on the basis of modus operandi
of analysis. In this project, I have done the analysis on the basis of horizontal analysis,
vertical analysis, and ratio analysis.

3
 An attempt has been made to study the significance of financial data, examine the
earning-capacity and efficiency, to determine short-term and long-term solvency of the
concern and to determine the profitability of the concern with the help of interpreted data
and information.

3. INTRODUCTION OF THE COMPANY

Havells India Limited was established in 1958 and is a part of the

QRG Group a leading solution provider in the power distribution-
equipment industry in India. The company is one of the foremost
manufacturers and suppliers of low-voltage electrical equipment
in the country. It manages its operations through its three
divisions – switchgear, cable and wire, and electrical consumer
durable.

QRG Enterprises which is the QIMAT RAI GUPTA GROUP is

one of the fastest growing Electrical and Power Distribution
Equipment Company in the country, manufacturing products
ranging from Building Circuit Protection, Industrial & Domestic
Switchgear, Cables & Wires, Energy Meters, Fans, CFL’s,
Luminaries, Bath Fittings and Modular Switches

The group comprises of 5 companies:-

• Havells India Ltd. (the flagship company)

• Standard Electrical
• Sylvania

4
• TTL.
• Crabtree

5
Havells India Ltd, a billion-dollar-plus organization, and one of the
largest & India's fastest growing electrical and power distribution
equipment company, manufacturing
products ranging from Building Circuit
Protection, Industrial & Domestic
Switchgear, Cables & Wires, Energy Meters, Fans, CFL Lamps,
Luminaries for Domestic, Commercial & Industrial application and
Modular Switches.

Havells owns some of the prestigious global brands like Crabtree,

Sylvania, Concord, Luminance, Claude, and Sylvania: Linolite, SLI
Lighting & Zenith.

With 91 branches / representative

offices and over 8000 professionals
spread over 50 countries across the globe, the group has
achieved rapid success in the past few years. Its 20 state-of-the-
art manufacturing plants spread over India, Europe; Latin
America & Africa churns out globally acclaimed products like
Switchgear, Luminaries, CFL’s etc. Havells India Ltd is a name
synonymous with excellence and expertise in the electrical
industry. Its 20000 strong global
distribution network is always ready to
service its clients.

Today Havells and its brands have

emerged as the preferred choice for a
discerning range of individual and
industrial consumers both in India and
abroad.

6
The essence of its success lies in the expertise of a fine team of
professionals, strong relationship with associates, the ability to
adapt quickly, efficiently and ably supported with the vision to
think ahead.

Havells India Ltd has recorded a turnover of Rs. 5002 crores in

the previous financial year and is poised for another quantum
growth.

Havells is now perceived as a single source for all your low

voltage electrical requirements. Most of its products have both
national and international certifications from independent testing
authorities, and it is a matter of pride that the company is widely
perceived as a quality manufacturer with a reputed brand image.
Hence its customers place an unconditional trust in us.

Havells core strength lies in its 13 manufacturing plants in India,

which are producing world class standard electrical products.

Havells was initially an electrical company but now it is turning

towards consumer oriented company. Havells has its exports in
more than 53 countries like United Kingdom, Germany, Spain,
Bulgaria, Norway, France, United Arab Emirates, Oman, Peru,
Iraq, Singapore, Malaysia, Thailand, Philippines, Australia, Nigeria,
Egypt, Ghana, Saudi Arabia, Lebanon, Turkey, Kuwait, Myanmar,
Nepal, Bangladesh, Sri Lanka, Iran, Syrian Arab Republic, Greece,
Mauritius, Zimbabwe, Kenya, and Uruguay.

The company has acquired a number of International

certifications, like :

7
However the company also have some international certifications
too which makes the Havells a world renowned company. Some
of the international certifications are:

KEMA,CB,ASTA,CP,SEMKO,SIRIUM(Malaysia),SPRING
(Singapore),TSE (Turkey),SNI (Indonesia),EDD (Bahrain),ROHS
(European Directive)

However the company also had a world wide market. The

company access to markets in 40 countries. And also increasing
its presence in developing markets like Asia and Africa. The
company has one of the strongest product portfolios in the
industry supported by a strong R&D base.

8
VISION

To be a globally recognized corporation that provides best electrical & lighting solutions,
delivered by best-in-class people.

