Chapter 1- Introduction

1.1 Problem statement :

With the recession being witnessed in the Indian economy since the past 3-4 years, the
banking sector has been one of the worst hit sectors of the economy. Due to stagnancy of the
infrastructure and mining activities in the country, all the major infrastructure firms have
been facing acute liquidity stress. This, coupled with other factors like high inflation rates,
has led to higher interest rates in the Indian economy, have led to many of the infrastructure
projects becoming unviable. On the other hand, policy and procedural delays from the
government like giving clearances, handing over of land due to acquisition problems etc have
led to majority of the projects witnessing huge time and cost overruns.
On this backdrop, the liquidity stress of the infrastructure companies have led to high level of
delinquencies in the banking sector. Rising NPA Levels in the banking sector, both for the
public and private sectors and in the NBFCs have necessitated stricter credit norms and close
monitoring of the accounts. The focus of the banking sector currently is on recovery of the
dues which have turned delinquent, along with strict credit policies to arrest further
deterioration of the existing portfolio. SEFL, being a NBFC which is directly associated with
the infrastructure sector, currently has been witnessing these problems too.
1.2 Review of related literature:
I study various newspapers and various articles related to the NBFCs current situation in the
market and some of the reviewed are as following:
Infrastructure and manufacturing sector plays a greater role in providing growth to an
economy. Future of any economy depends on the growth of its infrastructure and
manufacturing development.
Union Budget 2015: Jaitley brings cheer for banks and NBFCs
March1, 2015
While presenting the union budget Arun Jaitley finance Minister announced that now NBFCs
(Non Banking Financial Companies) which are registered with the RBI, to be allowed to use
reconstruction and securitisation of Financial Assets and enforcement of security interest.
According to the president of Kotak Mahindra Bank this plan would make recovery of loans
smoother for NBFC and benefit most of the larger player like L&T Finance, Shriram
Transport Finance.

Jan 2, 2015
According to the article on Jan2,2015 of F.Business RBI asked Non-Banking Financial
Company to continue carrying out on-going due diligence with their clients and closely
examine transaction to ensure their consistency, business and risk profile and source of funds.
And also Full KYC exercise will be required to be done at least every 2 years for high risk
individuals and entities.
Non-banking financial companies (NBFCs) have seen considerable business model shift over
last decade because of regulatory environment and market dynamics. In the early 2000s, the
NBFC sector in India was facing following problems:
1) High cost of funds
2) Slow industrial growth
3) Stiff competition with NBFCs as well as with banking sector
4) Small balance sheet size resulting in high cost of fund and low asset profile
5) Non-performing assets Majority of NBFCs were not able to face the pressure created on
and were wiped out. However, since FY2001-2002, there has been significant improvement
in the business model of existing NBFCs with improvement in overall business environment.
NBFCs have been able to expand their resource profile by diversifying the funding avenues.
1.3 Rationale of the problem: NBFC industry had witnessed substantial growth over the
years post liberalisation era and with the advent of Basel norms in India, but in the current
economic scenario, some of the problems being witnessed by the industry are given below.
The list is not exhaustive and different NBFCs will have their own individual strengths and
weaknesses and concerns, but there are some general problems being witnessed by the entire
industry as given below:

Increased level of delinquencies and NPAs in the banking sector owing to

liquidity stress and slow infrastructure activities witnessed in the economy.
Introduction of banking licenses to new players in the economy liken Bandhan
Financial Services to cater to a greater section of the society and to channelize
funds in the banking sector.
Consolidation being witnessed in the banking sector with some big players
allowed to takeover smaller players, like the recent takeover of ING Vyasa Bank
by Kotak Mahindra Financial Services.
Along with new players, the industry has witnessed introduction of various
innovative products such as used vehicles financing, small personal loans, three
wheeler financing, asset management. Sector wise emphasis also being initiated
with increase in rural finance and lower exposure to the real estate players.

Economy is expected to move in a positive direction with strong emphasis

being given on the infrastructure sector by the current government. Liquidity
Stress also being expected to ease out in the future with the RBI expected to
be on course to initiate interest rate cuts following lower inflation rates.

1.4 Methodology: Methodology refers to the essential part of the study and process of
collecting information and arranging it in terms of the relevant issues of the study. It is
designed in a way so that it correspondent to achieve the objective of the study.
Since the research is for industry analysis and it is structured for NBFCS. The research uses
secondary data for analysis and interpretation.
The following steps have been undertaken for the project:
A list of companies listed in the Bombay Stock Exchange / National Stock Exchange,
who are in the infrastructure sector had been identified (List attached as Annexure).
The annual reports were obtained from the www.bseindia.com, www.nseindia.com,
www.moneycontrol.com etc for FY 14, FY 13 and FY 11.
Ratio analysis is being carried on these companies and relevant data are being
separately stored, where subsequent analysis will be carried on using different excel
and statistical tools.

Types of investigation
Descriptive Analysis: Descriptive analysis provides simple summaries about the sample and
the measures. Descriptive is used when researcher wants to describe specific behaviour as it
occurs in the environment. In this report the study follow the behaviour pattern of companies
on the basis of ratios analysis regarding the liquidity stress. There is three parts of Descriptive
analysis
1. Observation Method
2. Case Studies
3. Survey method
This project fall in category of the case studies as well as observation method of descriptive
method thus it is descriptive research method.
Sample Design:
The sample design for this project report is Probability convenience sampling because as
for our research we have selected annual reports of 47 companies and according to my report
this research gives equal chances to every companies financials of being selected.
Sampling Plan:
Sampling unit: the companies will be stratified and segmented according to the categories of
ratios.
Sampling size: this report is based on the survey of 47 companies listed in BSE.
3

1.5 Scope of the study:

The scope of the project is, analyzing financial statement using Ratios which indicates
the liquidity stress of companies and to review of financial strength of the companies.
Ratios are useful tools for evaluating the performance of the manufacturing and
infrastructure companies.
Importance of the project:

This project will help the finance student as the learning device.
This project will help us to understand the liquidity performance of the
manufacturing and infrastructure companies.
The project would also be an effective tool for credit policies of the
companies.
This will show how companies will maintain their particular liquidity
position.

1.6 limitation of the study:

There were some limitations faced to prepare this report that are.

There is not huge guideline about liquidity management of the NBFCs

I didnt get sufficient Information about the order book of many
companies.
Couldnt collect annual report of many companies. Due to lack of
availability.
Distribution of order book was not mention properly in the annual
reports of many companies.
Since the profile of the clients of SREI Equipment Finance ltd is huge, it
was not possible to visit clients office and cross verify the data
available on the internet.

Chapter 2

Details of the organization

Introduction
SREI Infrastructure Finance Limited has been a pioneer in infrastructure financing in India,
steadily contributing towards infrastructure development, and a better tomorrow. SREI
Equipment Finance Private Limited is the 50-50 joint venture between BNP Paribas and
SREI Infrastructure limited.
BNP PARIBAS
BNP Paribas S.A is a global banking group, headquartered in Paris with its second global
headquarters in London. In October 2010, BNP Paribas was ranked by Bloomberg and
Forbes as the largest bank and largest company in the world by assets with over US$3.1
trillion. It was formed through the merger of Banque Nationale de Paris (BNP) and Paribas in
2000.
BNP Paribas has one of the highest credit ratings in its peer group with the long term debt of
the group currently ranked AA-by S&P, Aa3 by Moodys and A+ by Fitch. The firm is a
universal bank split into three strategic business units: retail Banking, Corporate &
investment banking and investment solutions
BNP Paribass four domestic markets are France, Italy, Belgium and Luxembourg. It also has
significant retail operations in the United States, Poland, Turkey Ukraine and North Africa, as
well as large scale investment banking operations in New York, London, Hong Kong, and
Singapore.
SREI INFRASTRUCTURE PVT LTD: SREI is a non banking financial institution,
which began its journey in the year, 1989, from Kolkata and gradually established pan India
presence with a network of 34 offices. SREI includes infrastructure project finance, Advisory
and development, infrastructure equipment finance, venture capital and capital market.

