FINANCIAL STATEMENT

ANALYSIS
of
CAPITAL GOODS INDUSTRY
Section-
B
Group-11
 Contents
Objective

Methodology

Economy Analysis

Industry Analysis

Company Analysis Using Different Methods

Findings

Ratings

Conclusion
 Objective
Analyzing Capital goods Industry on
following parameters

ØProfitability
ØLiquidity
ØCapital structure
ØActivity
ØCash Flows
ØGrowth rate

Companies Taken
ØL & T
ØBHEL
ØCrompton & Greaves
ØThermax
 Methodology
ØEconomy analysis

ØIndustry analysis

ØCompany line of business

ØComparative statement analysis

ØRatio analysis

ØCommon size analysis

ØCAGR analysis

ØDu-Pont analysis

ØCash flow analysis

 INDUSTRY ANALYSIS
§Overview of the Capital Goods Sector

§Competitive Analysis of Indian Capital Goods Sector

§Business Environment Competitive Issues

§Firm Level Competitive Issues

STRATEGIC GOALS OF THE
SECTOR
Firm-level Strategies
§

§Trade Policy Measures

§Industrial Policy Measures

§Export Promotion Measures

COMPANY OVERVIEWS
LARSEN & TOUBRO LIMITED
(L&T) and construction
§India's largest engineering

conglomerate

§Premiere brand image

§Rising international presence

§Comprehensive distribution network

 THERMAX
qSustainable solutions in Energy and Environment

qprocess productivity improvement

qenergy generation

qalliances with world technology majors

CROMPTON GREAVES LTD.
qIndia's largest private sector enterprise.

qcustomer-centric in its focus

qPower Systems, Industrial Systems,

Consumer Products.
 BHARAT HEAVY
ELECTRICALS LTD.
qPower Generation & Transmission, Industry

qTransportation, Telecommunication

qRenewable Energy

qcommitted to enhancing stakeholder value

 Common Size Analysis –
P&L

ØBHEL outsmarts all the other players as its COGS to

sales % and selling and distribution expenses as a % of
sales stands very low in comparison to other
companies.
●BHEL is again the best in terms of EBITDA as % of
sales.
●BHEL’s operating expenses has been well managed
over the years and hence its EBIT is better than others,
closely followed by L&T.
Common Size Analysis –
BS

ØBHEL’s fixed asset has been the lowest which shows

less money is tied in fixed asset as compared to
others.
●C&G inventory has increased in the last year as
compared to the other players and this can be a matter
of concern for the company.
●Thermax and BHEL’s net worth has decreased over the
years due to use of more and more of their reserves
and surplus to fund their capital requirement.
●BHEL and Thermax are using internal sources of
financing to fund their capital requirement and so their
total borrowings is less whereas L&T and C&G are using
debt to use financial leverage.
SUSTAINABLE GROWTH RATE
MODEL

ØBHEL’s ROE has been better than other players over

the years but finally all are on the same platform.
●Thermax has bettered all other companies due to
smaller asset base and greater revenues from its
operations.
●At the end, it is BHEL which has outsmarted others
due to less COGS and S&G expenses as compared.
 BENCHMARKING RATIOS

ØC&G has managed its current ratio near to the

industry average over the years which shows its ability
to manage its current assets and liabilities better.
Besides that, other players have also maintained better
current ratio.
●The smaller players, Thermax and C&G have been
managing their inventory efficiently and it is above the
industry average.
●Average receivables period is very high for BHEL and
L&T, but they have one respite that their payables
period is also very high. Thermax has been doing well
in this case.
BHEL seems to be not managing its inventory properly
as its average payables period is less than the average
receivables period and other players are having both
things to be almost equal.
 OTHER IMPORTANT RATIOS

ØThermaxmight have some liquidity problem as its

quick ratio is way below the industry average. Other
players are more or less comfortable in this field.
●BHEL and Thermax are having almost zero debt and
this shows that they are not using leverage to
maximize their profit. L&T seems to be optimally
leveraged.
●It shows that Thermax and C&G are having good
demand for their products. BHEL needs to manage its
debtors a bit more efficiently as it is way below the
industry average.
●L&T and BHEL have higher EPS as they are established
players in the sector and so their earnings have been
higher over the years.
●Thermax and C&G are commanding higher P/E ratios
as their future growth potential has been really high
due to their efficient management of resources and
good demand for their products.
 COMPARATIVE ANALYSIS –
L&T
ØLong term liability has increased constantly over the
period of five years.

ØShare capital has shown year on year decrease of 30%

because of buyback in the year 2004.

ØReserves has increased by more than 200% in the period

of 2003 to 2007 on account of higher retention ratios.

ØThe current asset has increased by a CAGR of 12%. Most

of this increase can be explained by the increase in the
receivables.

ØNet fixed asset has decreased at a constant rate of

0.39% because of no investment in fixed asset in the span
of 5 yrs.
 COMPARATIVE ANALYSIS – Crompton
& Greaves
ØTotal borrowings has increased over the years with an

increase of about 117 % in the year 2007 because of

increase in foreign borrowings.

ØCurrent liabilities has increased abruptly in the year

2006 by 163 % due to the increase in sundry

creditors, provision & deposits & advances from

employees.

ØCurrent asset has increased in the year 2006 because of

the increase in the receivables by about 100 % &

 COMPARATIVE ANALYSIS –
THERMAX
ØCurrent liabilities is increasing at an increasing rate.