MISSION
To achieve our vision through fairness, business ethics, global reach, technological
expertise, building long term relationships with all our associates, customers, partners,
and employees.

VALUES
Customer Delight : A commitment to surpassing our customer expectations.
Leadership by example. A commitment to set standards in our business and transactions

based on mutual trust.

Integrity and Transparency : A commitment to be ethical, sincere and open in our

dealings.

Pursuit of Excellence : A commitment to strive relentlessly, to constantly improve

9
ourselves, our teams, our services and products so as to become the best in class Product
Range.

3.1 MILESTONES

A look at the milestones in over five decades of QRG journey to excellence, maps its

Emergence as a major industrial force in the country and abroad.

10
1958:

• Commenced trading operations in Delhi.

1976:

• Set up the first manufacturing plant for Rewireable Switches and Changeover
Switches at Kirti Nagar, Delhi.

1979:

• Set up a manufacturing plant for HBC Fuses at Badli, Delhi.

1980:

• Started manufacturing high quality Energy Meters at Tilak Nagar, Delhi.

1983:

• Acquired Towers and Transformers Ltd. and turned it into a profitably

Manufacturing Energy Meters Company in 1 year.

1987:

• Started manufacturing MCBs at Badli, Delhi in Joint Venture with Geyer

1990:

• Set up a manufacturing plant at Sahibabad, UP for Changeover Switches.

1993:

• Set up another manufacturing plant at Faridabad, Haryana for Control Gear

Products.

1996:

• Acquired a manufacturing plant at Alwar, Rajasthan for Power Cables &

Entered into a Joint Venture with Electrium, UK for manufacturing Dorman
1997:

11
 • Acquired Electric Control & Switchboards at NOIDA, UP for manufacturing
Customized packaged solutions.

1998:

• Introduced high-end Ferraris Meters in Joint Venture with DZG, Germany.

2000:

• Acquired controlling stake in Duke Arnics Electronics (P) Limited engaged

In manufacturing of Electronic Meters-Single Phase, Three Phase, Multi

Function, Tri Vectors.

• Acquired controlling interest in an industry major-Standard Electricals Ltd.

2001: Acquired business of Havells Industries Ltd, MCCB of Crabtree India Limited,

Merged ECS Limited in the company to consolidate its area of competence

2002:

• Standard Electrical Company becomes a 100% Subsidiary of the company.

• Attained the IEC certification for Industrial switchgear and CSA certification
for all manufacturing plants.

2004:

• Set up manufacturing plant at Baddi , HP for manufacturing of Domestic

Switchgear.

• Set up a manufacturing plant for manufacturing of CFL at existing

Manufacturing plant in Faridabad, Haryana

• Set up a manufacturing plant for manufacturing of Ceiling Fans at Noida, UP.

• Set-up our own marketing office in London through our wholly owned

12
 Subsidiary company Havells U.K. Ltd.

• In December, 2004 placed 235 fully convertible debentures of Rs. 10 Lacs

on M/s. Shine Ltd., Mauritius and the debenture will be converted in June,2006

2005:

• Set up manufacturing plant in Haridwar, Uttaranchal for manufacturing

Fans.

• Awarded the KEMA certification by The Dutch Council for Accreditation,

making QRG the only group to attain this certification.

• Set up of R&D Center in Noida H.O.

2006:

• Crabtree India merged with Havells India.

• Added CFL production unit in Haridwar manufacturing plant.
• Expansion at Alwar manufacturing plant for increase of production capacity.
• Expansion at Baddi manufacturing plant and set-up of an Export Oriented
Unit.

• First Company to get the ISI Certification for complete range of CFLs.

• Started mid-day meal program at Alwar, Rajasthan caters to 10,000

Students from 77 schools.

2007:

• Set-up of Capacitor manufacturing plant in Noida, UP with the capacity of

6, 00,000 KVAR per month.

• Acquired the Lighting business of a Frankfurt based company "Sylvania", a

13
 Global leader in lighting business and now the company's turnover crosses

US$ 1 Billion.

• Warburg Pincus, a global private equity firm and one of the largest

Investors in India, invested US $110 million in Havells India Ltd. Havells

Issued fresh shares to Warburg Pincus, representing approximately 11.2%

Of the fully diluted share capital of the company.