SREI EQUIPMENT FINANCE PRIVATE LIMITED

SREI Equipment finance Private limited is the 50-50 joint venture between BNP Paribas and
SREI infrastructure limited. It is a leader in the infrastructure and construction equipment
financing over 30% market share and empowered over small, medium and large contractors
in infrastructure space. Its the NON-BANKINNG FINANCIAL INSTITUTION which
provides loan to the manufacturers for manufacturing the various equipments used in the
infrastructure and construction sector.
According to the RBI, NBFCs are classified into three categories

AFC ( Asset Finance Company)

Investment Company
Loan company

SEFL belongs to the asset finance company category of NBFCs as it provide loans for the
infrastructure and construction through leasing and loans.
It provides loans to the small and medium scale enterprises (SME). The company is present
in three key segments

Infrastructure Equipment Finance

Infrastructure Project Finance
Renewable Energy Equipment Finance

Infrastructure Equipment Finance: In this segment company provide leasing and hire
purchase of infrastructure, construction equipment and machinery to various construction
companies and also to the SMEs (small and medium scale enterprises) engaged in civil and
mechanical construction. Some the instrument which company finance include

Dozers
Heavy Dumpers
Surface Miners
Cranes
Compressors
Compactors
Backhoe Loaders
Motor Graders
Mechanical and sensor pavers
Tool Carriers
Road Building Equipment
Excavators

Infrastructure Project Finance: The project finance segment provides holistic financial
solutions for infrastructure projects. It provides Debt, Equity and Mezzanine capital, also
together advisory services team of SIFL. This segment covers small and medium sized road,
power, ports and urban infrastructure project that require financing over 5-10 year period in
the range of Rs 10m-50m.
Renewable Energy Equipment Finance: SREI is the first Indian company to finance
Renewable energy equipments, which is high growth segment in India

The Organization
COMPANY PROFILE
LOCATION: Y-10, Block EP sector- V, Salt Lake City Kolkata-700091
ESTABLISHED IN: 1985
WEEKLY HOLIDAY: Sunday
CHAIRMAN: Hemant Kanoria
VICE CHAIRMAN: Sunil Kanoria
VISION OF THE COMPANY: Vision of the company is to be the most inspiring global
holistic
Infrastructure institution.
MISSION OF THE COMPANY: Company mission is to be an Indian multinational
company that provides Innovative integrated Infrastructure solution.
CORE VALUES: Companys core value depends on these points.

Customer Partnership: Core value of the company includes customer

engagement, affection and understanding of the customer, creating a
mutually profitable partnership with the customer.
Respect for People: SREI believes in power of people. SREI provide
an inspiring work environment to its employees to encourage the
initiative of its employees and to recognize their work excellence.
Integrity: Companys actions are guided by principles of highest
standards of moral values and we are committed to ethical practices.
Passion for Excellence: In driving us to be innovative, solutionsfocused, and impactful.
Professional Entrepreneurship: To overcome obstacles and
complexities with professional expertise with the experience.

Boards of Directors are:

Chief Mentor, Independent Director- Salil K. Gupta
Chairman & Managing Director- Hemant Kanoria
Vice Chairman- Sunil Kanoria
Independent Dirctor- T.C.A Ranganathan

Milestone of SREI:
1989 SREI started its operations and identified as infrastructure as the
core sector.
1992 listed in all major stock exchange.
2005 1st NBFI to be listed on the London Stock Exchange
2012- Received Certificate of Registration for Mutual Fund
(Infrastructure Debt Fund) from SEBI.
2014-Received certificate of authorisation from RBI to set up, own and
operate white Label ATMs.

Products of organization: SREI offer a range of financial products for Construction &
Mining, Technology and Healthcare equipment including
Loans / hypothecation for new equipment.
Loans / hypothecation against existing equipment
Loans / hypothecation for procuring used equipment
Operating leases for equipment, with both fixed and open residual values
Loans and leases for imported equipment and cross border transactions

Organization Structure: SREI follow a hierarchical organizational structure with the

director at the top in the hierarchy followed by the managing and executive director. The
organizational structure of SREI is as follow-

Board of
Directors

Executive
Director

Managing
Director
Risk &
Credit
Head
Zonal
Head

Manager
FI &
Credit
Team

Collectio
n&
Legal
head
Manager

Collection
& Legal
Team

Chief
Financial
Officer
Operation,
Accounts
&Financial
Head
Operation,
Accounts &
Financial
Manager
Operations,
Acconts &
Finance
Team

Admin,H
R & IT
Manager
Admin,H
R & IT
Team

Busines
s Heads
Cluster
Head
Branch
Manger
Team
Leader
Executive

HUMAN RESOURCES DEVELOPMENT

In order to achieve companys own goal SREI offer their people platform of

An entrepreneurial environment where people can pursue their dreams.

Company give opportunities to its employee to develop leadership and
functional capabilities.
It also provides its people to growth opportunities to expand leadership
capabilities.

CULTURE OF Organization: Work culture in SREI is employee friendly.

SREI is a successful organization which believes in the power of people. SREI is
an employee-centric company and owe their success and position to their work
culture, which is driven by the performance of their employees.
EQUAL Opportunity Employer: SREI provide equal opportunities to growth
to all their employee .Decision are taken on account of merit, qualification and
individual capabilities. A debate competition event was organised in SREI
during my SIP period in which there was an active participation from the
employees and each one of them given a fair chance to showcase their viewpoint.
REWARDS & RECOGNITION: In organization it is very important for
employees to get recognized and get awarded for his/her work performance.
Every year SREI appreciate performance of its employees through award and
certification.

COMPETITOR ANALYSIS
Major Competitors of the firm

HDFC
ICICI
Tata capital
Magma Fin corp Ltd
Sriram Finance
Mahindra &Mahindra Financial Services ltd
All the nationalised banks.

ICICI: ICICI is the major competitor of SREI .It offers products such as investments, mutual
funds, life insurance, Car Loan, Home Loan and etc. It is second largest bank in India by
assets and market capitalization. It has total assets of Rs.6461.29 billion .

10

SHRIRAM FINANCE: Shriram Transport Finance Company Limited (STFC) is the largest
asset financing NBFC of country. It is best NBFC in case ASSET BACKED LENDING.
They provide loan for heavy duty truck, Light duty truck, Passenger vehicle, Farm equipment
and etc. Shriram Transport offers financing options for the purchase of both new and used
vehicles to the segment.
HDFC: HDFC is one of the best banks of India which provide loans. HDFC provide personal
loan, business loan, Home loan, Car loan, two wheeler loan, gold loan, loan against assets,
educational loan, rural loans. It is the fifth largest bank of India which provide loan for asset.
MAGMA FIN CORP LTD: Magma Fincorp limited was established in 1989 and the
capacity of asset manages is RS 160 billion. It has 235 branches in india. It also provide car
loan, tractor loans , SME loans, Construction equipment, Commercial vehicles loans, Auto
loans, used vehicles loans and housing financing.
TATA CAPITAL: TATA CAPITAL undertakes the financing of construction equipment
and also financing of used equipment. Tata capital has 10% market share in the segment of
financing of the manufacturing equipment. It also provide lending facility for the different
segment like roads, railways, irrigation, power and warehousing.

Name
Bajaj
Finance
Shriram
Trans
Sundaram
Fin
M&M
Financial
Manappuram
Fin
Magma
Fincorp
SREI Infra

Last Price Market Cap. Sales

(Rs. cr.)
Turnover

Net Profit Total

Assets

5,249.60

28,155.06

5,381.80

897.87

19,941.40

888.90

20,167.61

8,636.95

1,237.81

33,971.19

1,607.00

17,857.28

2,254.66

454.14

11,690.43

275.90

15,692.23

5,536.06

831.78

23,241.69

28.25

2,376.41

1,975.73

270.73

9,159.19

87.70

2,076.32

2,018.77

149.07

8,807.87

36.60

1,841.30

1,894.20

90.93

15,637.56

Here I have taken the data from Money control to compare the stocks of SREI with its
competitors. From this table we can observed and analyze the difference value of competitors
of SREI.

11

Analysis of Industry
SREI is an NBFC company. NBFC is a company according to the rule of RBI which should
be registered under the companies act, 1956.Business of NBFCs is providing loans and
advances, acquisition of shares/stocks/bonds/debentures but as per the rule of RBI it does not
include any institution whose principle business is agriculture or industrial activity. NBFCs
started in India in very small scale in 1960 but by providing fast lending services it started
attracting large number of customers. NBFCs provide banking services such as lending but it
do not hold banking license.
NBFCs rely on the following sources of funding.
1.
2.
3.
4.
5.
6.

