Microeconomic Analysis of Ballarpur Industries Limited

GROWTH EXECUTION SUSTAINABILITY
ANALYSIS REPORT 2005-2010 2010
Microeconomic November 15 Analysis of Ballarpur Industries 2011 Limite Limited

Microeconomics is the study of specific individual units; particular firms, particular households, individual prices, wages, individual industries particular commodities. The microeconomic theory or price theory thus is the study of individual parts of the economy. In microeconomic analysis we study the demand analysis ( derive the market demand for a g good), cost analysis, production function and the market structure of an individual firm Demand Analysis Cost Analysis Production Analysis Market Structure
Submitted By: Nipun Goyal Ist Semester, MBA - Gen Section A University Business School
I TRODUCTIO : I DIA PAPER I DUSTRY

he Indian Paper Industry is a booming industry and is expected to grow in the years to come. The Indian Paper Industry is among the top 15 global players today, with an output of more than 6 millions tones annually with an estimated turnover of Rs. 150,000 millions. (approx. USD 3400 million).Paper Industry in India is riding on a strong demand and on an expanding mood to meet the projected demand of 13 million tonnes by 2020.A large number of expansion programme & expansion of capacities with an outlay of Rs. 10,000 crores have been announced covering the various sectors like paper, paperboard, newsprint etc. The paper industry is regarded as one of the core sectors in India. The industry is estimated to grow at 7-8% compounded rate until 2010. With over 600 mills in India, only few are government owned, making it a largely private sector. Currently, the total paper market is worth around RS 200 billion. Nineteen companies members of Indian Paper Manufacturer's Association (IPMA), who control over 55% of the total aggregate industry revenue will conjointly commit Rs 2.5 billion in the next two or three years to expand additional 2 million tonnes of capacity and improve cost competitiveness. The new millennium is going to be the millennium of the knowledge. So demand for paper would go on increasing in times to come. In view of paper industry's strategic role for the society and also for the overall industrial growth it is necessary that the paper industry performs well. Government has completely delicensed the paper industry with effect from17th July, 1997. The Paper industry is a priority sector for foreign collaboration and foreign equity participation upto 100% receives automatic approval by Reserve Bank of India. Several fiscal incentives have also been provided to the paper industry, particularly to those mills which are based on non-conventional raw material. The usage of paper cannot be ignored and this awareness is bound to bring about changes in the paper industry for the better. It is a well known fact that the use of plastic is being objected to these days. The reason being, there are few plastics which do not possess the property of being degradable, as such, use of plastic is being discouraged. Excessive use of non degradable plastics upsets the ecological equilibrium. (Indian Paper Industry/Paper Watch n.d.)
Microeconomic Analysis of Ballarpur Industries Limited,
Year: 2005-2010 1
What keeps the Indian Paper industry rolling?

n order to keep the Indian Paper industry rolling, the foremost thing which must be kept in mind is the availability of the raw materials. Every possible effort is to be made to take India at par with the other paper industries of the world. Application of paper is varied and one cannot think of a life without paper. The raw materials need to be of good quality. There should be enough modernized techniques to carry out production. Reducing costs should be accompanied by low cost of production. Policies should be implemented to bring about optimum production. Softwood producing wood fibers make up the main raw material in the manufacturing process worldwide. China and India are excluded from this category. The reason being wood products availability is meager. Instead, straw, bagasse which are obtained as residues from the agriculture industry are used for the production of paper. Indian paper industry uses used paper for the manufacturing of paper after recycling. It has been estimated that around 40% of paper used is recycled.
BILT: Ballarpur Industries Limited
allarpur Industries Limited (BILT) is a flagship of the US$ 4 bn Avantha Group and India's largest manufacturer of writing and printing (W&P) paper. The current chairman of the company is Gautam Thapar.
BILT's subsidiaries include Sabah Forest Industries (SFI), Malaysia's largest pulp and paper company, and BILT Tree Tech Limited (BTTL), which runs BILT's farm forestry programme in several states in India. BILT has six manufacturing units across India, which give the company geographic coverage over most of the domestic market. BILT has a dominant share of the high-end coated paper segment in India. The company accounts for over 50% of the coated wood-free paper market, an impressive 85% of the bond paper market and nearly 45% of the hi-bright Maplitho market, besides being India's largest exporter of coated paper. BILTs acquisition of SFI in 2007 was a watershed event it was the first overseas acquisition by an Indian paper company. This acquisition transformed BILT into a major regional player, and elevated the company's ranking among the global top 100. (Ballarpur Industries Limited n.d.)
Year: 2005-2010 2
DEMA D A ALYSIS Determinants of Demand for Paper

a) Advent of Global Business Houses: The advent of more and more global business houses in different sectors has created more and more need of communication needs. Paper being one of the strongest pillar of any communication, needs have increased many times. Varied applications of the fine paper for annual reports, CSR reports, catalogues, brochures, business cards, carry bags and packaging etc, makes this product extremely important for the corporate world. b) Changing lifestyles: With improving domestic living standards, demand for speciality paper (tissue paper, fine art paper, business card paper and greeting card paper) has increased. Moreover, the bent of young generation towards reading habit has increased the demand of paper. c) Increasing presence of modern retail formats: Opening of realty and retail sectors, have increased the demand of paper and its uses in various type of communication application. Following reasons have also contributed the growing demand for fine paper. The advent of more and more branded paper. The growing acceptance of specialty paper.
d) Government Educational Policies: Demand for writing and printing paper is expected to grow owing to the opening of more schools and colleges, driven by the governments thrust on education sector and overall economic growth. Example: Sarva Shiksha Abhiyaan. e) Packaging industry: The Indian paper industry has close linkages with economic growth as higher industrial output leads to increased demand for industrial paper for packaging, increased marketing spend benefits the newsprint and value-added segments, and increased education and office activities increase demand for writing and printing paper. f) Low per capita consumption: Indias per capita paper consumption grew 10.6% in 2009-10 (from 8.3 kg in 2008-09 to 9.18 kg) compared with 42 kg in China and 350 kg in developed countries (Source: Assocham), implying a large scope for demand. g) Population growth: According to 2011 census of India, Indias population accounts for 17.5 % of the worlds population. India added 181 million to its population since 2001 and it is expected to grow at a very high rate. With the increasing population more paper and paper products will be needed to satisfy the needs of the people. Moreover the average age per person of India is around 26 years which clearly indicates that there would be more demand for education which would further boost the demand for paper. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 3
h) Level of literacy: According to 2011 census of India, literacy rate increased to a total of 74.04% from 64.83% in year 2001, which further indicates that with the increased level of literacy, the demand for paper is expected to rise. i) Growing economy: With the growing economy of India, there will be more demand for paper products as consumers will have higher paying capacity. j) Growing circulation and readership: Owing to the increased level of literacy, the newspaper circulation and readers are also growing at a very high rate. Thus the demand for paper is likely to rise. k) Export opportunity: A number of European and US paper mills are shutting down owing to overcapacity and cost issues, an attractive export opportunity for Indian paper mills. Besides, Indian paper manufacturers, utilising agriculture-based raw material, possess a sustainable growth opportunity on account of growing environment consciousness. For more details please refer to the below:
PAPER S. O TYPE 1 Writing and printing paper
USES Writing, printing, stationery
VARIETIES Creamwove, maplitho, paperboard, copier and coated paper
DEMA D DRIVERS Population growth, level of literacy, public and private spending on education, level of business activity, increasing presence of modern retail formats and growth in the printing industry Growth in the packaging industry, industrial production and development in packaging technology and substitution by other materials
Paperboard
Industrial purpose
Kraft paper, recycled board and virgin board
Speciality paper
Consumption of this paper variety is Tissue paper, fine art Duplex, grey and white board and MG linked to the standard of living as well paper, paper for as per capita income. specialised industrial posters usages such as steel mill kraft, insulation grades, etc Printing of newspapers and magazines Glazed and standard paper Growing economy, growing circulation and readership
Newsprint paper
Year: 2005-2010 4
REGRESSIO A ALYSIS
egression analysis is a statistical tool for the investigation of relationships between variables. Regression analysis includes any techniques for modeling and analyzing several variables, when the focus is on the relationship between a dependent variable and one or more independent variables. More specifically, regression analysis helps one understand how the typical value of the dependent variable changes when any one of the independent variables is varied, while the other independent variables are held fixed. Regression analysis is widely used for prediction and forecasting, where its use has substantial overlap with the field of machine learning. Regression analysis is also used to understand which among the independent variables are related to the dependent variable, and to explore the forms of these relationships. In restricted circumstances, regression analysis can be used to infer causal relationships between the independent and dependent variables.
A large body of techniques for carrying out regression analysis has been developed. Familiar methods such as linear regression and ordinary least squares regression are parametric, in that the regression function is defined in terms of a finite number of unknown parameters that are estimated from the data. onparametric regression refers to techniques that allow the regression function to lie in a specified set of functions, which may be infinitedimensional.
Linear Regression
inear regression is an approach to modeling the relationship between a scalar variable Y and one or more variables denoted X. In linear regression, data are modeled using linear functions, and unknown model parameters are estimated from the data. Such models are called linear models. The various regression equations which can be used for forecasting exercise are: Fitting Simple Linear Regression: In this case a straight line is fitted to the data containing one dependent variable and only one independent variable, e.g., Sales = a + b*(Price) Fitting of the straight line can be done by following methods: i. ii. i. Graphical Method Least Squares Method Graphical Method: In graphical method, we plot the sets of data of the two variable (dependent and independent variable) on the graph and a line is drawn through all the points. Thereafter, the movement of the series is assessed and future values of the variable are forecasted.
Year: 2005-2010 5
Figure 1.0 shows how to project trend by graphical method, using the figures on sales for paper products from the numerical example of Ballarpur Industries Limited cited below: Bilt Sales (In Rs. crs..) 1578 1553 2146 2280 2011 2085 2376 1050 1076 1,100.00
Year 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2800 2280 2146 2011 2000 1578 1600 1076 1100 1553 2085 2376
2400
1200
1050
800
400 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Figure 1.0 Graphical Trend
ii.
Least Squares Method Least squares estimation is a powerful tool to estimate Method: the coefficients of a linear function. It is based on the minimisation of squared deviations between the best fitting line and the original observations given. In this method, we fit the data on demand and time in the form of equations and then demand Microeconomic Analysis of Ballarpur Industr Limited, Industries Year: 2005-2010 6 2005
project the demand for the future period. These equations are termed as normal equations and the task of least square method is to find out the values of the coefficients in these equations.
The Equation of the linear trend is given by: Y =a + b X, where a is the intercept of the demand curve, b is the slope of the curve (a and b are known as regression coefficients) and X is the deviation from mean of independent variable. We can find the values of a and b using the normal equations: Y= n.a + bX Y.X= aX + bX2 Let us explain linear trend projection with the help of a numerical example, data being the same as taken in the graphical method: Here n=9, i.e. odd and therefore, we shift the origin to the middle time period, viz., the year 2006.
Computation Of Trend Values (Standalone Data)

Year (t) 2002 2003 2004 2005 2006 2007 2008 2009 2010 BILT Sales (In Rs. Crs) (Y) 1553 2146 2280 2011 2085 2376 1050 1076 1,100.00 Y= 15677 X=t - Middle Pt. -4 -3 -2 -1 0 1 2 3 4 X= 0 X2 16 9 4 1 0 1 4 9 16 X2=60 X*Y -6212 -6438 -4560 -2011 0 2376 2100 3228 4400 X*Y= -7117 Trend Values Y= 1740.77 118.61x 2215.21 2096.6 1977.99 1859.38 1740.77 1622.16 1503.55 1384.94 1266.33
Year: 2005-2010 7
2500 2215.21 2096.6 1977.99 2000 1859.38 1740.77 1622.16 1503.55 1500 1384.94 1266.33
1000
500 2002 2003 2004 2005 2006 2007 2008 2009 2010
The equation for linear trend is given by Y= a + b b.X The normal equations for estimating a and b are: Y= na + bX and Y.X= aX + bX2 -7117= 0 + 60b 7117= b= -7117/60 7117/60 b= -118.61 118.61
15667= 9a + 0 a= 15667/9 a= 1740.77
Solving the normal equations we get a= 1740.77 and b= -118.61 Hence the equation for linear trend is Y= 174 1740.77 + (-118.61)X i.e. Y= 1740.77 118.61X --------------*
Trend values for the years 2002 to 2010 are obtained on putting the value of X corresponding to the given year and have been tabulated in the last column of table drawn above. e Similarly, we can find the estimate sales of the commodity for 2011 and same will be obtained on putting X= 5 in * equation, i.e. Y2011= 1740.77 118.61 X 5 = 1147.72(Rs. In Crores) Microeconomic Analysis of Ballarpur Industr Limited, Industries Year: 2005-2010 8 2005
Ballarpur Industries Ltd. (Consolidated Data) Linear Regression: Income vs Raw Material
All Figures In Billion Rs.. Year 2005 2006 2007 2008 2009 2010 Income (X) 20.2 21.7 25.6 31.9 30 40.3 X= 169.7 Raw Material Expenses (Y) 7.4 8.1 10.3 12.8 13.4 19.2 Y= 71.2 X
2
X.Y 149.48 175.77 263.68 408.32 402 773.76 X.Y= 2173
Trend Values Y= -3.576 + 0.546 X 7.4532 8.2722 10.4016 13.8414 12.804 18.4278
408.04 470.89 655.36 1017.61 900 1624.09 X = 5076