• QRG Group entered healthcare business by acquiring a majority stake in

Central Hospital and Research Centre, Faridabad.

2008:

• Emerges the first Indian CFL manufacturers to have adopted RoHS,

European norms on Restriction of Hazardous Substances in CFLs.

• Set up of Global Corporate office, QRG Towers at Expressway Noida

Investment of Rs.50 Crores in Global Center for Research and Innovation

3.2 SWOT ANALYSIS OF HAVELLS

14
The diagnosis of a firm’s strengths and weakness can be fruitful only if the environment
factors and market conditions are considered along with the internal capabilities. this
approach essentially involves matching of the internal capabilities with the environmental
opportunities and threat and is known as SWOT (strength and weakness, opportunities
and threats) analysis.

Strengths:

Strength is a resource, skill or other advantage relative to competition and the needs of
markets a firm serves of anticipates serving. Strength is a distinctive competence that
gives the firm comparative advantages in the market place.

The key strengths are:

- International approvals

- Leveraging upon Sylvania Network (10000 distributor)

- World class infrastructure

- Global presence (Latin America,UK,Europe)

- Largest Manufacturing Capacity

- R & D Facilities

- Green Products

Weakness:

A weakness is a limitation or deficiency in resources, skills and capabilities that seriously

impedes effective performance.

Sources of outfit:

• Globally small market share

• Slowdown of Real Estate

15
 • Slowdown in global markets will affect more adversely now after Sylvania
acquisition.

Opportunities:

An opportunity is a major favorable situation in the firm’s environment. identification of

a previously overlooked market segment, changes in competitive of regulatory
circumstances, technological changes etc. are examples.

• Global Opportunities

• Leveraging upon motor business in India.

• Vertical Integration into Havells retail outlets.

Threats:

A threat is a major unfavorable situation in the firm’s environment. it is key impediment

to the firm’s current or desired future positions. the entrance of a new competitor, slow
market growth, major technological change, appearance if a substitute product is
examples.

• Unorganized market.

• Unrelated diversification.

• Delays in execution of projects.

3.3 Financial Highlights of year 2008-09

• Turnover has increased from Rs. 2231.17 crores in 2007-08 to Rs. 2333.82 crores
in 2008-09, a growth of 4.6%.

• Profit after Tax has increased from Rs. 143.54 crores in 2007-08 to Rs. 145.23
crores in 2008-09, an increase of 1.18%.
• PAT to Sales Ratio has decreased from 6.43% in 2007-08 to 6.22% in 2008-09.
• Earnings per Share have decreased from Rs. 26 in 2007-08 to Rs. 24.93 in 2008-
09.

16
• Book Value per Share has increased from Rs. 102.04 in 2007-08 to Rs. 154.91 in
2008-09.
• Net Worth has increased from Rs. 648.93 crores in 2007-08 to Rs. 931.31 crores
in 2008-09.

17
 Chapter – 2
Research Methodology

RESEARCH METHDOLOGY

18
RESEARCH OBJECTIVE

• To get insight into financial Health of the Company, Havells India

Limited.

• To analyze financial statements employing ratio analysis methodology.

• To examine critical areas of profitability, liquidity and solvency of the

company

RESEARCH PROBLEM

Every study has got some problems in it. A problem defined is a problem half-solved.
And so in this study the problem is

• To know the financial health of the company.

• Whether the capital invested in it is efficiently utilized or not.

• To make comparisons on the basis of performances of past year.

RESEARCH DESIGN

In this study the method adopted is descriptive as well as causal research. As this study is
based on published financial data, i.e. secondary data is used.

SOURCES OF DATA COLLECTION

• Printed Annual Reports of the company.

• Further information from other records, internet and interaction with executives of
the company.

Research Technique

• Horizontal analysis

• Vertical analysis

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 • Ratio analysis

• Time Period = 3 years

Limitations of the study

1.) The time was a big constraint as the two months was a short span of time.

2.) It was not possible to study various aspect of the organization in detail.
3.) Some of the points concerning to this study as this is a general study, hypothesis
could not be drawn
4.) Accounting practices differ across firms.
5.) Sometimes difficult to interpret deviations in ratios.
6.) Industry ratios may not be desirable targets.
7.) Seasonality affects ratios.

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 Chapter – 3
Financial Analysis

21
FINANCIAL ANALYSIS

Financial analysis refers to an assessment of the viability stability and profitability of a

business sub-business or project.