Owned Funds
Bank Financing
Capital Market Instruments
Commercial Paper
Inter-Corporate Deposits
External Commercial Borrowing

Classification of NBFCs: According to the nature of their major activity of deposit taking
and Non deposit taking NBFCs can be classified into the following category.

Equipment leasing Companies.

Hire-purchase Finance Company.
Housing Finance Company.
Investments Companies.
Loan companies.
Mutual fund Benefit companies.
Chit fund companies.
Residuary company.

Difference between the BANK and NBFCs

NBFC cannot accept demand deposits.

NBFCs do not form part of the payment and settlement system and cannot issue
cheques drawn on itself.
NBFCs cannot issue Demand Draft like banks.
Banks are incorporated under banking companies act, NBFCs is incorporated
under company act 1956.
NBFCs offer higher rate of interest on deposits and charge higher rate of
interest on loans.

12

CURRENT SCENARIO: The government has again started the process of allowing the
better- managed non-banking finance companies to graduate to full-fledged bank. In the
last Union Budget, the finance minister had announced that RBI is considering giving
additional banking licences to private sector players, including NBFCs.
The RBI announced a new framework for NBFCs that is raising the minimum net owned
funds limit while capping deposit acceptance. According to this framework now NBFCs
have to maintain minimum net fund owned of Rs 1 crore by end march 2016, and raise
it to Rs 2 crore by end march 2017 from the current level of Rs 25 lakh. And also RBI
announced that existing asset financing NBFCs which are unrated have to get themselves
rated by march31, 2016 otherwise they will not be allowed to renew existing and accept
fresh deposits. It is positive move in the terms of risk because many NBFCs raise money
from people known to them but it is very risky for those investors who are investing in
such unrated or poorly rated NBFCs.
According to the report of UNION BUDGET 2015-2016
With the growing importance of NBFCs as financial intermediaries, new categories like
NBFC-Factors, NBFC-IDFs, NBFC-MFIs, are being introduced by regulatory. At the end
of the year 2013-14 sector grew at the rate of 13.1%. The sector has been dynamically
evolving over period of time and has been witnessing constant regulatory changes.
RBI came out several important changes in the sector The guidelines for restructuring of loans by NBFC- the restructuring norms
of NBFCs have been aligned with that of the banks.
The framework of revitalising distressed assets in the economy.
Now announcement of SARFAESI (Securitisation and Reconstruction of Financial
Assets and Enforcement of security Interest) will help the NBFCs to solve the
problem related to the NPA (Non performing assets).

13

Organization Business Profile

Chief Executive Officer: Devendra Kumar Vyas
Resource Mobilisation: Prakash Chand Patni (Head)
Chief Financial Officer: C R Sudarshanam
Chief Technology Officer: Sundar Raj Vijaynagar
Business Head- Debnil Chakarvarty (East and south Zone)
Business Head- V V Ramana (North, Central and East Zone)
Marketing Head-Raja Singh
Operation Head-Shiv Kumar
Human Resource Head-J K Dwivedi
Chief Internal Audit: Debashis Ghosh
SREIS Agenda is to build better tomorrow by providing financing solution. SREIs
promotion idea is Together we make tomorrow happen that mean together we can create
a better future for our next generation. SREI is a holistic company, it provide three type of
services.
1-Fund based
2-Fee based
3-Strategic Investment
1-Fund Based: In fund based financing SREI provide leasing and hire purchase of
infrastructure, construction equipment and machinery to various construction companies and
SMEs engaged in civil and mechanical construction. Some of the equipment financed by
SREI are

14

I. Infrastructure Equipment Finance

15

II.Project Finance: The project finance division provides holistic financial solutions for
infrastructure projects. It provide Debt, Equity and Mezzanine capital, also together with the
advisory service teams of SIFL it provide comprehensive solution including Debt
Syndication, Private Equity & M&A advisory.
SREI extend finacial assistence to:

Power
Renewable Energy
Roads
Hospitals
Bridges
Highways

2-Fee Based: Under Fee based SREI provide different services to its customer.
I.

Project Advisory: SREIprovide comprehensive knowledge of the

infrastructure business and empowering development agencies in both the
private and public sector to lay the foundations for a better tomorrow.
Project Advisory arm offers a range of services which include:
1.Project Conceptualisation
2.Project Structuring
3.Project Monitoring
4.Fund Mobilisation
5.Advisory Services for government and private agencies.

II.
Project Development: SREI have enriched infrastructure project
development capabilitites by leveraging intellectual capital and expertise built over two
decades of presence in the sector.SREIs Financier-cum advisor approach and ability to offer a
holistic package of fund Non-Fund based services provide our partnering sponsors the
advantage of managing the entire project cycle under one Umbrella.
III.
Investment Banking: SREI is one of the leading marchent bankers in
India to provide a wide gamut services from IPos, Delisting, Buy Back, Open Offers, NCD,
Debt syndication and M&A advisory.
1.Capital Markets
2.Private Equity and M&A
3.Debt Syndication
IV.
Alternative Investment Funds: SREI have come a long way since starting
operations by financing construction equipment. The company have decided to offer services
in the equity space to complete the value chain for the clients.

16

V.
Insurance Broking: SREI insurance Broking is one of the leading insurance
broking companies of india that facilitates insurance services for corporates and
individuals.SREI follow two step procedure to provide holistic support to their clients.
1.Initial Study

Evaluation of Clients risk profile, based on the study of

business environment.
Reccomandation of the most cost effective, integrated
insurance package perfectly matched with the risk profile.
Audit and evaluation of insurance procedures and
practices.

2.Post study

Desing the most cost effective insurance coverage

Provide continuous review, taking into account the
changing business environment.

3-Strategic based: Under the strategic services SREI provide

I.
Telecom Infrastructure: SREI provide Viom network, a joint venture
between tata teleservices and Quippo-a srei group enterprise,is the pioneer in the shared
passive Telecom Infrastructure industry in India.
II.
Transportation: SREI has made an indelible impression as one of the
leading providers of PPP business in the road sector in India.
III.
Rentals: Quippo is the countrys largest infrastruture equipment rental
brand. SREI service the high growth verticals of construction, oil and gas energy.
IV.
Rural IT Infrastructure: SREI is committed to creating a public- private
partnership to bright the urban rural digital divide in India.
V.
SEZ and Industrial Parks: SREI ventured into the industrial park space
in the year 2008-2009 acknowleging the growing significance of the industrial sector in
accelerating Indias economic growth.
Organisation is engaged in developing three SEZs and industrial parks:

Near Navi Mumbai, Maharastra,-SEZ and industrial park

Near Kharagpur, West Bengal-Industrial park
Nanguneri, Tamil nadu- SEZ and Industrial park

17

SWOT ANALYSIS
Swot analysis is a strategic planning method used to evaluate the STRENGHS,
WEAKNESS, OPPORTUNITIES and THREATS involve in a project or in a business
venture. It involves specifying the objective of the business venture or project and identifying
the internal and external factors that are favourable and unfavourable to achieve that
objective. To come to this SWOT conclusion, first we need to do a situational analysis.
Situational analysis means knowing about everything that can impact the victory.
It include INTERNAL METHOD uses data and information from within the business. It
includes efficiency productivity, Costs Strength and weakness.
The EXTERNAL METHOD uses data and information from outside the business. It includes
Competitors, the market and Opportunities and Threats.

18

SWOT Analysis of the Firm

Strength

Weakness

Opportunity

Threats

Largest NBFC in the country in CME financing.

Strong national presence.
Tie-ups with various established manufacturers and
vendors.
Highly process oriented with strong fundamentals and
business ethics.
The source of funding for SREI is limited to wholesale
funding , securitization and equity insurance. A spike in
interest rates could hamper its margin in case of its
inability to pass on the hike to its customers.
Different types of trade fairs like. EXCON, BAUMA
2011, SAHAJ-E-VILLAGE are the huge opportunities
and platform for the company to grow and attract its
customers.
Expansion in product lines like financing of agricultural
equipments, equipments in IT and Medical sectors etc.
Competition from the banks and other equipment
financiers.
Regulatory risks associated with RBI policies on
NBFCs.