2
25
20
18.4278 19.2
15 10.4016 10 7.4532 7.4 8.2722 10.3 8.1
13.8414
12.804 13.4
12.8
0 2005 2006 2007 2008 2009 2010
ACTUAL RAW MATERIAL EXPENSES (Y)
TREND LINE : Y= -3.576 + 0.546 X
Year: 2005-2010 9
Ballarpur Industries Limited (Standalone Data) Linear Regression: Income vs Raw Material
All Figures In Billion Rs.. Income Raw Material Expenses Year (X) (Y) 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 14.90 14.50 19.90 20.70 18.20 19.10 21.80 10.20 10.70 10.90 X= 161 5 5.03 8.7 9 8.6 8.7 10.20 4.6 5.1 5.12 Y= 70 Trend Values Y= -0.6314 + 0.474 X 6.4312 6.2416 8.8012 9.1804 7.9954 8.422 9.7018 4.2034 4.4404 4.5352
X.Y 74.5 72.935 173.13 186.3 156.52 166.17 222.36 46.92 54.57 55.808 X.Y= 1209
222.01 210.25 396.01 428.49 331.24 364.81 475.24 104.04 114.49 118.81 X2= 2765
12 10.2 10 8 6 4 4.2034 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 ACTUAL RAW MATERIAL EXPENSES (Y) TREND LINE: Y= -0.6314 + 0.474 X 5 6.4312 5.03 6.2416 8.7 8.8012 9 9.1804 7.9954 8.422 4.6 5.1 5.12 8.6 8.7 9.7018
4.4404
4.5352
Year: 2005-2010 10
on Linear Regression
onlinear regression is a form of regression analysis in which observational data are modeled by a function which is a nonlinear combination of the model parameters and depends on one or more independent variables. The non linear equation can take any one of the forms : parabolic, logarithmic, exponential etc. depending on the way the trend of the dependent variable behaves. Fitting on-Linear Regression: Some of the popular methods are the following: i. Logarithmic Model: Y= a.bX Taking logarithm on both sides, we get , Log Y= Log a + X Log i.e. Y1= A + B.X ,where Y1= Log Y , A= Log a and B= Log b Normal Equations for estimating A and B are: Y= n.A + BX X.Y= AX + BX2 We solve these equations to get the value of A and B and finally we get, a= antilog A and b= antilog B. ii. Parabolic Regression Model: Sometimes we need to fit a curved trend line which by a change in variable, could not be reduced to a linear form. The curved line can be second degree polynomial or third degree polynomial etc. Let us assume that it is a second degree polynomial given by the equation: Y= a +b.X+c.X2 The normal equations for calculating a, b and c are: Y= na + bX+ cX2 X.Y= aX + bX2 + cX3 X2.Y= aX2 + bX3 + cX4
Year: 2005-2010 11
iii.
Multiple Regression Analysis: When more than one independent variable is taken in the regression model, we get multiple regression coefficients and equations. A multiple regression model, say for sales, may be stated as:
Sales = a*price + b*advertising + c*income + d*rivals price levels + e*personal disposable income + u, where a, b, c, d and e are the partial regression coefficients which show the effect of corresponding variables on sales. For example, a represents the percentage change in sales as a result of 1% change in price, other things remain constant. Similarly b shows the percentage change in sales as a result of 1% change in advertising outlay and so on. The constant u represents the effect of all the variables which have been left out in the equation but have an effect on sales. In the above equation, sales is the dependent variable and all the variables on the right hand side of the equation are independent variables. If the expected values of the independent variables are substituted in the equation, the sales will be forecasted. The main advantage of this model is that the effect of a large number of variables can be taken into account. Also, this type of model enables the businessman to experiment with what might happen under extreme or unlikely conditions. He might for example, like to find out the effect of doubling of his rivals price, or reducing his own advertising outlay on his total sales. He can simply inject these values into the model and get the required results. Let us explain multiple regression analysis with the help of a numerical example. Income = 0 + 1*Sales + 2*Salaries & Wages + 3*Raw Material Expense + 4*Selling Expense
Year 2005 2006 2007 2008 2009 2010
Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55
Sales 2011.72 2130.23 2531.5 3052.76 2975.03 3986.5
Salaries 105.86 114.3 105.73 34.89 49.12 52.03
Raw Material Expense 740.54 810.04 1029.52 1285.21 1343.3 1920.78
Selling & Dist. Expenses 39.67 37.82 39.35 66.51 70 162.67
Year: 2005-2010 12
Using SPSS software, the above written model i.e : Income = 0 + 1*Sales + 2*Salaries & Wages + 3*Raw Material Expense + 4*Selling Expense Will get reduce to Income = 0 + 1*Sales + 2*Raw Material Expense Now, putting values in the above equation, we get Income = -481.441 + 1.627*Sales 1.020*Raw Material Expense i.e., we can analyze from the above equation that: 1. If sales are increased by 1 unit, then Income will be increased by 1.627 units. 2. If raw material expenses are increased by 1 unit, then income will be reduced by 1.020 units.
Year: 2005-2010 13
COST A ALYSIS
y "Cost" we mean the sacrifice or foregoing that has occurred or has potential to occur in future measured in monetary terms.
The following elements are included in the cost of production: Purchase of raw machinery, Installation of plant and machinery, Wages of labour, Rent of Building, Interest on capital, Wear and tear of the machinery and building, Advertisement expenses, Insurance charges, Payment of taxes, In the cost of production, the imputed value of the factor of production owned by the firm itself is also added, The normal profit of the entrepreneur is also included in the cost of production. The different types of costs are: a) Actual Cost: Actual cost is defined as the cost or expenditure which a firm incurs for producing or acquiring a good or service. The actual costs or expenditures are recorded in the books of accounts of a business unit. Actual costs are also called as "Outlay Costs" or "Absolute Costs" or "Acquisition Costs". Examples: Cost of raw materials, Wage Bill etc. b) Opportunity Cost: Opportunity cost is concerned with the cost of forgone opportunities/alternatives. In other words, it is the return from the second best use of the firms resources which the firms forgoes in order to avail of the return from the best use of the resources. It can also be said as the comparison between the policy that was chosen and the policy that was rejected. The concept of opportunity cost focuses on the net revenue that could be generated in the next best use of a scare input. If a firm owns a land, there is no cost of using the land (i.e., the rent) in the firms account. But the firm has an opportunity cost of using the land, which is equal to the rent forgone by not letting the land out on rent. c) Sunk Cost: Sunk costs are those do not alter by varying the nature or level of business activity. Sunk costs are generally not taken into consideration in decision making as they do not vary with the changes in the future. Sunk costs are a part of the outlay/actual costs. Sunk costs are also called as "Non-Avoidable costs" or "Inescapable costs". Examples: All the past costs are considered as sunk costs. The best example is amortization of past expenses, like depreciation. d) Incremental Cost: Incremental costs are addition to costs resulting from a change in the nature of level of business activity. As the costs can be avoided by not bringing any variation in the activity in the activity, they are also called as "Avoidable Costs" or "Escapable Costs". More ever incremental costs resulting from a contemplated change is the Future, they are also called as "Differential Costs" Example: Change in distribution channels, adding or deleting a product in the product line. e) Explicit Cost: Explicit costs are those expenses/expenditures that are actually paid by the firm. These costs are recorded in the books of accounts. Explicit costs are Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 14
f)
g)
h)
i)
j)
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important for calculating the profit and loss accounts and guide in economic decision-making. Explicit costs are also called as "Paid out costs" Example: Interest payment on borrowed funds, rent payment, wages, utility expenses etc. Implicit Cost: Implicit costs are a part of opportunity cost. They are the theoretical costs i.e., they are not recognized by the accounting system and are not recorded in the books of accounts but are very important in certain decisions. They are also called as the earnings of those employed resources which belong to the owner himself. Implicit costs are also called as "Imputed costs". Examples: Rent on idle land, depreciation on dully depreciated property still in use, interest on equity capital etc. Book Cost: Book costs are those business costs which don't involve any cash payments but a provision is made in the books of accounts in order to include them in the profit and loss account and take tax advantages, like provision for depreciation and for unpaid amount of the interest on the owners capital. Out Of Pocket Costs: Out of pocket costs are those costs or expenses which are paid to the outsiders of the firm. All the explicit costs fall into the category of out of pocket costs. Examples: Rent Paid, wages, salaries, interest etc. Accounting Costs: Accounting costs are the actual or outlay costs that point out the amount of expenditure that has already been incurred on a particular process or on production as such accounting costs facilitate for managing the taxation need and profitability of the firm. Examples: All Sunk costs are accounting costs. Economic Costs: Economic costs are related to future. They play a vital role in business decisions as the costs considered in decision - making are usually future costs. They have the nature similar to that of incremental, imputed explicit and opportunity costs. Direct Cost: Direct costs are those which have direct relationship with a unit of operation like manufacturing a product, organizing a process or an activity etc. In other words, direct costs are those which are directly and definitely identifiable. The nature of the direct costs are related with a particular product/process, they vary with variations in them. Therefore all direct costs are variable in nature. It is also called as "Traceable Costs" Examples: In operating railway services, the costs of wagons, coaches and engines are direct costs. Indirect Costs: Indirect costs are those which cannot be easily and definitely identifiable in relation to a plant, a product, a process or a department. Like the direct costs indirect costs, do not vary i.e., they may or may not be variable in nature. However, the nature of indirect costs depend upon the costing under consideration. Indirect costs are both the fixed and the variable type as they may or may not vary as a result of the proposed changes in the production process etc. Indirect costs are also called as Non-traceable costs. Examples: The cost of factory building, the track of a railway system etc., are fixed indirect costs and the costs of machinery, labour etc. Controllable Costs: Controllable costs are those which can be controlled or regulated through observation by an executive and therefore they can be used for assessing the efficiency of the executive. Most of the costs are controllable. Example: Inventory costs can be controlled at the shop level etc. Year: 2005-2010 15
n)
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on Controllable Costs: The costs which cannot be subjected to administrative control and supervision are called non controllable costs. Example: Costs due obsolesce and depreciation, capital costs etc. Historical Costs and Replacement Costs: Historical cost or original costs of an asset refers to the original price paid by the management to purchase it in the past. Whereas replacement costs refers to the cost that a firm incurs to replace or acquire the same asset now. The distinction between the historical cost and the replacement cost result from the changes of prices over time. In conventional financial accounts, the value of an asset is shown at their historical costs but in decision-making the firm needs to adjust them to reflect price level changes. Example: If a firm acquires a machine for $20,000 in the year 2000 and the same machine costs $40,000 now. The amount $20,000 is the historical cost and the amount $40,000 is the replacement cost. Shutdown Costs: The costs which a firm incurs when it temporarily stops its operations are called shutdown costs. These costs can be saved when the firm again start its operations. Shutdown costs include fixed costs, maintenance cost, layoff expenses etc. Abandonment Costs: Abandonment costs are those costs which are incurred for the complete removal of the fixed asset from use. These may occur due to obsolesce or due to improvisation of the firm. Abandonment costs thus involve problem of disposal of the asset. Urgent Costs and Postponable Costs: Urgent costs are those costs which have to be incurred compulsorily by the management in order to continue its operations. If urgent costs are not incurred in time the operational efficiency of the firm falls. Example: Cost of material, labour, fuel etc.
Postponable costs are those which if not incurred in time do not effect the operational efficiency of the firm. Examples are maintenance costs. s) Business Cost and Full Cost: Business costs include all the expenses incurred by the firm to carry out business activities. Costs Include all the payments and contractual obligations made by the firm together with the book cost of depreciation on plant and equipment. Full costs include business costs, opportunity costs, and normal profits. Opportunity costs is the expected return/earnings from the next best use of the firms resources like capital, land and building, owners efforts and time. Normal profits is necessary minimum earning in addition to the opportunity costs, which a firm must receive to remain in its present occupation. t) Fixed Costs: Fixed costs are the costs that do not vary with the changes in output. In other words, fixed costs are those which are fixed in volume though there are variations in the output level.. If the time period in volume under consideration is long enough to make the adjustments in the capacity of the firm, the fixed costs also vary. Examples: Expenditures on depreciation costs of administrative, staff, rent, land and buildings, taxes etc. u) Variable Costs: Variable Costs are those that are directly dependent on the output i.e., they vary with the variation in the volume/level of output. Variable costs increase in output level but not necessarily in the same proportion. The Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 16
proportionality between the variable costs and output depends upon the utilization of fixed facilities and resources during the production process. Example: Cost of raw materials, expenditure on labour, running cost or maintenance costs of fixed assets such as fuel, repairs, routine maintenance expenditure. v) Total Cost, Average Cost and Marginal Cost: Total cost (TC) refers to the money value of the total resources/inputs required for the production of goods and services by the firm. In other words, it refers to the total outlays of money expenditure, both explicit and implicit, on the resources used to produce a given level output. Total cost includes both fixed and variable costs and is given by: TC = VC + FC Average Cost (AC) , refers to the cost per unit of output assuming that production of each unit incurs the same cost. It is statistical in nature and is not an actual cost. It is obtained by dividing Total Cost (TC) by Total Output (Q) AC= TC/Q Marginal costs(MC), refers to the additional costs that are incurred when there is an addition to the existing output level of goods and services. In other words, it is the addition to the Total Cost (TC) on account of producing additional units. w) Short Run Cost and Long Run Cost: Both short run and long run costs are related to fixed and variable costs and are often used in economic analysis. Short Run Cost: The costs which vary with the variation in the output with size of the firm as same. Short run costs are same as variable costs. Broadly, short run costs are associated with variable inputs in the utilization of fixed plant or other requirements. Long Run Cost: The costs which are incurred on the fixed assets like land and building, plant and machinery etc., Long run costs are same as fixed costs. Usually, long run costs are associated with variations in size and kind of plant. For the cost analysis, the consolidated data of the expenses and income statements of the company for the previous six years has been taken. The expenses have been divided on various bases such as Raw material expenses Marketing expenses Compensation to employees Rent and lease rent Taxes Power, Fuel & Water expenses Selling and Distribution Expenses Repair & Maintenance Expenses These are the major heads under which expenses are found. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 17
The income has been divided on various bases such as Income from financial services Income from non-financial services Interest Dividends Treasury operations Other Income Prior period income and extraordinary income Industrial Sales