It is performed by professionals who reports using ratios that make use of information
taken from financial statements and other reports. These reports are usually presented to
top management as one of there bases in making business decisions. Based on there
reports management may:

• Continue or discontinue its main operations or part of its business.

• Make or purchase certain products in the manufacture of its products.

• Acquire or rent/lease certain machines and equipments in the production of its

goods.

• Issue stock pr negotiate for a bank loan to increase its working capital.

• Making decisions regarding investing or lending capital.

• Other decisions that allow management to make an informed selection on various

alternatives in the conduct of its business.

GOALS

Financial analysis often assess the firm’s;

PROFITABILITY: its ability to earn income and sustain growth in both short-term and
long-term. A company’s degree of profitability is usually based on the income statement,
which reports on the company’s results of operations.

SOLVENCY: its ability to pay its obligation to creditors and other third parties in the
long-term;

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LIQUIDITY: its ability to maintain positive cash flow, satisfying immediate obligations.

STABILITY: the firm’s ability to remain in business in the long run, without having to
sustain significant losses in the conduct of its business. Assessing a company’s stability
requires the use of the income statement and the balance sheet, as well as financial and
non-financial indicator.

FINANCIAL RATIOS:

The term accounting ratios” is used to describe significant relationship between figures
shown on a balance sheet, in a profit n loss account, in budgetary control system or in any
other part of accounting or organizational accounting ratios thus shows the relationship
between accounting data.

Ratio can be found out by dividing one number by another. Ratios show how one number
is related to another. It may be expressed in the form of co-efficient, percentage,
proportion, or rate. For example the current asset and current liabilities of a business on
particular date are$200,000 and $100,000 respectively. The current ratio would be
expressed as C.A/C.L (i.e. 200,000/100,000) i.e. C.A is two times the C.L. ratio
sometimes is expressed in the form of rate. For instance ratio between two numeric facts,
usually over a period of time, e.g. stock turnover is three times a year.

Financial ratios are useful indicators of a firm's performance and financial situation. Most
ratios can be calculated from information provided by the financial statements. Financial
ratios can be used to analyze trends and to compare the firm's financials to those of other
firms. In some cases, ratio analysis can predict future bankruptcy.

Classification of Accounting Ratios:

LIQUIDITY RATIOS:

Liquidity ratios provide information about a firm's ability to meet its short-term financial
obligations. They are of particular interest to those extending short-term credit to the

23
firm. Two frequently-used liquidity ratios are the current ratio (or working capital ratio)
and the quick ratio.

The current ratio is the ratio of current assets to current liabilities:

Current Assets
Current ratio Current Ratio = Current Liabilities

YEAR 2006-07 2007-08 2008-09

Current Ratio 1.15 1.28 1.20

T-1

Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders
may prefer a lower current ratio so that more of the firm's assets are working to grow the
business. A current ratio of 2:1 or more is considered satisfactory. Typical values for the
current ratio vary by firm and industry. For example, firms with less than 2:1 current ratio
may be doing well as compared to firms with current ratio more than 2:1. As current
assets can decline in value but liabilities are not subject to any decline in value.

One drawback of the current ratio is that inventory may include many items that are
difficult to liquidate quickly and that have uncertain liquidation values. The quick ratio is
an alternative measure of liquidity that does not include inventory in the current assets.
The quick ratio is defined as follows:

Current Assets - Inventory

Quick Ratio =
Current Liabilities

The current assets used in the quick ratio are cash, accounts receivable, and notes
receivable. These assets essentially are current assets less inventory. The quick ratio often
is referred to as the acid test and a ratio of 1:1 is considered satisfactory.

Quick ratio

YEAR 2006-07 2007-08 2008-09

24
QUICK RATIO 0.43 0.42 0.81

T-2

G-1

G-2

LIQUIDITY POSITION OF HAVELLS

25
Current ratio of HAVELLS is more or less the same in each year. The company is able
to maintain a current ratio of more than 1 which shows the availability of current assets in
rupees is more than current claims against them.

Quick ratio of HAVELLS indicates that company is improving its short term financial
position with time. A quick ratio of 0.81 in year 2008-09 is a clear indicator of that.