ØLong term liabilities is decreasing.

ØReserve is increasing at an increasing rate which shows

that the company is increasing its retained earnings and

thus decreasing the cost of debt.

ØCurrent asset is increasing at an increasing rate. This

shows that the company is using its current asset to pay

back its current liabilities.

ØCompany is increasing its fixed assets at a much faster

 COMPARATIVE ANALYSIS –
BHEL
ØGrowth in current liabilities has almost been constant

over the years.

ØBHEL’s reserve is increasing at an increasing rate

because of increased retained earnings.

ØGrowth in the current assets has been constant and

equal to the current liabilities which is a good strategy

followed by the company.

ØSales has increased at greater rate over the years.

CAGR ANALYSIS:
BALANCE SHEET
 ANALYSIS:
• L & T’s current liabilities is increasing at a faster rate

compared to current assets.

• BHEL & THERMAX are decreasing its long term

liabilities.

• The high growth of NFA of Crompton & greaves indicate

that it is expanding.

• L & T has decreased its share capital which will increase

CAGR ANALYSIS OF INCOME
STATEMENT:
ANALYSIS :
• In terms of sales Crompton & greaves is the best

performing company.

• In terms of expenses L & T is the best performing

company as it is increasing at only 14.96%.

• In terms of cogs, L & T is very cost efficient.

• L & T’s cagr growth in gross profit is less than C & G ,

THERMAX which suggest that price of project

CASH FLOW ANALYSIS OF l &
T:
Contd:
• Company has got high CAPEX.

• Investments in bonds and shares of other companies is

generating an increasing stream of dividends and

interests.

• A glance at the working capital account differences

indicates that receivables, other than assets have

grown over a period of 5 years.

CASH FLOW ANALYSIS OF
BHEL:
Contd:

• Cash flow from operating activities has decreased

drastically in 2005 because of increase in receivable

& inventory.

• The company’s investment in CAPEX has increased

over the years.

CASH FLOW ANALYSIS OF CROMPTON
& GREAVES LTD:
Contd:
• The company is getting a positive cash flow from

operating activities because of more efficient

management of working capital.

• The company has increased its investment in CAPEX.

The funding has been done mainly from borrowing

which gets reflected in increasing debt-equity ratio.

Contd:
• The cash flow from financing activities is negative in

the first two years because the company was repaying

its past borrowing.

• During the last two years the cash flow from financing

activities is coming out to be positive because it has to

borrow money to fund its increasing CAPEX.

CASH FLOW ANALYSIS OF
THERMAX:
Contd:
• The steep rise in the cash flow movements on the

positive side can be attributed to the rise in the firm’s

investment and financing activities, and not only the

operating ones.

• If we look at the firm’s tax figures, we can safely derive

that it has reduced its debt component steadily, due to

which its outflow in the form of interest payments have

DU-POINT ANALYSIS OF L&
T:
DU-POINT ANALYSIS OF
BHEL:
DU-POINT ANALYSIS OF CROMTON
& GREAVES LTD:
FINDINGS
 Findings from DU-PONT
analysis

ØAs a risk averse investor we would like to invest in

BHEL
ØAs a risk taker investor we will prefer to go with
 Findings from CAGR
analysis
§ Rank 1 to Crompton Greaves –it is having a
highest cagr of around 28% in its net fixed assets which will give
future benefit at a high rate .

§ Rank 2 to BHEL- 1)It stand 2nd in the CAGR of PAT

2) company’s total expenses is
having a low CAGR in comparison
except L & T.

§ Rank 3 to Thermax- Its CAGR in sales is much higher

than L & T and further Thermax gross profit is also high in comparison
to L & T

§ Rank 4 to L & T- As it is less competitive in terms of CAGR.

 Findings From Cash Flow
§ Analysis
L &T- The company is not reluctant to raise more debt from
the market in order to fund its CAPEX & in the same time the
company keeps repaying its debt.

§ BHEL: Like L & T , it has also maintained positive cash flow

from operating activities because of healthy management of its
working capital.

§ Crompton & Greaves Ltd- In the first two years

it had a negative cash flow but now it has improved it dramatically
because of better working capital management where it has been
able to get enough cushion from its creditors by postponing the
payment.

§ Thermax: It had a negative cash flow but in the last two

years it has been able to make a turnaround in generating positive
cash flow. But to fund its CAPEX it is not raising any capital from
market. Instead it is funding it from cash flow operating activities
which is not a good sign.
 Findings from Common
size analysis
• Rank 1 to BHEL
• Rank 2 to L & T
• Rank 3 to Thermax
• Rank 4 to Crompton & Greaves
 Findings From sustainable
growth rate model
§ Because of its higher ROE L&T has outsmarted most of the

stocks over the years.

§ BHEL has the highest Net Profit Margin its ROE is lowest

among the competitors and the below the industry

average.

§ The effective tax rate for L&T has also been one among the

lowest which shows that the company is managing its

resources in an efficient manner.

 Findings from
Benchmarking Ratios
• L&T has outperformed the other players as it is around the
industry average or above it in almost all the parameters
and its gross and net profit margin has been impressive.
• Crompton greaves and Thermax are managing their
resources in an efficient manner.
> their gross profit margin is above the industry average
and their current assets and average receivables period
are lower than the industry average.
> their inventory turnover ratio is higher than the other
players.
> lower receivables period
Conclusion
Thank
You