Ballarpur Industries Ltd. (all figures in Rs. Crores) Total income Sales Industrial sales Income from non-financial services Income from financial services Interest Dividends Treasury operations Other income Prior period income & extraordinary income Change in stock Total expenses Raw material expenses Purchase of finished goods Power, fuel & water charges Compensation to employees Indirect taxes Lease rent & other rent Repairs & maintenance Insurance premium paid Outsourced mfg. jobs (incl. job works, etc.) Selling & distribution expenses Miscellaneous expenses
2005
2006
2007
2008
2009
2010
2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 2011.72 2130.23 2531.5 3052.76 2975.03 3986.5 1877.28 2130.17 2531.32 3052.28 2974.45 3985.67 134.44 0.06 0.18 0.48 0.58 0.83 8.21 14.52 15.12 84.99 20.93 33.62 5.6 14.52 15.12 84.99 20.88 22.76 0 0 0 0 0 0 2.61 0 0 0 0.05 10.86 2.77 6.4 9.87 12.71 8.27 10.09 3.78 4.7 1863.05 740.54 119.48 225.17 123.69 211.41 8.61 51.28 6.41 4.28 39.67 13.01 18.41 5.58 1.11 -19.96 38.16 2.13 5.19 47.44 1.34 12.92
1961.1 2282.54 2887.13 2868.98 3804.06 810.04 1029.52 1285.21 1343.3 1920.78 92.36 49.47 12.42 41.76 56.67 246.81 326.35 446.17 441.85 546.49 128.32 140.8 207.34 219.11 248.3 215.41 207.79 198.22 120.67 104.7 3.23 3.32 1.77 1.33 1.17 54.2 53.55 62.46 37.67 56.69 6.04 5.85 4.99 7.83 8.77 8.29 37.82 19.09 8.23 39.35 43.65 11.06 66.51 32.88 11.01 70 37.99 9.03 162.67 47.17
Year: 2005-2010 18
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Raw Material Cost to Income
Year 2005 2006 2007 2008 2009 2010 Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Raw Material Cost 740.54 810.04 1029.52 1285.21 1343.3 1920.78 Raw Material Cost Income 0.365431684 0.373366028 0.402533625 0.403061513 0.44636508 0.476437102 Percentage 36.54316845 37.33660281 40.25336253 40.30615125 44.63650803 47.64371024
4500 44.64 4000 3500 3000 2500 36.54 37.34
47.64
50 45
40.25
40.31 40 35 30 25
2000 20 1500 1000 500 0 2005 Income 2006 2007 RAW MATERIAL COST 2008 2009 2010 Ratio: Raw Material Cost to Income(in %) 15 10 5 0
Year: 2005-2010 19
The cost/income ratio is (operating expenses/operating income). The cost income ratio is most commonly used in the financial sector. It is useful to measure how costs are changing compared to income - for example, if a bank's interest income is rising but costs are rising at a higher rate looking at changes in this ratio will highlight the fact. The cost-to-income ratio shows a company's costs in relation to its income. To get the ratio, divide the operating costs (administrative and fixed costs, such as salaries and property expenses, but not bad debts that have been written off) by operating income. The ratio gives investors a clear view of how efficiently the firm is being run - the lower it is, the more profitable the organization will be. Changes in the ratio can also highlight potential problems: if the ratio rises from one period to the next, it means that costs are rising at a higher rate than income, which could suggest that the company has taken its eye off the ball in the drive to attract more business. From the data, we can clearly see that the Raw Material Cost w.r.t. Income of the company is increasing at a very excessive or exorbitant rate. The raw material cost for the year 2005 accounts for around 36.5% of the total Income of the company and accounts for around 37.3% for the year 2006. This increase in percentage tells us that the raw material costs are increasing at a higher rate than income. Similarly, for the year 2007 & 2008, the cost/income ratio (in %) is 40.25% & 40.3% i.e. for the period from 2007 to 2008 the cost/income ratio is almost constant. The cost/income ratio for the year 2009 (44.63%) is increasing at a very high rate as compared to previous years. From the year 2008-2009 the cost/income ratio increased from 40.3% to 44.63%, showing around 11% increase in the cost to income ratio and in the year 2010 the cost/income ratio again increased from 44.63% to 47.64%. Therefore, considering the above figures, we can conclude that the company has taken its eye off the ball and there is a need to control the raw material costs of the company because the income is not growing/increasing at the same rate as costs are.
Year: 2005-2010 20
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Power/Fuel/Water costs to Income
Year 2005 2006 2007 2008 2009 2010 Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Power, Fuel & Water Charges 225.17 246.81 326.35 446.17 441.85 546.49 Power/Fuel/Water Costs Income 0.111113853 0.113760394 0.127600094 0.139925736 0.146822311 0.135553323 Percentage 11.11138526 11.37603938 12.76000938 13.99257359 14.68223113 13.55533232
4500 13.99 4000 3500 3000 2500 11.11 11.38 12.76
14.68 13.56
16 14 12 10 8
2000 1500 1000 500 0 2005 2006 2007 2008 2009 2010 6 4 2 0
Income(in Rs. crs...) Ratio: Power,Fuel & Water costs to Income (in %)
Power, Fuel & Water Charges(in Rs. crs.....)
Year: 2005-2010 21
From the data given on the previous page, we can analyze that the Power, Fuel & Water Cost w.r.t. Income of the company is increasing at a moderate/reasonable rate. From year 20052009 the Power, Fuel & Water cost w.r.t. Income increased from 11.11% to 14.68% which shows percentage increase of around 32%. From year 2008 to 2009, the company took some effective measures that resulted in decrease in power, fuel and water costs from Rs. 446.17 crs to Rs. 441.85 crs. Some of the measures taken by the company, during the period 20082009, to reduce the power, fuel and water costs are: Installation of VFD's at various locations. Installation of energy efficient pumps. Installation of energy efficient motors. Installation of electronic chokes in place of conventional chokes in lighting system of mills, CFLs in place of incandescent lamps and Metal Halide Lamps in street lighting system of mills & colony. Power Sensors in street Lighting VFDs in various equipment. Optimisation in water consumption by optimising the operation of Disc Filter at PM 1 for recycling of base water. Optimising water consumption across the mill for reduction in intake pump operating hours. Improvement in power factor 0.999 by addition of capacitors. Reduction in the idle running hrs of equipments. Maximisation of the utilization of bamboo dust consumption in boiler to save the coal. Use of CFL to conserve the lighting energy. 13.0ptimize the thermal losses by promptly attending the steam/condensate leakages. From year 2009-2010, the power, fuel, water costs increased from Rs. 441.85 crs to Rs.546.49 crs, showing increase of 23.7% and Income increased around 34% which resulted in decrease, in the power, fuel, water costs to income ratio, from 14.68% to 13.56%. Therefore, considering the above figures, we can conclude that the company has taken effective measures to control the power, fuel and water costs of the company during the period from 2008-2009 but has taken its eye off the ball during the period 2009-2010. So there is a need to control the power, fuel and water costs of the company which would gradually result in increase in Income of the company.
Year: 2005-2010 22
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Indirect Taxes to Income
Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Income 1699.14 2281.43 2300.59 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Indirect Taxes 116.5 173.02 195.2 211.41 215.41 207.79 198.22 120.67 104.7 Indirect Taxes Income 0.068564097 0.0758384 0.0848478 0.104323754 0.099287413 0.081244135 0.062164824 0.040097427 0.02597016 Percentage 6.856409713 7.58383996 8.484779991 10.43237535 9.928741312 8.124413513 6.216482365 4.009742741 2.597016036
4500 10.43 4000 3500 3000 2500 2000 4.01 1500 2.60 1000 7.58 6.86 6.22 8.48 9.93
12
10 8.12 8
2 500 0 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 0
Income (in Rs. crs)
Indirect Taxes (in Rs. crs)
Ratio: Indiect Taxes to Income (in %)
Indirect taxes w.r.t. income are continuously increasing from the period 2002-03 to 2005-06 and then it is continuously decreasing from the period 2005-06 to 2010-11. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 23
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Marketing Expenses to Income
Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Income 1699.14 2281.43 2300.59 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Marketing Expenses 28.42 37.66 40.4 22.85 5.57 18.93 37.95 39.19 106.45 Marketing Expenses Income 0.016726109 0.016507191 0.017560713 0.01127571 0.002567341 0.00740147 0.0119017 0.013022443 0.026404237 Percentage 1.67261085 1.650719067 1.756071269 1.12757096 0.256734084 0.740147013 1.190170042 1.302244286 2.640423658
4500 2.64 4000
3 2.5
3500 3000 2500 2000 1500 1000 500 0 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Income (in Rs. crs) Marketing Expenses (in Rs. crs) Ratio: Marketing Expenses to Income (in %) 0.26 0.5 0 1.13 0.74 1.19 1.30 1.5 1 1.67 1.65 1.76 2
Year: 2005-2010 24
From the data, we can clearly see that the Marketing Expenses (which includes commissions, rebates, discounts, sales promotional, expenses on direct selling agents & entertainment expenses) w.r.t. Income of the company is increasing at a very moderate rate from year 200203 to 2004-05. Then from year 2004-05 to 2007-08, there is a fall in the Marketing Expenses/Income ratio and accounts for around 57.71%. The reason is quite obvious that between this period company reduced the manpower, due to which company was able to cut on the commission expenses and expenses on direct selling agents. From year 2007-08 to 2009-10, the marketing expenses/income ratio again increased from 0.74% to 1.30%, showing around 75.67% increase in the marketing expenses to income ratio. And from year 2009-10 to 2010-11, the marketing expenses to income ratio almost doubled. As income and marketing expenses are directly proportional to each other. Therefore, considering the above figures, we can conclude that the company has taken the effective measures to control the perks and the commissions given to the employees.
Year: 2005-2010 25
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Rent Expense to Income
Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011
4500 4000 3500 3000 2500 2000 1500 1000 500 0 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 0.15 0.13 0.06 0.04 0.03 0.42 0.73
Income 1699.14 2281.43 2300.59 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55
Rent & Lease Rent 12.47 18.4 17.78 8.61 3.23 3.32 1.77 1.33 1.17
Rent Expense Income 0.007339007 0.008065117 0.007728452 0.004248747 0.001488781 0.001298092 0.000555099 0.000441946 0.000290211
Percentage 0.733900679 0.806511705 0.772845227 0.42487466 0.148878114 0.129809196 0.055509907 0.044194562 0.029021096
0.9
0.81
0.77
0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0
Income (in Rs. crs)
Rent Expense (in Rs. crs)
Ratio: Rent Expense to Income (in %)
We can conclude from the above graph that the company has taken the effective measures to control the rent expense of the company. Rent Expense as a percentage of income is continuously decreasing from period 2002-03 to 2010-11. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 26
Ballarpur Industries Limited (Consolidated Data) Cost Analysis: Repair & Maintenance Cost to Income
Year 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Income 1699.14 2281.43 2300.59 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Repair & Maintenance Costs 46.9 50.31 51.43 51.28 54.2 53.55 62.46 37.67 56.69 Repair & Maintenance Costs Income 0.027602199 0.022051959 0.022355135 0.025304962 0.024982024 0.020937598 0.019588411 0.012517362 0.014061589 Percentage 2.760219876 2.205195864 2.235513499 2.53049623 2.4982024 2.093759775 1.958841129 1.251736215 1.406158922
4500 4000 3500 3000 2500
2.76 2.53 2.21 2.24 2.50 2.09
3 2.5 1.96 2 1.25 1.41 1.5 1 0.5
2000 1500 1000 500 0 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Income (in Rs. crs) Ratio: Repair & Maintenance Costs to Income (in%) Repair & Maintenance Costs (in Rs. crs) 0
We can conclude from the above graph that the company has taken the effective measures to control the repair and maintenance cost of the company. Repair & Maintenance costs as a percentage of income is continuously decreasing except for the period 2004-05 and 2005-06. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 27
Ballarpur Industries Limited Cost Analysis: Salary & Wages to Income Ratio
Year 2005 2006 2007 2008 2009 2010 Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55 Salaries & Wages 105.86 114.3 105.73 34.89 49.12 52.03 Salaries & Wages Income 0.052238364 0.052683493 0.041339537 0.010942038 0.016322082 0.012905706 Percentage 5.223836406 5.268349343 4.133953707 1.094203762 1.6322082 1.290570624
4500 5.22 4000 5.27
5 3500 3000 2500 3 2000 1500 1000 500 0 2005 Income (in Rs.crs) 2006 2007 Salaries & Wages (in Rs. crs) 2008 2009 2010 0 1.09 1.63 1.29 1 2 4.13 4
Salaries & Wages costs w.r.t. Income (in %)
Year: 2005-2010 28
From the graph, we can analyze that salaries and wages w.r.t. income is decreasing at a very high rate. Salary and wages of the employees in the year 2005 accounts for 5.22% of the total income of the company and accounts for 5.27% of the total income in the year 2006. From year 2006 to 2007, the salary expense/income ratio decreased from 5.27% to 4.13% showing around 21.6% decrease in the salary/income ratio and the ratio further decreased from 4.13% to 1.09% from the year 2007 to 2008, which accounts for around 73.6% decrease in the salary/income ratio (Reason: the employee strength of the company in the year 2007 was 6000 and in the year 2008, the employee strength was reduced to 2000 which resulted in the sharp decline in the salary/income ratio). From the year 2008 to 2010, the salary expense/income ratio is increasing at a very moderate rate. Therefore, considering the above figures, we can conclude that the company has taken effective measures to control the salary and wages expense.
Year: 2005-2010 29
Ballarpur Industries Limited Cost Analysis: Selling & Dist. Expenses to Income Ratio
Year Income Selling & Distribution Expenses 39.67 37.82 39.35 66.51 70 162.67 Selling & Distribution Expenses Income 0.019575816 0.017432106 0.015385518 0.020858553 0.023260296 0.040349245 Percentage
2005 2006 2007 2008 2009 2010
2026.48 2169.56 2557.6 3188.62 3009.42 4031.55
1.957581619 1.743210605 1.538551767 2.085855323 2.3260296 4.034924533
4500 4000 3500 3000 2500 1.96 2000 1500 1000 500 0 2005 2006 Income (in Rs. Crs) Selling & dist. Expenses w.r.t. Income (in %) 2007 2008 2009 1.74 1.54 2.33 2.09
4.03
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0
2010
Selling & Dist. Expenses (in Rs. crs)
Year: 2005-2010 30
Distribution expense is a part of selling expense. It comes under the heading of selling expense. Selling expense includes various other heads like advertisement expense, distribution expense, packing expense, octroi, sales tax, hidden profit, cost of product etc. while distribution expense is the expense occured by the producer of the goods in the form of transportation cost barred by him for making the goods reach the retailers, wholesalers. From the above data, we can clearly see that the Selling & Distribution expenses w.r.t. Income of the company is decreasing at a very moderate rate in the beginning from year 2005 to 2007. This decrease in percentage tells us that the income is increasing at a higher rate than selling and distribution expenses. From 2007-2010, the selling and distribution expenses/income ratio are increasing at a very high rate. From the year 2007-2010 the selling & dist. expenses/income ratio increased from 1.53% to 4.03%, showing around 163.4% increase in the selling and distribution expenses w.r.t. income. Therefore, considering the above figures, we can conclude that the company has taken its eye off the ball and there is a need to control the selling and distribution expenses of the company because the income is not growing/increasing at the same rate as expenses are.
Year: 2005-2010 31
PRODUCTIO A ALYSIS
he production function for Ballarpur Industries Limited has to be calculated. The various factors which are required in the production analysis are: -
Output: - The output for the company is being depicted by the total income of the company. Labour Cost: - The total labour cost is being taken as the total compensation that is paid to the employees of the company. Capital: - The total capital cost that is taken into the company is the sum of authorised equity capital, issued equity capital and reserves. The data is taken for the last six years (all figures in Rs. Crores.) Authorised Equity Capital 297.5 297.5 297.5 297.5 297.5 297.5 Issued Equity Capital 162.72 163.52 186 111.1 186 206 Employee Expense / Total Income (In %) 6.103687182 5.914563322 5.505161089 6.502499514 7.280804939 6.158921507 Total Capital / Total Income (In %) 88.37442264 89.05676727 89.34469815 65.00868714 73.19383802 64.88248937
Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55
Employee Expenses 123.69 128.32 140.8 207.34 219.11 248.3
Reserves 1330.67 1471.12 1801.58 1664.28 1719.21 2112.27
Total Capital 1790.89 1932.14 2285.08 2072.88 2202.71 2615.77
Now we plot the function of labour/output and capital/output: a) Labour/ Output (in%) : The Value of Total Labour i.e. Employee expenditure and the output i.e. total income is given in the above table taken from the yearly report of BILT for 2005-06 to 2010-11. The net percentage value of Labour/Income is calculated and then plotted in the graph as shown on the next page.
Year: 2005-2010 32
Labour/ Output (in %)