SOLVENCY RATIOS

The Debt-To-Equity ratio is total debt divided by total equity:

Total Debt
Debt-to-Equity Ratio =
Total Equity

Debt ratios depend on the classification of long-term leases and on the classification of
some items as long-term debt or equity. The times interest earned ratio indicates how
well the firm's earnings can cover the interest payments on its debt. This ratio also is
known as the interest coverage and is calculated as follows:

Interest Coverage

EBIT
Interest Coverage =
Interest Charges

Where, EBIT = Earnings before Interest and Taxes

The Proprietary ratio shows the extent to which the total assets have been financed by
the proprietor. Higher the ratio, greater the satisfaction for lenders and creditors.

Proprietary ratio = Shareholders fund

Total assets
Solvency

26
Year 2006-07 2007-08 2008-09

Debt-equity ratio 0.21 0.06 0.08

Interest coverage 7.92 8.39 9.16

Proprietary ratio 0.82 0.95 0.93

T-3

G-3

27
 G-4/G-5

Solvency

This ratio determines the ability of firm to meet its long term obligations.

Debt equity ratio of Havells has decreased over the years and is low due to negligible
amount of loan on Havells as compare to its equity, which indicates high degree of
protection enjoyed by its lenders.

Though low proprietary ratio is alarming for creditors as they may have to loose in the
event of liquidation. But, still it is increasing with every coming year.

Interest coverage ratio has increased year by year, showing the number of times interest
charges are covered by funds that are ordinarily available for their payment. Havells
maintains a strong financial position in this case.

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PROFITABLITY RATIO

Gross profit ratio:

Gross profit ratio may be indicated to what extent the selling prices of goods per unit may
be reduced without incurring losses on operations. It reflects efficiency with which a firm
produces its products. As the gross profit is found by deducting cost of goods sold from
net sales, higher the gross profit better it is. There is no standard GP ratio for evaluation.
It may vary from business to business. However, the gross profit earned should be
sufficient to recover all operating expenses and to build up reserves after paying all fixed
interest charges and dividends.

Causes / reasons of increase or decrease in gross profit ratio:

It should be observed that an increase in the GP ratio may be due to the following factors.

1. Increase in the selling price of goods sold without any corresponding increase in
the cost of goods sold.
2. Decrease in cost of goods sold without corresponding decrease in selling price.
3. Omission of purchase invoices from accounts.
4. Under valuation of opening stock or overvaluation of closing stock.

On the other hand, the decrease in the gross profit ratio may be due to the following
factors.

1. Decrease in the selling price of goods, without corresponding decrease in the cost
of goods sold.
2. Increase in the cost of goods sold without any increase in selling price.
3. Unfavorable purchasing or markup policies.
4. Inability of management to improve sales volume, or omission of sales.
5. Over valuation of opening stock or under valuation of closing stock

29
Hence, an analysis of gross profit margin should be carried out in the light of the
information relating to purchasing, mark-ups and markdowns, credit and collections as
well as merchandising policies.

Gross profit
Gross profit ratio =
Net sales

NET PROFIT RATIO:

NP ratio is used to measure the overall profitability and hence it is very useful to
proprietors. The ratio is very useful as if the net profit is not sufficient, the firm shall not
be able to achieve a satisfactory return on its investment.

This ratio also indicates the firm's capacity to face adverse economic conditions such as
price competition, low demand, etc. Obviously, higher the ratio the better is the
profitability. But while interpreting the ratio it should be kept in mind that the
performance of profits also be seen in relation to investments or capital of the firm and
not only in relation to sales.

Net profit
Net profit ratio =
Net sales

YEAR 2006-07 2007-08 2008-09

Gross profit ratio 8.41 8.68 8.47

Net profit ratio 6.59 6.97 6.57

30
T-4

G-6

G-7

31
PROFITABILITY POSTITON OF HAVELLS

Profitability ratio increased in 2007-08 due to acquisition of Chinese firms that helped in
manufacturing products at a lower cost. However, the increasing cost of other raw
materials and global slowdown in 2008-09 has again brought the profitability ratio down.

In HAVELLS profit are tendered to measure management efficiency and risk.

In HAVELLS new innovative different marketing strategies boost up the sale of the
company which helps in the increase of profit. Example,Advertising campaign during
IPL.