Concepts/Models used in the study:

Potters Five Forces Model

19

THREAT OF NEW ENTRANTSAs it was the first NBFI (NON-Banking Financial Institution) which provide loans to the firm
for the manufacturing of the products, it was easy to enter into the market, but sustaining the
same position as it was 10 years before is a difficult task.
Unlike NBFIs, banks have also get access to low-cost deposits, due to widespread operations
in the form of retail deposits and thus can lend at competitive rates. It is also a threat for
SREI.

BARGANING POWER OF CUSTOMER: The bargaining power of the customer

is also described as the market of output: the ability of customer to put the firm under
pressure, which also affects the customers sensitivity to price change, also when the buyers
purchase in large quantities then buyers can use their purchasing power as leverage to bargain
for price reduction. This condition is particularly high in case of SREI EQUIPMENT
FINANCE PRIVATE LIMITED- large number of players is in this segment which is a threat
for this firm.

THREAT OF SUBSITUTES: The existence of the scheme outside the realm of the
common product increases the propensity of the customers to switch to the alternatives. The
main issue is the similarity of the schemes which forces the customers to think once which
scheme to opt for.

COMPETITIVE RIVALRY WITHIN THE INDUSTRY: The Company has to

face many challenges as its competitors are also using same policies to attract the customers,
and moreover now banks are also providing loans to the firm for manufacturing of the
equipments.

BARGANING POWER OF SUPPLIERS: The company raised fund from FDs,

SBA, Convertible bonds, refinance from NHB and others so low power of bargaining.

Conclusion
RBI is announcing new facilities for NBFCS.
Demand for NBFCs has been increased and it is contributing large amount in
economy.
Threat between banks and NBFCS is increasing.
Announcement of SARFAESI help for NBFCs in union budget in the matter of
increasing NPA limit is helpful for NBFCs.
Though the NBFCs services have enhanced, introduction of new services are being
rendered to the customer of NBFC, and also the customer and NBFCs relationship
will affect the capital market.

20

CHAPTER-3
RELEVANT LITERATURE REVIEW
In the recent time of financial crises, liquidity stress took centre stage. Due to the Increasing
Problem in liquidity, Regulators are emphasizing on NBFCs to follow a proper liquidity risk
management policy and to avoid the risk related to liquidity follow the stress testing method.
This report is based on the liquidity risk concept and liquidity analysis with the help of ratios.
According to the study of the report of TATA CONSULTANCY SERVICES related to
liquidity I came to know that process of Liquidity stress testing framework.
The life cycle of liquidity crisis is:

Liquidity risk life cycle shows the process in which liquidity risk management should be
made and risk management follow the step to avoid the liquidity problem in the organization.
Liquidity stress testing strategy focus on the following points:
-Identifying the factors which are indicating risk and affecting assets and liabilities of the
organization.
-Design the scenario to avoid the liquidity problem.
-And identify the future scenario to fight with the liquidity stress.
As my report is based on the key financial ratio of infrastructure companies I reviewed SREIs
technique of analyzing infrastructure companies position. At the very first level an analyst
analyze the category of Infrastructure companies

21

Infrastructure: Involved in construction of roads, power, and railways

Real Estate: Involved in construction of residential and commercial etc
Industrial construction: involved in construction of steel plants, textile

Then the next step is analyzing the following:

Order Book: Order book contains the information of order received by the business. Order
book is record of size and future growth of the company. Through order book we can analyze
or identify in which segment company is involved and which are the project which will create
revenue in future for the company. Order book is record of the work in hand.
Raw Materials: Analyzing the raw material cost is the second step in which we analyze the
cost occurred in purchasing raw material for production. At the time of calculation of
profitability margin of the company an analyst always consider or exclude the cost of raw
material. We consider opening raw material as well as closing raw material for calculating
the cost of raw material. In this report I have calculated the raw material days of all 47
countries to identify which company is successful in managing their raw material days and
which company is taking more time in converting their raw material into finished product.
Formula of calculating raw material days which I have used is:
= Average raw material *365 days
Cost of goods sold
Secured Loan: In this report I have calculated the different types of loan of all the 47
companies. Under the head of secured loan I have identified the different loan categories.
Secured loan include the following.
Term loans
Lease HP loans
Working Capital(CC/OD, short term loans)
Mobilisation advances.
Debentures
1. Term: In our business line, clients normally take term loans for a period of 5-6
years from PSU banks against plant and machineries/ project finance( for real estate
companies).
Important things to note:
Commencement date of loan
Moratorium provided: normally 6 months to 1 year
Repayment structure: monthly/quarterly/Half yearly/annually.
2. Lease/ HP loans: Hire Purchase in our business refers to hiring of an asset for a
time period and the person taking the asset on hire purchase requires possession of
the asset and the right to use it.

22

3. Working Capital loan: A loan whose purpose is to finance everyday operations of

a company. It include the following:

Cash credit
Overdraft( OD limit-sometimes shown under current liabilities)
Bills Discounting
Packing Credit
Letter of credits (LC facility-include only fund based-do not include non
fund based facilities.
Short term loans
4. Mobilisation advance: Mobilisation advances are secured against bank guarantees/
performance guarantees, hence though no physical asset backed by the same, the
nature of advance is still secured.
Important Points:
Mobilisation advances are project specific.
Mobilisation advances are generally 5%-10% of the total contract works
High interest bearing mobilisation advances indicate high interest payments
and hence PAT becomes low.
5. Debentures: These are in the nature raise funds from outside investors.
Optionally convertible debenture: These are debentures which carry the
option of conversion to equity within a specified period of time.
Compulsory Convertible debenture: These debentures have necessarily to
be converted to equity within specified period-normally within 3-5 years at a
predetermined price of equity and share premium.
Non Convertible debentures: These debentures cannot be converted to
equity at any point of time.
This is the sample of secured loan of SREIs client Ahluwalia Contracts Private Limited

Secured Loans
Term loan from
Bank/FI
Lease/HP
Working Capital
Debentures
Others
(Mob.
Advances)

42,727.42 47,132.14 46,912.75

4,503.05

6,298.11

2.58
219.15
17,944.96 20,130.45
0.00
0.00
20,276.83 20,484.43

23

4,780.81
399.84
19,649.19
0.00
22,082.91

Assessing the problem is the main part of this report. As I have done research on the basis of
ratios so a brief description about
the ratios are below:
RATIO ANALYSIS
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements. The level and historical
trends of these ratios can be used to make inferences about a company's financial
condition, its operations and attractiveness as an investment.
Financial ratios are calculated from one or more pieces of information from a company's
financial statements. For example, the "gross margin" is the gross profit from operations
divided by the total sales or revenues of a company, expressed in percentage terms. In
isolation, a financial ratio is a useless piece of information. In context, however, a financial
ratio can give a financial analyst an excellent picture of a company's situation and the trends
that are developing.
A ratio gains utility by comparison to other data and standards. Taking our example, a gross
profit margin for a company of 25% is meaningless by itself. If we know that this company's
competitors have profit margins of 10%, we know that it is more profitable than its industry
peers which are quite favourable. If we also know that the historical trend is upwards, for
example has been increasing steadily for the last few years, this would also be a favorable
sign that management is implementing effective business policies and strategies.
Financial ratio analysis groups the ratios into categories which tell us about different facets of
a company's finances and operations. An overview of some of the categories of ratios is given
below.

capital structure.

situation or solvency.

company is in its operations and use of assets.

and capital employed.

cash flow and pay it financial obligations.

24

LIMITATIONS OF RATIOS
1. Accounting Information
Different Accounting Policies The choices of accounting policies may distort
intercompany comparisons. Example IAS 16 allows valuation of assets to be based on either
revalue amount or at depreciated historical cost. The business may opt not to revalue its asset
because by doing so the depreciation charge is going to be high and will result in lower profit.
Creative accounting The businesses apply creative accounting in trying to show the better
financial performance or position which can be misleading to the users of financial
accounting. Like the IAS 16 mentioned above, requires that if an asset is revalued and there is
a revaluation deficit, it has to be charged as an expense in income statement, but if it results
in revaluation surplus the surplus should be credited to revaluation reserve. So in order to
improve on its profitability level the company may select in its revaluation program to
revalue only those assets which will result in revaluation surplus leaving those with
revaluation deficits still at depreciated historical cost.
2. Information problems
Ratios are not definitive measures
Ratios need to be interpreted carefully. They can provide clues to the companys performance
or financial situation. But on their own, they cannot show whether performance is good or
bad. Ratios require some quantitative information for an informed analysis to be made.
Outdated information in financial statement
The figures in a set of accounts are likely to be at least several months out of date, and so
might not give a proper indication of the companys current financial position.
Historical costs not suitable for decision making IASB Conceptual framework
recommends businesses to use historical cost of accounting. Where historical cost convention
is used, asset valuations in the balance sheet could be misleading. Ratios based on this
information will not be very useful for decision making.