8 7 6 5 4 3 2 1 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Labour/ Output (in %) 6.10 6.50 5.91 5.51 7.28 6.16
Analysis: From the above chart, we observe that the ratio has been fluctuating over the years but on an average the ratio is constant over the years. Now, we observe the pattern for capital/output. b) Capital/ Output % : The Value of Total Capital i.e. (Sum of authorized equity capital, issued equity capital and reserves) and the output i.e. total income is mentioned in the table taken from the yearly report BILT for 2005-06 to 2010-11. The net percentage value of Capital/Output is calculated and then plotted in the graph as shown below:
Capital/ Output (in %)

100 90 80 70 60 50 40 30 20 10 0 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Capital/ Output (in %) 65.01 73.19 64.88 88.37 89.06 89.34
Analysis: We see that the ratio capital/output has decreased over the time. The reason is though company has increased the capital spending over the time but the income has also increased over the subsequent years. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 33
Now, we find the output as function of labour and capital using the function Output = f(L,K), where L is the labour cost and K is the capital cost. We define:
O = A.KL
where , are the constants. A is the technological parameter, is the elasticity of output with respect to capital and is the elasticity of output with respect to labour. To obtain the values of , we will use regression analysis. To do so we take log on both the sides, which will give us equation: Log O =Log A + Log K + Log L The various logarithmic values for income, labour and capital are calculated. Then we use regression analysis to calculate the values of , thereof. Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11
Total Income 10.30674232 10.33637167 10.40783262 10.50360277 10.4784828 10.60547205 Employee Expense 9.09233459 9.108294351 9.148602655 9.316683094 9.340662199 9.39497672 Total Capital 10.25306891 10.28603859 10.35890141 10.31657416 10.34295732 10.41759955
Using SPSS software we get the values of A, alpha and beta. The values observed are as follows. A = -2.001 = 0.677 = 0.590 + = 1.267 so, we get the production function as:
O= -2.001* K0.677*L0.590
So, we observe that the value of + is more than 1, therefore the production function exhibits increasing returns to scale because increase in output i.e. total income is more than proportionate increase in inputs i.e. capital and labour. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 34
MARKET STRUCTURE: I DIA PAPER I DUSTRY

he Indian Paper Industry is a booming industry and is expected to grow in the years to come. The Indian Paper Industry is among the top 15 global players today, the industry offers an output of nearly six million tonnes, and the industry is working towards the objective of attaining a production capacity of 13 million tonnes by the end of the year 2020.Indian paper industry is poised to grow and touch 11.5 million tonnes from 9.18 million tonnes in the year 2011-12 from 2009-10 at the rate of 8% per annum. According to ASSOCHAM paper on Growth of Paper Industry in India, per capita paper consumption increased to 9.18 kg in 2009-10 as compared to 8.3 kg during 2008-09. Still, the figure is low (9.2 kg) compared to 42 kg in China and 350 kg in developed countries. India has emerged as the fastest growing market when it comes to consumption, posting 10.6% growth in per capita consumption of paper in 2009-10. India produces many varieties of papers, namely, printing and writing paper, packaging paper, coated paper and some speciality paper. Varieties under printing and writing paper are creame wove paper, super printing paper, maplitho paper (non-surface and surface size), copier paper, bond paper and coating base paper and others. The varieties under packaging paper are kraft paper, boards, poster paper and others. The other varieties under coated paper are art paper/board, chromo paper/board and others. There are approximately 600 paper mills in India, with capacity ranging from 3 to 700 TPD, of which sixteen are major players.
Market Structure
Seller Seller Entry umber Barriers Very Large
ature Of Product
Buyer Buyer Entry umber Barriers Very Large Many
Perfect Competition
No No
Homogeneous Heterogeneous Homogeneous or Heterogeneous Unique Homogeneous or Heterogeneous
No No
Monopolistic competition Many
Oligopoly Monopoly
Few One
Yes Yes
Few Many
No No
Monopsony
Many
No
One
Yes
Year: 2005-2010 35
Market Structure Comparison