ACTIVITY RATIOS

These are concerned with measuring efficiency in asset management. And so they are
also called efficiency or assets utilization ratios. An activity ratio may be defined as a test
of the relationship between cost of sales and the various assets of the firm. The greater is
the rate of turnover or conversion, the more efficient is the utilization / management.
Depending upon the various types of assets, there are various types of activity ratios.

ASSETS TURNOVER RATIO

This ratio is also known as investment turnover ratio. It is based on the relationship
between the cost of goods sold and assets/ investment of a firm. Depending upon the
different concepts of assets employed, there are many variants of this ratio.

INVENTORY (STOCK) TURNOVER RATIO

This ratio indicates the number of times inventory is replaced during the year. It
measures the relationship between the cost of goods sold and the inventory level. This
ratio measures how quickly the inventory is sold showing efficient inventory
management. In this concern the inventory turnover ratio is increasing, which shows
utilization of inventories in generating sales is good. The inventory turnover ratio is high
in case of HAVELLS.

32
 Net cost of goods sold
Stock turnover ratio =
Net stock

Capital turnover ratio = Net sales

Capital employed

Net sales
Working capital turnover ratio =

Fixed assets turnover ratio = Net sales

Net fixed assets

YEAR 2006-07 2007-08 2008-09

Capital turnover 4.85 2.92 2.19

ratio

Working capital 21.28 13.46 14.56

turnover ratio

Fixed assets 7.82 6.03 4.37

turnover ratio

Inventory 6.46 5.41 11.53

Turnover Ratio

T-5

33
G-9

G-10

34
 G-11

G-12

These ratios show how the resources are efficiently utilized in the concern. The capital
employed is increasing every year but not in the same proportion as profits. Though

35
assets turnover is quite high in HAVELLS but efficiency is still a matter of concern as it
has fallen as compared to previous year.

OPERATING RATIO

Operating ratio shows the operational efficiency of the business. Lower operating ratio
shows higher operating profit and vice versa. An operating ratio ranging between 75%
and 80% is generally considered as standard for manufacturing concerns. This ratio is
considered to be a yardstick of operating efficiency but it should be used cautiously
because it may be affected by a number of uncontrollable factors beyond the control of
the firm. Moreover, in some firms, non-operating expenses from a substantial part of the
total expenses and in such cases operating ratio may give misleading results.

EARNINGS PER SHARE (EPS) RATIO:

The earnings per share is a good measure of profitability and when compared with EPS
of similar companies, it gives a view of the comparative earnings or earnings power of
the firm. EPS ratio calculated for a number of years indicates whether or not the earning
power of the company has increased.

DIVIDEND PAYOUT RATIO:

The payout ratio and the retained earning ratio are the indicators of the amount of
earnings that have been ploughed back in the business. The lower the payout ratio, the
higher will be the amount of earnings ploughed back in the business and vice versa. A
lower payout ratio or higher retained earnings ratio means a stronger financial position of
the company.

Year 2006-07 2007-08 2008-09

Earning per share(Rs) 19 26 24.93

36
Dividend per share(Rs) 2.5 2.5 2.5

T-6

G-12/G-13

RETURN ON EQUITY

37
It is the bottom line measure for the shareholders, measuring the profits earned for each
dollar invested in the firm's stock. Return on equity is defined as follows:

Net Income
Return on Equity =
Shareholder Equity

Year 2006-07 2007-08 2008-09

Net profit 102.15 143.54 145.23

Equity shareholder’s fund 262.44 666.97 934.33

Ratio 38.92 21.52 15.54

RETURN ON INVESTMENT

This ratio is more meaningful to the equity shareholders who are interested to know
profits earned by the company and those profits which can be made available to pay
dividends to them. Interpretation of the ratio is similar to the interpretation of return on
shareholder's investments and higher the ratio better is.