Identification of the Gap or Need of study

The main aim of undertaking this study is to accomplish the following objective.
To study the issues and challenges in the NBFCs related with their liquidity stress.
To identify the current status of companies.
To predict the future situation of companies for appraising credit.
To understand the debt level in companies financial. To understand changing trends
of ratios in the companies which are facing high debt level

25

Chapter -4
Data Collection and analysis
Sampling Plan:
Sampling unit: the companies will be stratified and segmented according to the categories of
ratios
Data Collection Method:
The following steps have been undertaken for the project:
Primary data collection:
A list of companies listed in the Bombay Stock Exchange / National Stock Exchange, who
are in the infrastructure sector had been identified (List attached as Annexure).
Secondary data collection:
The annual reports were obtained from the www.bseindia.com, www.nseindia.com,
www.moneycontrol.com etc for FY 14, FY 13 and FY 11.
Ratio analysis is being carried on these companies and relevant data are being separately
stored, where subsequent analysis will be carried on using different excel and statistical tools.
Presentation and processing of the data for analysis:
NAME OF THE GROUP
Ahluwalia Contracts Private Limited

Year :
Period :

Gross Income from Main Operations

Operating expenses
Operating Profit (PBIDT)
Less: Interest
Less: Deprecation
Gross Profit from Main Operations
Add: Other Income
Net Profit Before Tax
Deduct : Taxes
Deduct : Minority Interest
Net Profit after tax
Equity Capital
Reserves and Surplus
Tangible Net worth
Minority Interest
Secured Loans
Term loan from Bank/FI
Lease/HP
Working Capital
Debentures
Others (Mob. Advances)
Unsecured Loans
Promoters /Directors

No of clients completed
Rs. Lacs
2013-14
12 months
Audited
Consolidated

0.00

0.00
0.00

0.00

0.00
0.00

0.00

Rs. Lacs
2012-13
12 months
Audited

Rs. Lacs
2011-12
12 months
Audited

1,43,086.71
1,46,260.81
-3,174.10
3,708.13
4,047.62
-10,929.85
3,804.52
-7,125.33
6.00

1,44,585.11
1,42,497.81
2,087.30
3,095.23
4,745.25
-5,753.18
918.37
-4,834.81
-191.97

-7,131.33
1255.25
19,182.27
20,437.52

-4,642.84
1255.25
26,315.27
27,570.52

47,132.05
6,298.09
219.08
20,130.45
0.00
20,484.43
752.14
752.14

46,912.75
4,780.81
399.84
19,649.19
0.00
22,082.91
0.00
0

26

From Others (mostly banks)

Sundry Debtors
O/s less than 6 months
O/s 6 months & above
Fixed Assets
Tangible assets
Intangible assets
Capital WIP
Intangible assets under development
Goodwill on consolidation
WORKING CAPITAL DATA
Cuurent Assets
Current Investment
Inventories
Trade recevibales
Cash and bank balance
Short term loans and advance
Other curerent asset
Others
Total
Current Liabilties
Short Term Borrowings
Trade payables
Other current liabilties
Provisions
Others
Total
Ratios :
Growth In Turnover
Growth in EBIDTA margin
Growth in PAT Margin
EBIDTA %
PBT %
PAT %
ROCE (%)
Interest Coverage ratio
DER
Long term Debt / Equity Ratio
Networth
Total Debt
Gross Cash Accruals
Term Liabilties/ cash accruals
Increase in (debtors + WIP/ Inventories) /
Cash Accruals
Debtor days
Raw Material Days
WIP Days
Creditor days
Operating cycle (days)
Current ratio
Quick ratio
Order Book/ Turnover

0.00
36,035.32
21,571.92
14,463.40
20,177.07
15,769.29
88.30
160.01
4,021.47
138.00

0.00
39,615.12
27,654.29
11,960.83
22,716.68
19,315.95
79.94
3,182.79
0.00
138.00

0
16720.62
42130.61
8618.47
2894.44
351.1

200
22208.27
45310.19
4941.01
2779.52
383.86

70715.24

75822.85

20882.59
30685.95
27637.28
55.62

19649.19
33768.28
30551.69
60.63

79261.44

84029.79

2013-14

2012-13

2011-12

0.00

0.00

Performance / profitability Ratios

Coverage Ratios

Cash Ratios + Working Capital Ratios

Book Order/ Turnover ratio

27

This is the attachment of excel sheet to show the recording process of 47 companies for
analysis of their financial and analysis of their ratios. I have taken the data of 2012, 2013 and
2014 to interpret the trend of financial of companies as well as trend of ratios in three
consecutive years.

Conclusion

Conclusion of this ratio analysis of we come to know about the financial condition of
the companies.
With the data collection process we come to know about the different segments in
which companies order books are distributed.
This research helped me to understand about the companies project segments

28

Chapter-5
Choice of data analysis technique
Financial analysis is the process of determining the operating and financial characteristics of
a firm from accounting data and financial statement. The goal of such analysis is to determine
efficiency and performance of the firm management, as reflected in the financial records and
reports. Its main aim is to measure the firm's liquidity, profitability and other indications that
business is conducted in a rational and orderly way. Here ratio analysis is taken as the
primary tool for examining financial position of manufacturing and infrastructure companies.
There are two views points in receiving and evaluating financial data:
EXTERNAL ANALYSIS
This is performed by outsiders to the firm such as creditors, stock holders, or investments
analysis. It makes use of existing financial statements and involves a limited access to
confidential information on a firm.
INTERNAL ANALYSIS
Financial statement contains a wealth of information which, if properly analyzed and
interpreted, can provide valuable insights in to firms performance and position. Financial
statement analysis may be done for a variety of purpose, which may range from simple
analysis of the short term liquidity position of the firm to comprehensive assessment of the
strengths and weaknesses of the firm in various areas. The principle tool for financial
statement analysis is Financial Ratio Analysis. A ratio is an arithmetical relationship between
two figures. Financial ratio analysis is a study of ratios between various items or groups of
items. Financial ratios have been classified as follows:
TYPES OF FINANCIAL RATIOS
LIQUIDITY RATIOS
ACTIVITY RATIOS
LEVERAGE RATIOS
PROFITABILITY RATIOS

29

LIQUIDITY RATIOS
Liquidity refers to the ability of the firm to meet its obligations in the short run, usually one
year. Liquidity ratios are generally based on the relationship between current assets and
current liabilities (the sources for meeting short-term obligations).
My research is based on the liquidity ratios like- Current ratio
-Quick ratio
-Cash ratios

LEVERAGE RATIOS
Financial leverage refers to the use of debt finance. While debt capital is a cheaper source of
finance, it is also a riskier source of finance. Leverage ratios helps in assessing the risk
arising from the use of debt capital.
I have done research on the basis of leverage ratios: - Debt ratio
-Debt to equity ratio
ACTIVITY RATIOS
They are also called Turnover ratios or Asset management ratios. They measures how
efficiently the assets are employed by the firm. These ratios are based on the relationship
between the level of activity and the level of various assets.