umber of firms Perfect Competition Monopolistic competition Infinite Market power None Elasticity of demand Perfectly elastic Highly elastic (long run) Relatively inelastic Product differenti ation None Excess profits No Yes/No (Short/ Long) Efficiency Profit maximization condition P=MR=MC Pricing power Price taker Price setter Price setter
Yes
Many
Low
Monopoly
One
High
High Absolute (across industries)
No
MR=MC
Yes
No
MR=MC
Indian Paper Industry is Monopolistic competitive market, where there are a large number of firms, each having a small proportion of the market share and slightly differentiated products. Monopolistic competition is a market situation in which there are many sellers of a particular product, but the product of each seller is in some way differentiated in the minds of consumers from the product of every other seller. Examples of Monopolistic Competition: For example, BILT supplies branded goods like Sunshine Super Printing, BILT Classic, Magna Print, Wisdom Print, BILT TA NSD and Easy Print. The copier paper is available as BILT Copy Power, BILT Image Copier, BILT Matrix and BILT Ten on Ten. There are many other firms in the market which sell similar paper products (not identical) with different brand names like:
Company ITC PSPD JK PAPER LIMITED TAMIL NEWSPRINT CENTURY PULP & PAPER AP PAPER MILLS
Product ame Digi Art, Perma White, HiZine, Alfa Zap Notepad, JK Printerblank, JK Prisitne Cote, JK IV Board, JK Endura, Cedar Ace Marvel, Perfect Copier, Commander A4 Century Green, Century Elanza, Andhra Royal Silk, Andhra Primavera, Andhra Starwhite & Reflection
Year: 2005-2010 36
Major Players
ame
Ballarpur Ind Tamil Newsprint AP Paper Mills Rainbow Papers JK Paper West Coast Paper Seshasayee Paper Sirpur Paper Pudumjee Pulp Rama Newsprint Star Paper Pudumjee Ind Shreyans Ind Malu Paper Ruchira Papers Magnum Ventures TOTAL
Market Capital
1,638.81 680.69 638.11 575.2 549.1 427.32 231.19 75.03 69.5 60.78 39.1 29.52 27.23 19.7 19.28 17.11 5,097.67
Total Assets
2,513.39 2,403.88 996.3 702.38 1,127.26 1,882.94 680.61 504.68 156.9 317.61 141.51 81.26 101.47 122.21 199.52 368.48 12,300.40
et Worth
1,651.30 915.79 502.94 285.01 588.90 670.48 283.05 223.49 111.9 81.14 126.31 40.28 66.1 38.11 58.51 83.58 5,726.89
Investments
1,151.03 1.14 16.64 0 82.77 46.71 23.23 0 9.95 0.02 35.79 17.68 0.22 0.11 0 0 1,385.29
Income
1,092.25 1,251.12 634.98 388.63 1,377.95 1,082.01 577.06 366.95 235.28 299.32 274.7 114.12 260.67 153.69 200.55 134.08 8,443.36
Total Expenses
875.03 888.36 484.21 299.47 1,112.18 836.70 460.35 327.41 216.14 305.52 276.36 111.15 243.33 137.35 180.56 118.07 6,872.19
Sales Turnover
1,059.12 1,184.45 792.64 394.99 1,233.29 1,068.59 574.52 367.61 226.68 320.45 269.26 100.22 255.81 168.83 254.02 173.1 8,443.58
et Profit
30.16 148.99 44.94 37.1 106.42 90.08 65 -15.32 8.11 140.29 -10.15 -1.56 4.72 -2.98 4.01 -28.44 340.79
ote: Above data is taken from www.moneycontrol.com as on October 15, 2011. There are approximately 600 paper mills in India, with capacity ranging from 3 to 700 TPD, of which above mentioned sixteen are major players.
Year: 2005-2010 37
Characteristic Of Monopolistic Competition Characteristics

(i) A fairly large number of sellers and buyers: The number of firms in monopolistic competition is fairly large. Each firm produces a small portion of industry, output; each buyer also purchases a very small part of the industry output. This ensures that all firms are relatively competitive with very little market control over price or quantity. Each firm produces or sells a close substitute for the product of other firms in the product group or industry. There are approximately 600 paper mills in India of which sixteen are major players. India,
1% 0% 1% 1% 1% 1%
Market Capital
0% 0% BILT Tamil Newsprint
1%
5%
AP Paper Mills Rainbow Papers
8%
32%
JK Paper West Coast Paper Seshasayee Paper Sirpur Paper
11%
Pudumjee Pulp Rama Newsprint Star Paper Pudumjee Ind 11% 13% 13% Shreyans Ind Malu Paper Ruchira Papers Magnum Ventures
Market Capital: BILT vs Others
32%
BILT Others
68%
Microeconomic Analysis of Ballarpur Industr Limited, Industries
Year: 2005-2010 38 2005
It is quite evident from the chart representing market capital of the Indian Paper Industry that there are very large number of firms producing the same product i.e. paper, with each firms product a fairly close substitute for the products of the other firms in the same product group. Since numbers of sellers are very large, there is competition among all the firms. Comparing large, the market capital of Indian Paper Industry, it can be clearly seen from the chart that BILT, which accounts for 32% of the total market capital, dominates all the other companies/firms. On the other hand, buyers are also very large in number. Buyers know exactly what uyers products/goods are being offered, where the goods are being sold, all differentiating goods characteristics of the goods, the good's price, whether a firm is making a profit and if so how much. It can be clearly seen that the sales of the companies like BILT (Rs. 1059.12 crs), Tamil Newsprint (Rs. 1184.45 crs), JK Paper (1233.29 crs) and West Coast Paper (Rs. 1068.59) are almost uniformly distributed i.e. buyers/consumers are equally distributed buyers/consumers among these companies. If a particular company decides to charge a price higher than the existing market price, its demand will certainly decline because the products are slightly differentiated which makes consumers indifferent towards the products offered by different companies as the consumer is price conscious.
Sales Turnover
2% 1% 3% 3% 4% 3% 4% 7% 3% 13%
2%
14%
9% 13% 15%
5%
BILT JK Paper Pudumjee Pulp Shreyans Ind
Tamil Newsprint West Coast Paper Rama Newsprint Malu Paper
AP Paper Mills Seshasayee Paper Star Paper Ruchira Papers
Rainbow Papers Sirpur Paper Pudumjee Ind Magnum Ventures
Year: 2005-2010 39 2005
(ii) Differentiation in products or Heterogeneous Products: Under monopolistic competition, the firms sell differentiated products. Product differentiation may be real or imaginary. Real differentiation is done through differences in the materials used, design, color etc. Imaginary differences may be created through advertisement, brand name, trade marks etc. The firms producing similar products in .this imperfectly competitive world cannot raise the price of product much higher than their rivals. If they do so, they will lose much of their sale, but not all the sale. In case, they lower the price, the total sale can be increased to a certain extent. How much will the sale increase or decrease by lowering or raising the price will depend upon the product differentiation of the different firms. If the product of the various firms are very close substitutes of one another and no imaginary or real difference exists in the mind of the buyers, then a slight rise or fall in the price of the product of one firm will appreciably decrease or increase the demand for the product. If the product of one firm differs from that of other firm, (though the difference may be an imaginary one) a slight rise in the price of the product of one firm will not drive away all its customers. A few faithless buyers may be attracted by the low price of the other rival product but not all the buyers.
COMPA Y PRODUCT AME Sunshine Super Printing, BILT Classic, Magna Print, Wisdom Print, BILT TA NSD, Easy Print, BILT Copy Power, BILT Image Copier, BILT Matrix and BILT Ten on Ten Digi Art, Perma White, HiZine, Alfa Zap Notepad, JK Printerblank, JK Prisitne Cote, JK IV Board, JK Endura, Cedar Ace Marvel, Perfect Copier, Commander A4 Century Green, Century Elanza, Andhra Royal Silk, Andhra Primavera, Andhra Star White & Reflection
BILT ITC PSPD
JK PAPER LIMITED TAMIL NEWSPRINT CENTURY PULP & PAPER AP PAPER MILLS
The names of the firms/sellers/producers mentioned in the above table produces the same generic product i.e. Paper, but they differentiate their product on the basis of design, color, packaging, quality, brand name and advertising etc. For example: ITC launched the product called Alfa Zap: a woodfree paper with unique shade and higher opacity BILT launched the new shades in sack craft paper and it also introduced the retail segment products like colored matrix grades in 5 colors.
Year: 2005-2010 40
(iii) Selling Costs: Every producer or seller tries to promote its own product through different types of expenditures, such as attractive packaging, higher commission to distributors, sales promotion, advertisements, and other incentives. When it succeeds in its objective, the firm object occupies almost the position of a monopolist. It is, thus, in a position to raise most raise-the price of the product without losing its customers.
Selling & Admin Expenses

0% 0% 0% 0% 13% 0% 0% 2% 1% 2% 21% 0% 9% 11% BILT Tamil Newsprint AP Paper Mills Rainbow Papers JK Paper West Coast Paper Seshasayee Paper Sirpur Paper Pudumjee Pulp Rama Newsprint 41% Star Paper 0% Pudumjee Ind Shreyans Ind Malu Paper Ruchira Papers Magnum Ventures
Selling & Admin Expenses: BILT vs Others