38
 Year 2006-07 2007-08 2008-09

Profit before interest, 148.32 204.72 209.93

tax and dividend

Capital employed 318.5 702.77 1004.61

Ratio 46.56 29.13 20.89

T-8

G-14/G-15

RECEIVABLES (DEBTORS) TURNOVER RATIO AND AVERAGE

COLLECTION PERIOD

The second major activity ratio is the receivables or debtors turnover ratio. And closely
related to this ratio is the average collection period. It shows how quickly receivables or
debtors are converted into cash. In other words this ratio is a test of liquidity of the
debtors of a firm which can be examined in two ways:

(i) DEBTORS / RECEIVABLES TURNOVER = Sales/Avg. Debtor

39
 (ii) AVERAGE COLLECTION PERIOD = 360/Debtors Turnover

Year 2006-07 2007-08 2008-09

Debtor turnover 19.42 42.35 28.83

Year 2006-07 2007-08 2008-09

Avg. Collection 18.53 8.50 12.49
period

G-16

40
 G-17

This ratio indicates the speed with which debtors/accounts receivable are being collected.
A turnover ratio of 42.35 signifies that debtors get converted into cash 42.35 times
during the financial year 2007-08 and 28.83 times during 2008-09. And the debtors got
collected in 8.5 days in 2007-08 which is quite early as compared to 2008-09 in which
they got collected in 12.5 days. This ratio shows that there is high turnover in 2007-08
and the collection period is also less which means that the liquidity of debtors is better
and there is prompt payment on the part of debtors. But in 2008-09 the turnover has
decreased and the collection period has increased which means there is a delayed
payment by debtors.

41
 Chapter – 4
Conclusion &
Recommendations
42
FINDINGS

The findings from this project are:-

SOME POSITIVE POINTS:

 Good financial condition as was able to maintain even in times of slowdown.

 Strong LIQUIDITY POSITION
 No debt burden
 Net profit are also increasing.
 Aggressive Marketing.

SOME NEGATIVE POINT:

 Efficiency is a concern as Asset Turnover is decreasing year by year.

 Not PROACTIVE enough.
 Should try and introduce more innovative products.

CONCLUSION

43
 • HAVELLS has a strong financial position, which is clear from the profits
and sales it was able to maintain even in the period of slowdown.

• Moreover, should try to introduce more products in the low price range for
the middle class.

• Sales have increased in proportion to the increase in cost of raw materials

and other manufacturing expenses. Therefore, relying on quantity and not
sacrificing quality.

• Due to use of SAP all units of the organization have been able to create a
common database and thus are able to easily access to all data including
information related to inventory.

Recommendations

 They can invest in large projects.

 They have to continue PROACTIVE marketing in order to utilize the huge
cash reserves towards fruitful investment.
 Should also explore other areas of opportunity.
 They should expand their business in order to utilize their funds.
 Should try and manufacture products in the low price range for middle class.

44
ANNEXURES

45
 -------------------
Balance in Rs. Cr.
Sheet -------------------

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Sources Of Funds

Total Share
Capital 5.8 12.45 26.88 28.96 30.08

Equity Share
Capital 5.8 12.45 26.88 28.96 30.08

Share
Application
Money 0 0.99 0 17.94 2.42

Preference
Share Capital 0 0 0 0 0

Reserves 80.82 162.57 235.56 620.07 901.83

Revaluation
Reserves 0 0 0 0 0

46
Networth 86.62 176.01 262.44 666.97 934.33
Secured
Loans 142.09 108.54 56.06 31.48 24.36

Unsecured
Loans 32.14 1.3 0 4.32 45.92

Total Debt 174.23 109.84 56.06 35.8 70.28

Total Liabilities 260.85 285.85 318.5 702.77 1,004.61

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Application Of Funds

Gross Block 104.11 168.88 244.35 344.52 507.62

Less: Accum.
Depreciation 15.91 22.45 31.36 42.63 57.93

Net Block 88.2 146.43 212.99 301.89 449.69

Capital Work
in Progress 4.13 6.77 29.26 83.36 15.79

Investments 3.17 3.17 3.47 164.79 387.87

Inventories 106.08 190.62 239.5 430.29 207.53

Sundry
Debtors 163.62 128.17 30.96 66.07 86.74

Cash and
Bank Balance 0.44 0.56 26.79 12.88 54.64

47
Total Current
Assets 270.14 319.35 297.25 509.24 348.91

Loans and
Advances 28.18 47.24 66.41 86.05 123.8

Fixed Deposits 7.74 7.77 6.38 52.03 102.73

Total CA,
Loans &
Advances 306.06 374.36 370.04 647.32 575.44
Deffered
Credit 0 0 0 0 0
Current
Liabilities 127.83 223.59 265.65 456.92 386.13