30

Activity ratio in this reports are: - Debtors Days

-Inventory Days
PROFITABILITY RATIOS
Profitability reflects the final result of business operations. There are two types of
profitability ratio. Profit margin ratios and rate of return ratios. A profit margin ratio shows
the relationships between profit and sales. Rate of return reflects the relationship between
profit and investment.
Profitability ratios are: - Profit after tax ratio
-Earnings before interest and taxes.
Ratios : Trends and Interpretation
Out of the 65 companies who are listed and which are in the infrastructure domain, analysis
has been carried on 47 entities at the consolidated level. The remaining 19 companies were
rejected on the basis of non availability of information and their scale of activities which
were minimal and hence unable to contribute any significant changes to the overall analysis.
The 47 companies identified for our analysis are as below:
Ahluwalia
Contracts
Private
Limited
Ashoka Buildcon
Atlanta Limited
IRB InfrastructureDevelopersLtd
B L Kashyap and Sons
ITD Cementation India Limited
J Kumar Infraprojects Limited
Supreme Infra India Limited
Engineers International Limited
ERA INFRA
Garnet Construction Limited
Jaypee Infra
JMC Projects Limited
KNR Construction Limited
SPML
GPT infraproject Limited
UNITY INFRAPROJECT
Valecha
Punj Lloyd
CCCL Infra
CHD developers Limited
Gayatri Projects Limited

Noida Toll Bridge

Reliance Ind Infra Ltd
Patel engg
Madhucon
GMR
C&C
MBL Infra
IL&FS
GammonIndia
Unitech
Gammon Infrasructure
RPP Infra
IVRCL
Lanco
Prakash Limited
Pratibha
Jai Hind
JaiPrakash associates
Mukund Ltd
NCC
Sadbhav
Simplex Infra
31

PBA Infrastructure Limited

Ramky Infra

Simplex Project

Performance / profitability ratios:

Turnover:
Turnover growth
Above 20%
10%-20%
5%-10%
0%-5%
Positive Growth
-5%-0%
-10% - -5%
-20% - -10%
Below 20%
Negative Growth
Grand Total

FY13
14
7
5
4
30
5
2
5
5
17
47

FY 14
7
8
6
4
25
6
4
5
7
22
47

Table 1. Turnover growth

Below 20%
-0.05
FY 14

Positive Growth

FY13

5%-10%
Above 20%
0

10

20

30

40

Interpretation:
Turnover, or the top-line of a company indicate the overall scale of operations undertaken by
the entity. As per the table above, 30 out of 47 companies registered a positive growth, while
the rest registered a de-growth in FY13 compared to its previous fiscal. In FY 14, only 25 of
the 47 companies registered growth in top-line, while 22 remained stagnant or witnessed
negative growth. While the number of companies which had shown 0%-10% growth 10%
growth fell from 21 to 15 during this period. The above analysis clearly indicates that the
companies had entered into a phase of stagnation or declining scale of operations.

32

EBDITA:
EBDITA
(no
of
clients)
FY12
FY 13
Negative
1
Positive
47
46
Grand Total
47
47
Table 2: EBIDTA Profile (Nos of clients)
EBDITA range
FY 12
FY13
Above 25%
9
10
20%-25%
2
3
15%-20%
8
8
10%-15%
14
13
5% -10%
11
5
0%-5%
3
7
Negative
1
Grand Total
47
47
Table 3: EBIDTA Range (Nos of clients)

FY 14
3
44
47
FY14
10
4
3
16
5
6
3
47

Interpretation:
EBDITA (Earnings before Depreciation, Interest, taxes and Amortization) is indicator of
companies operational efficiency. While there were no companies which were booking
operational losses in Fy12, the number of companies increased to 1 in FY 13 and further to 3
in FY 14.
The EBDITA Range table indicates that the number of clients which were above 15% were
around 21 in FY 13, which fell to 17 in FY14. The overall table indicates that during this
period, there has been a general trend of the companies falling to their immediate lower
range.

33

Profit After Tax:

PAT
FY12
Negative
12
Positive
35
Grand Total
47
Table 4: PAT Profile (Nos of clients)

FY 13
11
36
47

FY 14
18
29
47

PAT %
FY 12
0-5%
19
10% -15%
5%-10%
10
Above 15%
6
Negative
12
Grand Total
47
Table 5: PAT Range (Nos of clients)

FY13
25
6
5
11
47

FY14
17
2
6
4
18
47

Interpretation:
PAT ratios indicate the remaining profit after all costs of production, administration, and
financing have been deducted from sales and income taxes recognized. In our analysis we
found that in the year of 2012 there were 12 companies whose PAT which drastically
increased to 18 by 2104, an increase by 50%. The EBDIAT margins, as shown in the
previous section, had remained more or less stable, while the PAT margins have tumbled.
This clearly indicates that during this period, while many of the companies were maintaining
their technical and administrative costs, it was on account of higher depreciation and higher
interest outgo, owing to higher debt availed by these companies, which led to the companies
profits margins shrinking and booking net losses.

Cash profits:
Cash profits
FY 12
Negative
3
Positive
44
Grand Total
47
Table 6: Cash Profits Range (Nos of clients)

FY 13
8
39
47

FY 14
12
35
47

Interpretation:
Cash profits of a company, which is one of the main components which is studied by the
NBFCs before advancing credit, gains significance due to the fact that the debt of the
companies are actually repaid out of cash generated. Hence, Cash vis-avis the term liabilities
is one of the major ratios studied by the NBFCs for arriving at a credit decision. In FY13,
only 3 companies were having cash losses, which gradually increased to 12 by FY14. With
reduced PAT margins and 18 companies in FY14 who booked losses as shown in the table
above, only 6 companies were able to make cash profits owing to depreciation, which is a
non-cash expenditure.
34

Interest Coverage Ratio:

ICR
FY12
Above 2
13
1.5- 2
10
1-1.5
9
Less Than 1
14
NA
1
Grand Total
47
Table 7: ICR Range (Nos of clients)

FY 13
9
8
8
21
1
47

FY 14
7
6
5
28
1
47

Interpretation:
Interest coverage ratios indicate that how easily a company can pay interest on outstanding
debt. An interest coverage ratio below 1 indicates that company is not generating sufficient
revenues to satisfy interest expenses. We have set the range to see how many companies fall
in the given range so that we can analyse that which company have good capacity to pay of
its interest on outstanding debt. As per our calculation we can see in the year of 2012, 13
companies are falling in the range of above 2 but the in the year of 2013 and 2014 the number
of companies which are falling in the range of 2 are decreasing to 9 then 7.

Debt Equity Ratio:

DER
FY12
0-0.5
7
0.5- 1
4
1-1.5
4
1.5-2
11
2-3
10
Total
36
3-5
7
5-7
2
Above 7
2
Total
11
Grand Total
47
Table 8: DER Range (Nos of clients)

FY 13
6
4
3
5
14
32
6
5
4
15
47

FY 14
5
5
3
7
7
27
11
3
6
20
47

Interpretation:
DEBT EQUITY RATIO is financial liquidity ratio that compares a companys total debt to
total equity. It shows the percentage of company financing that come from creditors and
investors. A higher debt to equity ratio indicates that more creditor financing is used than
investor financing. As per our analysis in the year of 2012, 36 companies had positive debt to
equity ratio that mean they were using debt money more than investor financing. But in the
year of 2013 and 2014 number of companies which have positive debt to equity ratio has
decreased to 32 and then 27.

35

In the year of 2012 number of companies which have negative debt to equity ratio was 11 but
in the year of 2013 it was increased to 15 and in the year of 2014 it become 20. That simply
indicates that more and more companies are facing negative debt to equity ratio profile.

Long Term Debt/ Tangible Net Worth:

Row
Labels
0.5- 1
0-0.5
1.5-2
1-1.5
2-3
3-5
5-7
Above 7
GranTotal

FY 13
FY 12
12
10
12
13
3
4
8
5
3
4
6
6
1
1
2
4
47
47
Table 9: LTD/TNW Range (Nos of clients)

FY 14
10
11
4
4
5
4
5
4
47

Interpretation:
Long term debt to tangible net worth ratio is a derivative of the debt to equity ratio. Normally
equity represent s both tangible and intangible assets. In this report we can see that in the year
of 2012 there were 12 companies whose long term debt to equity ratio was in the range of 0.5
to 1 but in the year of 2013 and 2014 number of companies decreased to 10 and we can also
see that in 2012 only 2 companies were in the range of more than 7, in the year of 2013 and
2014 there were $ companies which are in the range of 7. Higher the ratio, greater the
companies leverage. Higher value of ratio is indication of risky firm.