21% BILT 79% Others
Year: 2005-2010 41 2005
The charts on the previous page shows us the distribution of Selling & Administration Expenses across Indian Paper Industry. Selling & Administration expenses includes the advertising expense, marketing expense and distribution expense. It is quite evident from the charts that many of the firms do not spend on the advertising and marketing operations. Whereas the top leaders in the industry spent considerable amount on the advertising and the marketing operations of the firm which resulted in the overall peak performance in sales turnover as compared to the other players in the industry.
1400 152.59 1200 1000
180 160 140 120
800 80.65 600 400 200 792.64 0 AP Paper Mills BILT JK Paper Seshasayee West Coast Paper Paper 1059.12 1233.29 574.52 1068.59 42.79 47.9 33.03
100 80 60 40 20 0 Sales (in Rs. crs) Selling & Administration Expenses
Above figures in the chart tells us that the JK Paper spent Rs. 152.59 crs on the advertising, marketing and distribution operations of the company which resulted in the overall sales turnover of Rs. 1233.29 crs, and is clearly dominating the whole industry in terms of sales. In monopolistic competition, the firms make every effort to win over the customers. Other than price cutting, the firms may offer after sale service, a gift scheme, discount etc. iv) Free entry and exit: In the long run there is free entry and exit. There are numerous firms waiting to enter the market each with its own "unique" product or in pursuit of positive profits and any firm unable to cover its costs can leave the market without incurring liquidation costs. This assumption implies that there are low start up costs, no sunk costs and no exit costs.
Year: 2005-2010 42
148.99
et Profit
106.42 90.08 65
105
55 30.16 5
44.94
37.1 8.11 -1.56 4.72 -10.15 -2.98 -28.44 4.01 Net Profit -15.32
-45
-95
-145
-140.29
Net Profit:BILT vs Others
9% BILT Others 91%
v) Independent decision making Each MC firm independently sets the terms of exchange making: for its product. The firm gives no consideration to what effect its decision may have on competitors. The theory is that any action will have such a negligible effect on the overall market demand that an MC firm can act without fear of prompting heightened competition. In other words each firm feels free to set prices as if it were a monopoly rather than an oligopoly.
Year: 2005-2010 43 2005
CO DUCT
onduct means what firms do to compete with each other. It includes pricing, advertising, research and development investment, decisions on product dimensions, merger and acquisition, etc. Conduct also can include collusion both explicit or tacit. Conduct is influenced by market structure since firm strategies differ with competition. Inversely, conduct can influence market structure because firms can make entry cost endogenous by choosing different levels of quality, advertising and so on, thus affect the potential entrant number. Conduct is related to performance. For example, advertising expenditure is usually higher in highly profitable industries, because firms with more profits can afford higher advertising costs, and in order to keep their profits and prevent new entrants into the profitable market, these firms would use advertising investments as endogenous sunk costs. Econometric studies linking profit to market structure often conclude that measured profitability is correlated with the advertising-to-sales ratio and with the R&D expendituresto-sales ratio. Following are the major parameters on the basis of which conduct of BILT: Ballarpur Industries Limited can be studied: 1. Slogan: Growth, Execution and Stability. 2. Vision: Our aspiration is to become a leading creator of Shareholder Value in the Paper Industry. 3. Mission: To consistently outperform expectations and deliver superior value to both our Customers and Stakeholders. 4. Objective: At BILT, management has adopted a well calibrated growth strategy that lays equal stress on revenue growth and profit growth. Over the last few years, company has focused on acquisitions; on systematically growing capacities; on strengthening the balance sheet; and on organizing production facilities to maximize value addition. While stressing on these objectives two critical elements has become inherent to companys operations. These are: The stress on in Productivity: In an industry like pulp and paper, which is highly commoditized across segments, cost competitiveness is critical. In this endeavour, while there are some big ticket gains, the challenge is to continuously focus on innovations and productivity improvement programmes that keep generating incremental benefits. There has been a focused change initiative on this front over the last few years and it has become an integral part of the operational culture at BILT across its units. The stress on going up the value: BILT continued to find opportunities to provide value addition across the pulp and paper value chain. In some cases, being the market leader, these initiatives centre on creating new market segments for value added products. It is this focus that has made BILT, India's leading player in the coated segment. The Company's foray into the retail business is also a prime example of a stress on grabbing opportunities for value addition in an industry that is otherwise highly commoditized. During 2008-09, there were several developments on this front where the product mix was altered to meet the demands of the market with products that offer better margins.
Year: 2005-2010 44
5. Forestry Project: BILT has always focused on being a good corporate citizen stressing on sustainable growth and community development. While this is a key element of the Company's value system, it is also important for its business given that units are located in deep hinterlands and use natural resources like wood. 2008-09 has been a landmark year in terms of recognition of BILT's focus on business practices that promote 'sustainability'. As a recognition of its efforts on sustainable use of forest resources, BI LT became the first Indian paper Company to receive the Forest Stewardship Council-Chain of Custody (FSC-COC) certification for three of its manufacturing units at Ballarpur, Bhigwan and Ashti. This certification recognizes BILT's commitment to environmentally appropriate, socially beneficial and economically viable management of the world's forests. This allowed BILT to use the FSC label for its products that gives it a credible link between responsible management of forests and the production, manufacturing and marketing of wood-based products, including pulp and paper. This differentiated BILT in the market place and aid consumers and businesses to make purchasing decisions with a view on how it benefits people and the environment. The Company is in the process of extending the above certification to remaining Indian units. 6. Value Proposition: BILT goal is to enhance long-term value for their shareholders through the following initiatives: Integrated manufacturing that matches economies of scale with an efficient capital structure, the effective integration of cutting-edge technologies and operational discipline, a wide range of products to meet varied customer requirements, a widespread distribution system to reach customers with speed, a pioneering branding emphasis leading to a distinct differentiation in the marketplace, a far-sighted investment in people and competencies to create a knowledge-led work place, a responsible commitment to society and environment. 7. Corporate Social Responsibility: BILT has always focused on delivering value to all its stakeholders and strived to be a marquee corporate citizen. A key element of this endeavour is the Companys structured corporate social responsibility (CSR) programme, which is intrinsic to its business strategy. As the Indian economy grows rapidly, the critical challenge is to create inclusive development. To meet this challenge, it is very important to provide equal opportunities to all the countrys citizens. As stakeholders in the economic prosperity of the country, the Indian corporate sector has to play a vital role in this very crucial task. In this light, BILT has focused on affirmative action as a key element of its CSR programme. Affirmative action is about giving everybody the equal opportunity to achieve their potential without any discrimination. BILTs operations are located in remote and backward areas of the country where access to resources is very limited. Most people in the community around these operations come from marginalised backgrounds a large number of whom belong to Schedule Castes and Tribes. As the Companys CSR activities are largely focused on these communities, there is considerable scope of affirmative action. BILT recognises that the empowerment based model of development needs strong community institutions to sustain the initiatives. Keeping this in view, Self Help Groups (SHGs) of women belonging to the underprivileged sections of society both in the rural areas as well as slum pockets in the urban areas have formed the base of all the Companys CSR activities. So far, 622 SHGs have been created, which have worked directly with more than 9,500 women. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 45
Adolescents, especially girls, are an important group as they are the countrys future generation. BILT has always been working with the youth since the inception of its structured CSR programme. More than 100 youth groups have been engaged in the process. 8. Employee Training Programs: BILT conducted a series of training and capacity building programmes to enable these community based organisations (CBOs) to take up a larger role. These include vocational training and entrepreneurship training on various skills. Training to the youth included skills related to motor driving, electrical repair, motor winding, screen printing and plumbing. These trained youth have secured gainful employment and are earning incomes ranging from Rs. 1,500 per month to Rs. 7,500 per month. Rural girls have undergone full time training on tailoring and embroidery (both hand and machine). This enabled them to supplement their family incomes. BILT conducted employability training to the urban youth in the new emerging sectors of the economy. Specifically, training was provided to more than 600 educated youth in the areas of retail marketing in BPO sector, customer relations service in the retail marketing sector and hospitality management in the service sector industries. The employability training programme called Ek Mouka for the unemployed SC and ST youth was undertaken through 2009-10. 9. Farmers Training Program: Most of the areas where BILT is working follow traditional agricultural practices. To bring a positive change in socio-economic conditions of the rural population it is important to expose farmers to improved agricultural practices. BILT provided these farmers with training on improved agricultural practices through exposure visits, demonstration plots, classroom/ field trainings on crop/ variety selection, crop rotation, agronomic practices (fertilizer, pesticide, irrigation, inter-cultural operations), kitchen gardening, mushroom cultivation, fruit and vegetable crop cultivation, fodder cultivation and organic farming (vermi-composting, cow urine application, etc). A total of 1,686 farmers have been trained and provided inputs in improved agricultural practices. 10. Educational Initiatives: BILT has been working very closely with the local communities, partner NGOs and the Government Education Department for augmenting the quality and reach of education, especially in rural areas and slum pockets. There are community based education centres, which focus on enhancing the reach, quality and ownership of the initiative by the community. Through this, quality education has been provided and more than 1000 children who would have otherwise dropped out have been mainstreamed into formal system. Computer literacy campaign though mobile computer labs is an innovative way of reaching the remotest area, without having to worry about issues like electric supply and availability of qualified teachers. This campaign reached out to more than 40 government schools with buses that are fitted with computers. The initiative has helped in arresting the dropout rates after 5th grade. 11. Health Initiatives: 104 community health workers have been trained to identify and treat early signs of high risk pregnancies, neonatal morbidity, and provide health education on various issues. BILT runs two Antiretroviral Therapy (ART) centres at Ballarpur and Koraput. These centres were started under Public Private Partnership model where BILT Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 46
is partnering with National AIDS Control Organization (NACO), New Delhi and technical support is provided by CII, New Delhi. 12. Mergers & Acquisitions: The company has grown over the past few years organically as well as inorganically. It acquired and subsequently merged BILT Graphic Papers in 2003. Further, in April 2006, the company merged APR Packaging which is engaged in writing and printing paper. The merger increased BILT's paper capacity by 55,000 tonnes per annum. In June 2006, the company acquired 80 per cent stake in Sabah Forest Industries (SFI), Malaysia's largest pulp and paper mill from Lion Forest Industries for USD 261 million. This acquisition was a strategic fit into the company's growth plans. SFI has paper and pulp capacity of 1.4 lakh tonnes and 1.2 lakh tonnes per annum, respectively. It provided the company with huge forest land of 289 thousand acres that can be used captively for fibre requirement. Besides securing future supplies of raw material through this acquisition, the company also created an entry into the rapidly growing South--East Asian markets. 13. Composition of Board of Directors: As on 30 June 2010, the Company had a nine member Board of Directors. The Chairman, Mr. Gautam Thapar is a non Executive and Promoter Director. The Company has two Executive Directors - Mr. R. R. Vederah (Managing Director) and Mr. B. Hariharan (Group Director-Finance). The six NonExecutive, Independent Directors are Mr. Sanjay Labroo, Mr. R. K. Ahooja, Mr. A. S. Dulat, Dr. Pramath Raj Sinha, Mr. Ashish Guha and Mr. A.P. Singh {Nominee Director of the Life Insurance Corporation of India (LIC)}. The Directors are eminent personalities and experienced professionals in business, law, finance and corporate management. 14. Retail Outlets: 2008-09 saw the expansion of the modern trade distribution channel for tissues. In this channel, tissue and hygiene is the fastest growing category with almost 45 per cent growth rate annually. Successful business tie-ups with some of the large Indian retailers like Big Bazaar and Spencer helped positioning BILT's products as niche products for the modern Indian consumer. During 2008-09, the Company's business products were promoted through a series of brand campaigns, road shows, customer contact programmes, direct mail marketing and outlet merchandising like shop-in-shop dispensers which exclusively displayed BI LT products. To further enhance this business segment, BILT entered the Office Supply Retailing Business with the launch of its first store called P3 (Paper, Print and Pens) in June 2008. These stores retail a complete suite of office supplies vide a B2B and B2C platform. BILT's one-stop paper and office supplies store - P3, answers all office needs ranging from stationery, technology, corporate gifting to print solutions. With a range of 6,000 SKUs, the impressive P3 line of products and services would go a long way in establishing BILT as a pan India one stop solution for office supplies in the years to come. Its footprint has expanded significantly on the B2C side; and is present in Delhi-NCR and Bangalore with 7 stores in the first year of operation. On the B2B front, it services leading corporates and the total client list exceeds 300. The brand P3 lives up to the promise of the "Choice of the Professional" by providing the highest levels of customer service, satisfaction and enduring value. 15. Recruitment Process: 2008-09 has been a challenging year. BI LT continues to focus on managing talent and increasingly systematising the HR processes. Given the economic downturn, 'doing more with less' is a natural objective. HR played a key role of strategic Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 47
influencer, and in alignment with business goals, delivered on numerous initiatives. The Performance Management process was given additional focus with an aim to increase productivity, to ensure that employees stretch their potential and to build on a culture of continuous improvement. At BILT, management believe that employees engagement with higher expectations leads to maximum contributions. The web-based tool aligning individual and company goals has given us exemplary results. Acquisition and retention of talent continues to be a major thrust area and several business leaders are engaged in the process of hiring, training, developing and retaining our key resources. As a regular practice, BI LT visits various reputed colleges and universities for campus recruitments. BILT recruited over 40 Management Trainees and GETs directly from campuses. Towards long-term leadership and management development, BI LT has begun several programmes and engages employees to upgrade their knowledge/skills in line with the Company's goals. In 2008-09, BI LT focused on rationalizing human resources in several units and over 600 employees availed the Voluntary Retirement Scheme. BILT has excellent industrial relations across all plants and strongly believe that the unions and workers will continue to work towards a profitable and productive Company. At the end of 2008-09, BILT had 2708 permanent employees on its rolls. The Company will continue to balance short-term workforce rationalisation with long-term business results. 16. Research & Development: BILT's Research and Development (R&D) programmes focus on product and process development, and improvements along with issues regarding environment management and cost reduction. The details of major R&D programmes undertaken by Company are as follows: a) Study on removal of calcium from wood chips during pulping. b) Study on removal of calcium in prebleaching and bleaching operations. - Finding most suitable bleaching sequence for APR. c) Study of D stage bleaching with and without H2S04. d) Introduction of synthetic thickener in pre-coat formulation. e) Alkaline sizing: study on ASA sizing. f) Critical evaluation of raw material storage practice, study on changes of moisture and cellulosic component in wood and bamboo during storage. g) Improvement in pulp brightness and whiteness. h) Colour control in enzymatic starch size press dispersion.
Year: 2005-2010 48
PERFORMA CE
he performance of an industry or firm is measured by profitability. Profit is the difference between revenue and cost, and revenue is determined by price. Thus performance can be influenced through changing costs or prices. Profitability can also be affected by a firms agility (i.e. ability to adjust to things like changes in market demand). Research and development, and availability of capitol and resources are factors that greatly influence whether or not a firm is agile. The ability to measure performance between industries is important in understanding the SCP(Structure-Conduct-Performance) relationships. For example, if an industry is dominated by one firm or cartel does not see higher costs than a competitive industry yet has monopoly prices, then that non-competitive industry will see higher profits, whereas if costs increase, then profitability levels will be relatively similar. This comparison is the driving force behind anti-trust legislation. SCP predicts that performance increases with concentration of the industry. This is in contrast with the efficiency hypothesis that states that a firms performance is based on how well and efficiently it produces its product for the consumer. Here in this section performance will be measured by doing the financial analysis of BILT i.e. ratio analysis, trend analysis, vertical analysis and horizontal analysis.
Consolidated highlights
Sales Increased by 2.4 per cent from Rs. 1076.3 crore in 2009-10 to Rs. 1102.17 crore in 2010-11. Total Income Increased by 1.6 per cent from Rs.1110.2 Crore in 2009-10 to Rs.1127.79 crore in 2010-11. Profit before Tax (PBT) Decreased by 38.6 per cent from Rs.142.23 crore in 2009-10 to Rs. 87.4 crore in 2010-11. Profit after Tax (PAT) Decreased by 53.5 per cent from Rs.125.39 crore in 2009-10 to Rs.58.28 crore in 2010-11.
Year: 2005-2010 49
BILTs Accounting Policy