Provisions 12.9 21.33 31.75 37.77 38.1

Total CL &
Provisions 140.73 244.92 297.4 494.69 424.23

Net Current
Assets 165.33 129.44 72.64 152.63 151.21

Miscellaneous
Expenses 0.01 0.05 0.14 0.1 0.05

Total Assets 260.84 285.86 318.5 702.77 1,004.61

Contingent
Liabilities 10.9 19.21 601.16 595.53 296.81

Book Value
(Rs) 74.73 70.31 48.82 112.06 154.88

48
 ------------------
- in Rs. Cr.
Profit & Loss ------------------
account -

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

49
 12 mths 12 mths 12 mths 12 mths 12 mths

Income

Sales
Turnover 666.03 1,115.14 1,681.06 2,231.17 2,333.82

Excise Duty 83.42 111.45 135.66 176.72 130.71

Net Sales 582.61 1,003.69 1,545.40 2,054.45 2,203.11

Other Income 2.72 5.74 3.16 13.22 5.31

Stock
Adjustments 40.47 36.06 56.32 129.32 -173.75

Total Income 625.8 1,045.49 1,604.88 2,196.99 2,034.67

Expenditure

Raw Materials 391.89 653.18 1,062.35 1,466.63 1,263.52

Power & Fuel

Cost 9.04 15 17.55 21 21.64
Employee
Cost 25.88 41.37 53.08 74.37 88.14

Other
Manufacturing
Expenses 23.63 38.64 42.93 78.83 74.66

Selling and
Admin
Expenses 102.51 168.07 264.82 339.43 363.15

Miscellaneous
Expenses 8.81 21.35 15.83 12.01 13.63

50
Preoperative
Exp
Capitalised 0 0 0 0 0

Total
Expenses 561.76 937.61 1,456.56 1,992.27 1,824.74

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

12 mths 12 mths 12 mths 12 mths 12 mths

Operating
Profit 61.32 102.14 145.16 191.5 204.62

PBDIT 64.04 107.88 148.32 204.72 209.93

Interest 16.52 22.6 20.94 25.42 25.03

PBDT 47.52 85.28 127.38 179.3 184.9

Depreciation 4.08 6.36 9.74 13.06 17.86

Other Written
Off 0 0.02 0.04 0.04 0.05

Profit Before
Tax 43.44 78.9 117.6 166.2 166.99

Extra-ordinary
items 0 0 0.32 0.05 0.28

PBT (Post
Extra-ord
Items) 43.44 78.9 117.92 166.25 167.27

Tax 12.91 15.66 18.39 22.71 22.04

Reported Net
Profit 30.53 63.21 102.15 143.54 145.23

51
Total Value
Addition 169.87 284.43 394.21 525.64 561.22

Preference
Dividend 0 0 0 0 0
Equity
Dividend 2.9 6.72 13.44 14.48 15.04

Corporate
Dividend Tax 0.38 0.97 2.28 2.46 2.56

Per share data (annualised)

Shares in
issue (lakhs) 115.91 248.91 537.58 579.18 601.68

Earning Per
Share (Rs) 26.34 25.39 19 24.78 24.14

Equity
Dividend (%) 50 50 50 50 50

Book Value
(Rs) 74.73 70.31 48.82 112.06 154.88

------------------
- in Rs. Cr.
------------------
Cash Flow -

Mar '05 Mar '06 Mar '07 Mar '08 Mar '09

52
 12 12 12 12
12 mths mths mths mths mths

Net Profit Before

Tax 43.24 78.51 120.54 166.25 167.27

Net Cash
From
Operating
Activities -7.14 142.63 202.01 129.02 273.17

Net Cash (used

in)/from

Investing -
Activities -49.7 -62.58 -99.1 -315 322.35

Net Cash (used

in)/from Financing
Activities 57.07 -79.95 -76.78 223.59 140.39

Net
(decrease)/increase
In Cash and Cash
Equivalents 0.24 0.11 26.13 37.61 91.21

Opening Cash &

Cash Equivalents 0.11 0.35 0.47 26.61 64.22

53
Closing Cash &
Cash Equivalents 0.35 0.46 26.61 64.22 155.43

BIBLIOGRAPHY

• Havells India Ltd. annual reports

• Havells India Ltd. official website

• www.moneycontrol.com

• www.investopedia.com

• I. M. Pandey

• R.L Gupta & V.K Gupta

• www.google.com

54
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