Total Liabilities/ Cash accruals:

Total liabilities/Cash accruals
0.5- 1
0-0.5
1.5-2
1-1.5
2-3
3-5
5-7
Above 7

FY 14
1
15
2
3
1
2
1
22

FY13
3
10
3
1
0
1
3
26

FY 12
2
6
2
0
3
6
3
25

Grand Total
47
47
47
Table 10: TOTAL LIABILITIES/CASH ACCRUALS Range (Nos of clients)

36

Interpretation:
The total liabilities to cash accruals ratio indicates the level of cash accruals from the
companys operation in relation to its total outstanding debt. In this report we can see that in
the year of 2014 there was only 1 company which is in the range of 0.5 to 1 but in the year of
2013 and 2012 number of companies were 3 and 2. We have set the range to see how many
companies fall in the given range.

Debtor days:
Row Labels
FY 12
Less than 3 months
18
3 months to 6 months
20
6 months to 9 months
5
9 months- 12 months
2
greater than 1 year
2
Grand Total
47
Table 11: DEBTOR DAYS Range (Nos of clients)

FY 13
22
18
3
1
3
47

FY 14
24
16
2
1
4
47

Interpretation:
DEBTOR DAYS is the average number of days required for a company to receive payment
from its customers for invoice issued to them. The lower the number of debtor days, the
better and high figure indicates inefficiency and potential bad debts.
As per our calculation in the year of 2012 there was 18 companies whose debtor collection
period was less than 3 month, in the year of 2013 there was 22 companies whose debtors
collection period was less than three month and in the year of 2014, there was 24 companies
whose debtors collection period was less than three month.
Method of calculating Debtors days = AVG debtors/net sales* 365 days

37

Raw Materials:
Row Labels
FY 12
FY 13
Less than 3 months 42
41
3 months to 6
months
4
5
6 months to 9
months
1
1
Grand Total
47
47
Table 12: RAW MATERIAL Range (Nos of clients)

FY 14
39
7
1
47

Interpretation:
Raw material days of a company indicate the time it takes for the company to convert its raw
material into finished product. Generally low figure indicate good sign of sales.
Method of calculating Raw material days are: - Average Raw Material/ Cost of good solid
*365
Here we can see that in the year of 2012, 42 companies were converting their raw material
into finished product in less than 3 month but trend is decreasing in the year of 2013 & 14. In
2013, 41 companies were converting their raw material into finished product and in the year
of 2014 only 39 companies were converting their raw material in three months.
We can also see that in the year of 2012 there was only 1 company which is converting its
raw material into finished product in 6 month to 9 month and the trend was same in 2013 &
2014.

WIP days:
Row Labels
FY 12
Less than 3 momths
25
3 months to 6 months
10
6 months to 9 months
3
9 months- 12 months
5
greater than 1 year
4
Grand Total
47
Table 13: WIP DAYS Range (Nos of clients)

FY 13
25
10
2
6
4
47

FY 14
24
6
4
6
7
47

Interpretation:
Work in progress days indicate the time it takes for the company to convert its all materials
and partly finished products that are at various stage of the production process into finished
product.
As per our calculation we can see that In the year of 2012 &13 there was 25 companies
whose WIP Days were less than three month that mean they are able to convert their
unfinished product into finished product in less than three month period and there was 24
companies in the year of 2014 whose WIP days were less than three month.

38

Creditor days:
FY 13
Row Labels
FY 12
Less than 3 months
28
28
3 months to 6 months
17
17
6 months to 9 months
2
1
Greater than1 year
1
Grand Total
47
47
Table 14: CREDITORS DAYS Range (Nos of clients)

FY 14
25
18
3
1
47

Interpretation:
The creditor day estimates the average time it takes a business to settle its debts with trade
suppliers. The ratio is a useful indicator when it comes to assessing the liquidity position of
the business.
Creditor Days:- Trade payables/ cost of sales* 365
As per our calculation in the year of 2012 & 2013 there was 28 companies whose creditors
days were less than 3 month that mean they were paying their dues in less than three month
but in the year of 2014 there was 25 companies whose creditors days were less than 3 month.

Operating Cycle days:

FY 13
Row Labels
FY12
Less than 3 months
17
17
3 months to 6 months
10
10
6 months to 9 months
10
8
9 months- 12 months
3
5
greater than 1 year
7
7
Grand Total
47
47
Table 15: Operating Cycle days Range (Nos of clients)

FY 14
14
8
6
6
13
47

greater than 1 year

9 months- 12 months
FY 14
6 months to 9 months

FY 13

3 months to 6 months

FY12

Less than 3 months

0

39

10

12

14

16

18

Interpretation: The operating cycle is the average period of time required for a business to
make an initial outlay of cash to produce cash to produce goods, sell the goods, and receive
cash from customers in exchange for the goods. Here in this table we can see that in the year
of 2012 and 2013 there was 17 companies whose operating cycle days were in the range of
less than 3 month and in the year of 2014 three were 14 companies range which are in range
of less than 3 month that mean these companies are able to maintain their total operating
cycle period of business within three months. If the company is in the range of less than three
month period that mean company is successful in maintaining its inventory days with sales
days. According to this table we can also observe that there were some companies whose
operating days are more than 1 year like we can see that in the year of 2012 and 2013 there
was & companies whose operating cycle days were more than 1 year.

Formula of calculating operating cycle:

Operating cycle days=Debtors days+ Inventory days-Creditor days
IDW/ Cash:
Row Labels
0% - 25%
25% - 50%
50% - 75%
75% - 100%
cash accrual negative
More than 100%
Reduction in IDW
Grand Total
Table 16: IDW/CASH Range (Nos of clients)

FY 13
8
2
8
18
11
47

FY 14
4
1
1
1
12
15
13
47

Interpretation: IDW/Cash ratio indicates the effectiveness of business in utilizing its

working capital blocked in debtors. It also indicates the frequency of conversion of
receivables into cash in a given financial year. This ratio comments on the liquidity of
receivables of the business. In the year of 2013 there was * companies which were in the
range of 0 % to 25% and in the year of 2014 there was 4 companies which were in the range
of 0% to 25%.

40

Current ratio:
Row Labels
1 - 1.33 times
1.33 - 1.5 times
1.5 - 2 times
Greater Than 2times
Less than Unity
Grand Total
Table 17: Current Ratio Range (Nos of clients)

FY 12
11
3
7
1
25
47

FY 13
11
5
5
1
25
47

FY 14
13
3
4
2
25
47

Less than Unity

Greater Than 2times
FY 14
1.5 - 2 times

FY 13

1.33 - 1.5 times

FY 12

1 - 1.33 times
0

10

15

20

25

Interpretation:
The current ratio is the measure of whether a company has enough short term assets to cover
its short term debt. A ratio of greater than one means that the company has more current asset
than current claims. It indicates the liquidity of the company. Higher the ratio, the better the
financial position of the company.
We have set the range to see how many companies fall in the given range and how many
companies have good liquidity position.
As per our calculation most of the company fall in the range of less than unity. That mean
their current ratio is less than 1. If the current ratio is less than 1 it shows critical liquidity
problems because it mean total liabilities exceed total current asset. In the year 2012, 2013 &
2014, 25 companies are in the range of less than unity. That indicates their current liabilities
exceed total current assets.

41

Findings and Remarks

CORRELATION ANALYSIS:
With a view to analyze how different financial parameters affected the debt servicing ability
of these infrastructure companies, the four major indicators, indicating the debt servicing
ability of a company had been identified as below:

1. EBDITA (%):

This ratio, as shown earlier, depicts the operational efficiency of a company. This
ratio is relatively less affected by the level of debt levels of a company, as this not
take into account interest expenses. The rationale of taking this ratio is to identify
whether the operational efficiencies of the companies have shown any relation to the
other activities of the companies.
2. Cash :

One of the most important factors NBFCs look into to determine the financial health
of a company is its cash generation level.
3. Term Liabilities/ Cash:

This ratio gives an indicate on of how many years would it take to repay the existing
term liabilities of a company and is a strong indicator of whether the company has
adequate cash levels to service the existing and proposed debt.

4. Interest Coverage Ratio:

Finally, this ratio indicates whether the company will default in its obligations,
including interest.