Fixed Assets Tangible Fixed Assets are stated at cost net of Value Added tax, rebates, less accumulated depreciation and impairment loss, if any. All costs, including financing costs till commencement of commercial production, net charges on foreign exchange contract and adjustments arising from exchange rate variations attributable to fixed assets are capitalized. Preoperative expenditure : Indirect expenditure incurred during construction period is capitalized under the respective asset head as a part of the indirect construction cost, to the extent to which the expenditure is indirectly related to the assets head. Other indirect expenditure incurred during the construction period, which is not related to the construction activities or which is not incidental thereto is written off in the profit and loss account.
Depreciation Method Depreciation on Fixed Assets is provided on Straight Line Method on certain Assets and on Written down Value Method on other Assets in accordance with Schedule XiV of the companies Act, 1956, except in case of improvements to leased premises which are amortised over the period of lease. Land is not depreciated. Depreciation on revalued portion of fixed Assets, as applicable, is appropriated and adjusted out of Revaluation Reserve if available with the company, on a global pooling basis and the balance is charged off in Accounts.
Fixed Assets Intangible Assets identified as intangible assets are stated at cost including incidental expenses thereto, and are amortised over a predetermined period.
Inventory Valuation Method Raw Materials, Stores, Spare parts, chemicals etc., are valued at cost, computed on weighted average basis. Finished goods and work in process are valued at cost or net realisable value, whichever is lower. In the case of finished goods and work in process cost comprises of material, direct labour and applicable overhead expenses. The cost of finished goods also includes applicable excise duty.
Year: 2005-2010 50
Investments i. ii. Investments made by the company in various securities are primarily meant to be held over a longterm period. Holding of certain investments is of strategic importance to the company and therefore, the company does not consider it necessary to provide for decrease in the Book Value of such investments, till continuation of the relationship of strategic importance with the investee company, namely that of a Subsidiary, Associate, company under the same management, Foreign Joint Ventures and/or company associated with Avantha Group. However, appropriate provisions are made to recognise decrease in the Book Value of investments in companies of Strategic importance also, as and when the investee company either wound up or goes into liquidation or where the operations cease or are taken over by Receiver by Operation of Law. Investments in Government Securities are shown at cost and investments, other than that of Strategic importance to the company are shown in the books at lower of cost or fair market value. As a conservative and prudent policy, the company does not provide for increase in the Book Value of individual investments held by it on the date of Balance Sheet.
iii.
iv.
Revenue Recognition As per the requirement of the companies (Amendment) Act, 1988, all expenses and income were accounted for on accrual basis.
Retirement Benefits Short term employee benefits are charged off in the year in which the related services are rendered. Post employment and other long term employee benefits are charged off in the year in which the employee has rendered services. the amount charged off is recognized at the present value of the amount payable determined using actuarial valuation techniques. Actuarial gain and losses in respect of post employment and other long term benefits are charged to profit & Loss Accounts.
Income From Investments Income from investments, where appropriate, is taken to revenue in full on declaration or receipt and tax deducted at source thereon is treated as advance tax.
Year: 2005-2010 51
Advance License, Import Entitlements Advance license ,import entitlements are recognized at the time of export and the benefit in respect of advance License received by the company against export made by it are recognized as and when goods are imported against them.
Taxation Provision for current tax is made on the basis of estimated taxable income for the relevant accounting year in accordance with the income tax Act, 1961. The deferred tax liability on account of timing differences between the book profits and the taxable profits for the year is accounted by applying the tax rates as applicable as on the balance sheet date. Deferred tax assets arising from timing differences are recognised on the principles of virtual certainty that these would be realised in future.
Impairment Of Assets The company applies the test of impairment of certain assets as provided in Accounting Standard (AS) 28 impairment of Assets.
Provision And Contingencies The company shall create a provision when there is a present obligation as a result of past events that probably require an outflow of resources and a reliable estimate can be made of the amount of obligation. A disclosure for a contingent liability is made, when there is a possible obligation or a present obligation that probably will not require an outflow of resources or where a reliable estimate of the obligation cannot be made.
Year: 2005-2010 52
Financial statement analysis

inancial statement analysis is defined as the process of identifying financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit and loss account or Financial statement analysis is a process that examines past and current financial data for the purpose of evaluating performance and estimating future risk and potentials. Financial statement analysis is used by investors, creditor, security analysts, bank lending officers, managers, governmental agencies, suppliers, and many other parties who rely on financial data for making economic decisions about a company. These statements play a dominant role in setting the framework of managerial decisions. But the information provided in the financial statements is not an end in itself as no meaningful conclusions can be drawn from these statements alone. However, the information provided in the financial statements is of immense use in making decisions through analysis and interpretation of financial statements. There are various methods or techniques that are used in analyzing financial statements. The most commonly used analytical techniques are: Ratio Analysis Horizontal Analysis Vertical Analysis Trend Analysis 1. Ratio Analysis: The ratios analysis is the most powerful tool of financial statement analysis. Ratio analysis helps in identifying significant relationships between financial statement items for further investigation. Commonly used financial ratios are discussed below: Using Financial Ratios A financial ratio (or accounting ratio) is a relative magnitude of two selected numerical values taken from an enterprise's financial statements. Financial ratios quantify many aspects of a business and are an integral part of the financial statement analysis. Financial ratios are categorized according to the financial aspect of the business which the ratio measures. Financial ratios are used to evaluate profitability, liquidity, solvency and capital market strength. Liquidity ratios measure the availability of cash to pay debt. Activity ratios measure how quickly a firm converts non-cash assets to cash assets. Debt ratios measure the firm's ability to repay long-term debt. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return. Market ratios measure investor response to owning a company's stock and also the cost of issuing stock. These are concerned with the return on investment for shareholders, and with the relationship between return and the value of an investment in companys shares.
Year: 2005-2010 53
Profitability Ratios
P
i.
rofitability ratios measure the company's use of its assets and control of its expenses to generate an acceptable rate of return or in other words it is the degree of operating success of a company. The commonly used ratios to evaluate profitability are:
Profit Margin Ratio: The net income divided by sales, often expressed as a percentage. This number is an indication of how effective a company is at cost control.
PROFIT MARGI =
PROFIT AFTER TAX SALES
Below is the computation of profit margin ratio of Ballarpur Industries Limited:

All figures in Rs. Crores Net Profit Sales Net Profit Margin (%) 2010-11 58.28 1102.17 5.29 2009-10 125.39 1076.32 11.65 2008-09 129.45 1049.67 12.33 2007-08 250.77 2,375.92 10.55 2006-07 212 2,085.34 10.17 2005-06 168.1 2,011.59 8.36
Analysis: The ratio shows that the profit margin decreased from 12.33% in the year 2008-09 to 5.29% in the year 2010-11. The profit margin ratio provides some indication of the cushion available to the company in the event of an increase in costs, drop in selling prices in the face of a recession or greater competition. Profit margin was 8.36% in the year 2005-06 and inched up to 12.33% in the year 2008-09, but has fallen since then. ii. Asset Turnover Ratio: This ratio is more useful for growth companies to check if in fact they are growing revenue in proportion to sales. Companies with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover it indicates pricing strategy. ASSET TUR OVER = SALES AVERAGE TOTAL ASSETS
Using the sales data and total assets data, we can compute the asset turnover ratio of Ballarpur Industries Limited as follows:
Year: 2005-2010 54
All figures in Rs. crores Sales Average Total Assets Asset Turn Over
2010-11 1102.17 2,934.90 0.38
2009-10 1076.32 2,693.32 0.40
2008-09 1049.67 3,347.07 0.31
2007-08 2,375.92 3,850.10 0.62
2006-07 2,085.34 3,445.73 0.61
2005-06 2,011.59 3,229.96 0.62
Analysis: In year 2005-06, BILT had sales of about Rs. 0.62 per rupee of investment in assets as compared to Rs. 0.31 in 2008-09. The decrease of 31 paise in sales rupee of investment indicates significant deterioration in utilization of assets between this period. This decrease in asset turnover could be because of excess capacity, frequent equipment breakdown, non- availability of raw materials or power etc. However had been able to recover its asset turnover ratio, as is evident from the above chart, showing sales of about Rs. 0.31 per rupee of investment in assets in the year 2008-09 as compared to Rs. 0.38 in 20102011.
iii.
Return on Assets or Return on Investment ROA/ROI: An indicator of how profitable a company is relative to its total assets. ROA gives an idea as to how efficient management is at using its assets to generate earnings.
ROA =
PROFIT AFTER TAX AVERAGE TOTAL ASSETS
All figures in Rs. crores Profit after tax Average Total Assets Return on Assets (%)
2010-11 58.28 2,934.90 1.986
2009-10 125.39 2,693.32 4.656
2008-09 129.45 3,347.07 3.868
2007-08 250.77 3,850.10 6.513
2006-07 212 3,445.73 6.153
2005-06 168.1 3,229.96 5.204
Analysis: There is a significant decrease in BILTs ROA from the year 2007-08 to 201011, which indicates deterioration in the companys overall profitability. Therefore we can say that companys is not better at converting its investment into profit. Here management's most important job is to make wise choices in allocating its resources. iv. Return on Equity: The Return on Equity ratio is perhaps the most important of all the financial ratios to investors in the company. It measures the return on the money the investors have put into the company. This is the ratio potential investors look at when deciding whether or not to invest in the company. Net Profit comes from the Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 55
income statement and stockholder's equity comes from the balance sheet. In general, the higher the percentage, the better it is with some exceptions, as it shows that the company is doing a good job using the investors' money. ROE = PROFIT AFTER TAX AVG. SHAREHOLDER'S EQUITY
All figures in Rs. crores Profit after tax Average Share holder's equity Return on Equity (%)
2010-11 58.28 1,500.54 3.88
2009-10 125.39 1,308.88 9.58
2008-09 129.45 1,634.21 7.92
2007-08 250.77 1,816.85 13.80
2006-07 212 1,563.55 13.56
2005-06 168.1 1,455.13 11.55
Analysis: ROE is one measure of how efficiently a company uses its assets to produce earnings. A healthy company may produce an ROE in the 13% to 15% range. A steadily increasing ROE from the year 2005-06 to 2006-07, is a hint that management is giving shareholders more for their money, which is represented by shareholders' equity. This indicates how well management is employing the investors' capital invested in the company. But from the year 2007-08 to 2010-11, ROE declined sharply from 13.8% to 3.88%, possibly because it could not find oppurtunities that would yield higher returns.
v.
Earnings per Share: Earnings per share ratio (EPS Ratio) is a small variation of return on equity capital ratio and is calculated by dividing the net profit after taxes and preference dividend by the total number of equity shares. EPS = ET PROFIT AFTER TAX TOTAL EQUITY SHARES
All figures in Rs. Crores Profit after tax Weighted avg no of Equity shares (in crores) Earnings per Share (in Rs.)
2010-11 58.28 66 0.89
2009-10 125.39 56 2.26
2008-09 129.45 56 2.33
2007-08 250.77 19 13.50
2006-07 212 16 12.98
2005-06 168.1 16 10.35
Analysis: There is constant decrease in the BILTs EPS which indicates that the earning power of the company is decreasing.
Year: 2005-2010 56
Liquidity Ratios
T
i.
hese ratios are used to determine a company's ability to pay off its short-terms obligations when they fall due. Generally, the higher the value of the ratio, the larger is the margin of safety that the company possesses to cover short-term debts. The commonly used ratios to evaluate liquidity are: Current Ratio: A liquidity ratio that measures a company's ability to pay short-term obligations. A ratio under one suggests that the company would be unable to pay off its obligations if they came due at that point. While this shows the company is not in good financial health, it does not necessarily mean that it will go bankrupt - as there are many ways to access financing - but it is definitely not a good sign. Current ratio can give a sense of the efficiency of a company's operating cycle or its ability to turn its product into cash. Companies that have trouble getting paid on their receivables or have long inventory turnover can run into liquidity problems because they are unable to alleviate their obligations.
CURRE T RATIO =
CURRE T ASSETS CURRE T LIABILITIES
Below is the computation of profit margin ratio of Ballarpur Industries Limited:
All figures in Rs. crores Current assets Current liabilities Current Ratio (in ratio)
2010-11 911.31 525.02 1.74
2009-10 714.85 373.4 1.91
2008-09 939.84 359.10 2.62
2007-08 1326.6 440.94 3.01
2006-07 1377.44 372.01 3.70
2005-06 875 345.99 2.53
Analysis: It can be clearly seen from the above figure that BILT has more current assets per rupee of current liabilities i.e. it may be able to pay its current liabilities using its current assets. In other words, its operation would not be disrupted. The constant decrease in the current ratio of BILT represents deterioration in the liquidity position of the firm. ii. Quick Ratio: The quick ratio or the acid-test ratio - is a liquidity indicator that further refines the current ratio by measuring the amount of the most liquid current assets there are to cover current liabilities. QUICK RATIO = (CURRE T ASSETS I VE TORIES) CURRE T LIABILITIES Year: 2005-2010 57
All figures in Rs. Crores Quick assets Current liabilities Quick Ratio (in ratio)
2010-11 470.88 525.02 0.90
2009-10 355.77 373.4 0.95
2008-09 653.52 359.10 1.82
2007-08 908.88 440.94 2.06
2006-07 1012.01 372.01 2.72
2005-06 557.87 345.99 1.61
Analysis: The increase in the quick ratio from 2005-06 to 2006-07 is in line with current ratio. The decrease in the quick ratio is again in line with the current ratio over five years period i.e. from 2006-07 to 2010-11. When used along with Current ratio it gives a clearer picture of business's liquidity position. Rule of thumb for acid test ratio is 1: 1 i.e., if business liquid assets are 100 percent of its current liabilities it is considered to be having fairly good current financial position. But in the case of BILT, quick ratio indicates that financial position of the company is not good. iii. Debtors Turnover Ratio: This ratio indicates the efficiency of the concern to collect the amount due from debtors. It determines the efficiency with which the trade debtors are managed. Higher the ratio, better it is as it proves that the debts are being collected very quickly. DEBTORS TUR OVER RATIO = SALES AVERAGE DEBTORS
All figures in Rs. crores Sales Average debtors Debtor turnover ratio (in ratio)
2010-11 1102.17 367.03 3.00
2009-10 1076.32 317.55 3.39
2008-09 1049.67 427.015 2.46
2007-08 2,375.92 527.57 4.50
2006-07 2,085.34 446.715 4.67
2005-06 2,011.59 404.444 4.97
Analysis: In the initial years, companys higher debtor turnover ratio clearly indicates that company was able to convert the debtors into cash and the quality of the companys portfolio of debtors was good in that period. However, in the subsequent years i.e. from 2005-06 to 2010-11, there is continuous decline in the debtors turnover ratio, implies inefficient management of debtors or less liquid debtors.
Year: 2005-2010 58
iv.
Inventory Turnover Ratio: This ratio is a relationship between the cost of goods sold during a particular period of time and the cost of average inventory during a particular period. It is expressed in number of times.Inventory turn over ratio indicates the number of time the stock has been turned over during the period and evaluates the efficiency with which a firm is able to manage its inventory. This ratio indicates whether investment in stock is within proper limit or not. I VE TORY TUR OVER = COST OF GOODS SOLD AVERAGE I VE TORIES
Using the information available on cost of goods sold and inventories, we calculated the inventory turnover ratio as follows:
All figures in Rs. crores Cost of goods sold Average inventories Inventory turnover 2010-11 1,000.88 154.17 6.49 2009-10 945.11 132.23 7.15 2008-09 885.12 223.435 3.96 2007-08 1,967.56 308.24 6.38 2006-07 1,758.29 292.15 6.02 2005-06 1,718.52 281.5275 6.10
Analysis: The inventory turnover ratio for BILT has been very good but has not been following a consistent trend i.e. it is fluctuating b/w different time periods. A low inventory turnover ratio in the year 2008-09 indicates an inefficient management of inventory and further implies over-investment in inventories, dull business, poor quality of goods, stock accumulation, accumulation of obsolete and slow moving goods and low profits as compared to total investment. Whereas high inventory turnover in the year 2009-10 indicates efficient management of inventory because more frequently the stocks are sold, the lesser amount of money is required to finance the inventory. A high inventory turnover ratio may also be due to under-investment in inventories.
Solvency Ratios
hese ratios are used to measure a company's ability to meet long-term obligations. The solvency ratio measures the size of a company's after-tax income; excluding non-cash depreciation expenses, as compared to the firm's total debt obligations. It provides a measurement of how likely a company will be to continue meeting its debt obligations. The commonly used ratios to evaluate liquidity are:
Year: 2005-2010 59
i.
Debt to Equity Ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. DEBT TO EQUITY RATIO = SECURED LOA S + U SECURED LOA S SHAREHOLDERS EQUITY
Debt to equity ratio of BILT is computed as follows:

All figures in Rs. crores Secured + Unsecured loans Shareholder's equity Debt to Equity Ratio (in ratio) 2010-11 861.06 1,651.30 0.52 2009-10 887.75 1,349.77 0.66 2008-09 938.06 1,267.99 0.74 2007-08 1,332.64 2,000.42 0.67 2006-07 1453.6 1,633.27 0.89 2005-06 1,188.90 1,493.82 0.80
Analysis: The debt to equity ratio for the year 2005-06 is 0.80 or we can say 4:5, it means that for every four rupee worth of the creditors investment the shareholders have invested five rupee. Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firms assets. The debt to equity ratio of 0.52 for the year 2010-11 indicates that the owners of the company want to do the business with maximum of outsider's funds in order to take lesser risk of their investment and to increase their earnings (per share) by paying a lower fixed rate of interest to outsiders. The outsiders (creditors) on the other hand, want that shareholders (owners) should invest and risk their share of proportionate investments. ii. Liabilities to Equity Ratio: It Is a Variant of Debt to Equity Ratio where numerator not only includes debt but also current liabilities and deferred tax liability in order to get the firms total liabilities. The ratio is computed as follows: LIABILITY TO EQUITY RATIO = ALL LIABILITIES SHAREHOLDERS EQUITY
Year: 2005-2010 60
All figures in Rs. crores Debt + Current liabilities Shareholder's equity Liabilities to Equity Ratio (in ratio)
2010-11 1,499.63 1,651.30 0.91
2009-10 1,369.10 1,349.77 1.01
2008-09 1,399.77 1,267.99 1.10
2007-08 2,025.96 2,000.42 1.01
2006-07 2,040.54 1,633.27 1.25
2005-06 1,723.83 1,493.82 1.15
iii.
Interest Coverage Ratio: A ratio used to determine how easily a company can pay interest on outstanding debt. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is 1.5 or lower, its ability to meet interest expenses may be questionable. An interest coverage ratio below 1 indicates the company is not generating sufficient revenues to satisfy interest expenses. I TEREST COVER = PBIT I TEREST EXPE SE
The interest coverage ratio for BILT is computed as follows:
All figures in Rs. crores Profit before interest & tax Interest expense Interst Cover (in times)
2010-11 130.36 42.96 3.03
2009-10 186.45 44.22 4.22
2008-09 277.20 103.07 2.69
2007-08 420.24 96.62 4.35
2006-07 369.14 103.93 3.55
2005-06 312.57 105.45 2.96
Analysis: The interest coverage ratio is very important from the lender's point of view. Throughout the period from 2005-06 to 2010-11, company has been able to achieve the interest coverage ratio above 1.5 which is a clear assurance to the lenders a regular and periodical interest income.
Capital market ratios

Capital market ratios relate the market price of a companys share to the companys earnings and dividends. The commonly used ratios to evaluate liquidity are: i. Price Earnings Ratio: Price earnings ratio (P/E ratio) is the ratio between market price per equity share andearning per share. The ratio is calculated to make an estimate of appreciation in the value of a share of a company and is widely used by investors to decide whether or not to buy shares in a particular company. Microeconomic Analysis of Ballarpur Industries Limited, Year: 2005-2010 61
PRICE EAR I GS RATIO = AVERAGE STOCK PRICE EAR I GS PER SHARE
All figures in Rs. Average stock price Earning per share Price Earning Ratio (in times)
2010-11 25.40 0.89 28.54
2009-10 24.4 2.26 10.80
2008-09 20.8 2.33 8.93
2007-08 35 13.5 2.59
2006-07 22 12.98 1.69
2005-06 21.5 10.35 2.08
Analysis: Price earnings ratio helps the investor in deciding whether to buy or not to buy the shares of a particular company at a particular market price. Generally, higher the price earning ratio, the better it is. If the P/E ratio falls, the management should look into the causes that have resulted into the fall of this ratio. In case of BILT, figure are quite favouring the company and make it a favourite destination to invest in. There is constant increase in the price earning ratio from 2.08 times in the year 2005-06 to 28.54 times in the year 2010-11, indicates the markets high faith in the future of BILT.
ii.
Dividend Yield: Dividend yield ratio is the relationship between dividends per share and the market value of the shares. Share holders are real owners of a company and they are interested in real sense in the earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between dividends per share paid and the market value of the shares. DIVIDE D YIELD = DIVIDE D PER SHARE AVERAGE STOCK PRICE
The dividend yield for BILT is shown below:
All figures in Rs. Dvidend per share Average stock price Dividend Yield (in %)
2010-11 0.5 25.40 1.97
2009-10 0.5 24.4 2.05
2008-09 0.7 20.8 3.37
2007-08 3 35 8.57
2006-07 2.75 22 12.50
2005-06 2.5 21.5 11.63
Year: 2005-2010 62
Analysis: This ratio helps as intending investor in knowing the effective return he is going to get on the proposed investment. In case of BILT, the dividend yield is constantly decreasing, indicating that the cash return on the shares went down. iii. Price to Book Ratio: This measure compares a companys stock price with the book value. Book value is the amount of shareholders equity divided by the number of shares. PRICE TO BOOK RATIO = MARKET PRICE PER SHARE BOOK VALUE PER SHARE
The price to book ratio for BILT is as follows:

All figures in Rs. Market price per share Book value per share Price to book Ratio (in times) 2010-11 25.40 25.19 1.01 2009-10 24.4 24.3 1.00 2008-09 20.8 22.83 0.91 2007-08 35 107.72 0.32 2006-07 22 100.03 0.22 2005-06 21.5 91.63 0.23
Analysis: In year 2010-11 & 2009-10 the P/B ratio of more than 1 indicates that market expects the stock to earn at a rate higher than the required one. 2. Horizontal Analysis: Quite simply, the horizontal analysis is the financial statements of a company of successive years presented side-by-side. The goal of horizontal analysis is to compare the figures of the current period with that of the past period. This helps the company and its shareholders analyze their performance and find out areas of improvement. Horizontal analysis is done for both income statements and balance sheets. The idea is the same. The figures for the different heads under the income statements and the balance sheets are placed side-by-side so that the reader can compare the two and understand how the company is doing. The horizontal analysis also includes two more columns: the column denoting actual numerical change over two periods and another denoting percentage change over the two periods. The first column gives the difference between the past period and the current period, while the percentage column shows what percentage of the past figure is the figure denoting the change. Horizontal analysis is an important part of the financial statements and annual reports. It places the facts very simply in front of the shareholder and makes the job of analyzing the improvements or the lack of it very simple for the shareholder. Horizontal analysis helps the shareholder understand the change and the percentage change.
Year: 2005-2010 63

Microeconomic Analysis of Ballarpur Industries Limited

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Microeconomic Analysis of Ballarpur Industries Limited

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GROWTH EXECUTION SUSTAINABILITY

ANALYSIS REPORT 2005-2010 2010

Microeconomic November 15 Analysis of Ballarpur Industries 2011 Limite Limited

I TRODUCTIO : I DIA PAPER I DUSTRY

Microeconomic Analysis of Ballarpur Industries Limited,

What keeps the Indian Paper industry rolling?

BILT: Ballarpur Industries Limited

Microeconomic Analysis of Ballarpur Industries Limited,

DEMA D A ALYSIS Determinants of Demand for Paper

PAPER S. O TYPE 1 Writing and printing paper

USES Writing, printing, stationery

VARIETIES Creamwove, maplitho, paperboard, copier and coated paper

Kraft paper, recycled board and virgin board

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Figure 1.0 Graphical Trend

Computation Of Trend Values (Standalone Data)

Microeconomic Analysis of Ballarpur Industries Limited,

15667= 9a + 0 a= 15667/9 a= 1740.77

X.Y 149.48 175.77 263.68 408.32 402 773.76 X.Y= 2173

408.04 470.89 655.36 1017.61 900 1624.09 X = 5076

15 10.4016 10 7.4532 7.4 8.2722 10.3 8.1

0 2005 2006 2007 2008 2009 2010

ACTUAL RAW MATERIAL EXPENSES (Y)

TREND LINE : Y= -3.576 + 0.546 X

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Year 2005 2006 2007 2008 2009 2010

Income 2026.48 2169.56 2557.6 3188.62 3009.42 4031.55

Sales 2011.72 2130.23 2531.5 3052.76 2975.03 3986.5

Salaries 105.86 114.3 105.73 34.89 49.12 52.03

Raw Material Expense 740.54 810.04 1029.52 1285.21 1343.3 1920.78

Selling & Dist. Expenses 39.67 37.82 39.35 66.51 70 162.67

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

4500 44.64 4000 3500 3000 2500 36.54 37.34

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

4500 13.99 4000 3500 3000 2500 11.11 11.38 12.76

Power, Fuel & Water Charges(in Rs. crs.....)

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

Income (in Rs. crs)

Indirect Taxes (in Rs. crs)

Ratio: Indiect Taxes to Income (in %)

4500 2.64 4000

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0

Income (in Rs. crs)

Rent Expense (in Rs. crs)

Ratio: Rent Expense to Income (in %)

4500 4000 3500 3000 2500

2.76 2.53 2.21 2.24 2.50 2.09

3 2.5 1.96 2 1.25 1.41 1.5 1 0.5

4500 5.22 4000 5.27

Salaries & Wages costs w.r.t. Income (in %)

Microeconomic Analysis of Ballarpur Industries Limited,

Microeconomic Analysis of Ballarpur Industries Limited,

2005 2006 2007 2008 2009 2010