Correlation of these financial parameters have been plotted against 4 factors year on year
and presented in the table below. These 4 factors are:
A)
B)
C)
D)

Debt Equity ratio:

Debtor days:
Credit days:
Current ratio:

42

EDBITA
(%)

DER
Debtor days
Creditor days
Current ratio

FY 13-14
-0.14
0.02
-0.38
0.06

FY 12-13
-0.14
-0.23
-0.45
-0.09

FY 11-12
-0.12
0.17
-0.23
-0.09

Remarks:

Cash

The creditor days have the largest negative and consistent correlation with the EBDIAT
margins. This indicates that as the credit cycle of these companies have increased, the
EBDITA margins have decreased or vice/ versa. The negative co-relation was even more
evident during FY 13 and FY14 compared to the other factors. This clearly indicates
that with deteriorating creditors structure, the operational efficiencies of the
companies have suffered.
DER
Debtor days
Creditor days
Current ratio

-0.28
-0.13
-0.27
0.07

0.08
-0.23
-0.24
-0.02

-0.03
-0.16
-0.13
-0.01

Remarks:

Term
liabilities/
cash

The cash generation level of the companies has shown the most consistent relation, albeit
negative, with the creditors cycle amongst all other factors. Higher the creditor days,
lower have been cash generation levels of these companies during the period under
review.
DER
Debtor days
Creditor days
Current ratio

0.19
-0.02
0.14
-0.09

0.44
0.01
-0.01
-0.03

-0.03
0.06
0.08
-0.21

Remarks:

Interest
Coverage
ratio

The term liabilities/ cash generation ratio did not show any significant relationship with
any of the factors, however, even amongst them, the creditor days had the highest
positive relationship. A longer credit days was an indicator of deteriorating TL/ cash
ratio.
DER
Debtor days
Creditor days
Current ratio

-0.25
-0.14
-0.49
0.24

0.01
-0.11
-0.35
0.51

-0.21
-0.08
-0.18
0.34

Remarks:
The creditor days, once again, had the highest negative relationship amongst all the
factors. During this period, longer the credit days, lower had been the interest coverage
ratio.
43

Inference: Amongst all the factors which could have shown or indicated the debt
servicing ability of the companies, the creditors cycle had been the most consistent and
effective indicator of the state of affairs of the company.

As per our calculation of ratios and correlation we can observe that most of the
companies are facing the problem of liquidity stress. But there are some
companies which are successful in maintain their profit margin from 2012 to
2014. The name of that companies which are the able to maintain their position
are:
1.MBL INFRA
2.ATLANTA LIMITED
3.UNITECH
4.IRB INFRA DEVELOPERS LIMITED.
5.GAMMON INFRASTRUCTURE
6.ITD CEMENTATION
7.CHD DEVELOPERS
8.J KUMAR INFRA
9.GMR
10.KNR
These are the 10 companies out of 47 companies of infrastructure and manufacturing
companies which are in able to maintain their liquidity position in the market. After
analyzing the performance of these companies and after the observation of their past data of
year 2012,2013 and 2014 we can say that providing loan to these companies is easy and less
risky for the organization.
There are also some companies which are facing the liquidity stress and are not able
to maintain their liquidity stress after my calculation of ratios I come to know about these
companies and according to my observation lending money to these companies could be the
high risk for the organization.
1.GAMMON INDIA
2.CCCL INFRA
3.RAMKY INFRA
4.ERA INFRA
5.LANCO
6.GAYETRI PROJECT
7.GARNET CONSTRUCTION LIMITED
These are the companies which are very in very liquidity risk. Lending or providing credit to
these companies can be very risky for the organization. By observing their past performance I
come to know that these companies are high debt and are not able to come out from there
debt burden and also these companies are approaching for CDR that is corporate debt
restructuring to the banks to restructure the period of their loans.

44

Chapter-6
Recommendation:
In view of the above mentioned analysis, it is imperative to give more importance to the
overall working capital ratios, particularly the creditors cycle, as it had been the most
effective indicator for judging the debt servicing ability of the companies. In view of the
above, it is recommended to undertake and give more importance on the following factors
relating to the creditors as listed below:

I.

Creditors aging:
Like debtors aging indicating the time frame, it is important to know the key creditors
of a company and their aging. Companies with high creditors aging ultimately renders
and affects the operational efficiency of the company and may render the company
strained of liquidity. Companies with fast rotating creditors are always preferred.

II.

Nature of the Creditors:

It is of prime importance to judge the nature of the creditors, i.e. whether the creditors
are for daily procurement of raw materials, or whether they are for capital
expenditure. Long cycle for capital expenditure indicates strains in the overall
liquidity in the system.

III.

Quality of the creditors:

Though not always readily available, the quality of the creditors gives an indication
of the quality maintained by the client for their products.
IV.

Profitability Analysis:

Profitability analysis of companies should contain the information of the cash flow
coming from anew project.
V.

Analysis of Current scenario:

As per our calculation we can see most of the companies are facing the problem of
liquidity stress. So before providing credit to that company it is necessary to check the
environment status of that company.

45

VI.

VII.

Risk analysis:
As per our calculation we can see that most of the companies have liquidity stress
problem so providing loan to that company is risk for the organization. Company
should apply the risk measurement tools for the safe lending.
Past performance of the companies:
As we can see that most of the manufacturing and infrastructure companies are in
deteriorate stage. Analysis of past performance will help to forecast companies future
performance.

VIII.

There is need to access to market information about the companies.

46

Chapter-7
Learning Outcomes
Two month of training, developed a comprehensive understanding of how financial statement
of companies are observed. The various annual reports and the mentor guidance on various
observation tools made this comprehensive study more understandable.
Learned how to read annual reports of companies.
Learned how to use the information through those reports accurately and discover the
skill to make that information for effective decision making.
Used various financial ratios to analyse trends and making a comparative study.
The best part of this internship is that I come to know how to relate the situation of the
company with its current scenario.
Learned the work culture and also how to meet deadlines on time.
Exposure of the credit appraisal, earned various terminologies used in the finance
This two month training gave me the exposure of work culture of corporation. How
the theoretical knowledge is applied in real world. It is very important to know how
general concepts of finance is important to analyse the information.

Limitation of the project

There were some limitations faced to prepare this report.

1. The training time was for 2 month only in which it was not possible to cover all the
important points related to the project.
2. The method of collection of data was through the annual reports of the client so the
study is based on the theoretical data only.
3. Ratio and correlation techniques were used in this report which is not sufficient to
analyse such a big project.
4. Order book of companies was not mentioned in their annual report so it was difficult to
understand their order size.
5. Due to the continuous change in the rules and regulations of the RBI for the NBFC
companies it was not possible to connect all the practical scenario
6. It was difficult to understand the trend of the companies due to frequent changes in
their financials.
7. With the help of the ratios we cannot predict future of the company.

47

Scope for the further work

There could have been some further scope in the area of credit lending to companies which
are facing liquidity stress problem. The Indian non-banking and banking system has been
seen structural improvements during the last few years, including improved solvency and
better risk management systems. Increasing complexities of the lending business and growing
competition among NBFCs reinforces the need for the stronger risk and credit assessment
policy for the companies in liquidity risk.
A well developed and implemented credit appraisal to the companies which are debt will
result in
Growth of the NBFCS
Growth of the manufacturing and infrastructure sector
Help the company to reduce their NPA and improve the quality of their
asset.

48

Conclusion
If properly analyzed and interpreted, financial statements can provide valuable insight into a
firms performance. Analysis of financial statements is of interest to lenders (short term as
well as long term). I have studied the annual reports of 47 manufacturing and infrastructure
companies.
The working capital cycle of a company, particularly the creditors, indicated stress related to
servicing of debt of the infrastructure companies during the period FY 12- FY14.

1. Operating cycle of the company, which may decline owing to high creditor days, may
not always indicate adequate liquidity in the system. Sometimes the creditors are high
owing to non payment, as had been the case of most of the infrastructure companies,
it is safe to assume that the companies do not have adequate liquidity to pay off their
immediate dues. With funds in the form of debtors being stuck up and realisation of
the same coming into question, along with the fact that the banks are unwilling to
renew WC Limits and profits drying up, no other sources of funds are available to pay
off the creditors.
2. Apart from other ratios, a deeper analysis of the creditors is a must to understand the
overall liquidity present within the system.

49

Bibliography
Annual report of the companies 2012,2013 and 2014
www.bseindia.com,
www.nseindia.com,
www.moneycontrol.com etc for FY 14, FY 13 and FY 11.
http://www.srei.com/

50

Appendices

51