FINANCIAL ANALYSIS REPORT

PIDILITE INDUSTRIES LTD. ANALYSING PROFITABLITY: Profit margin ratio In terms of profitability the company has increased its profit margin from 12.93% in 2006 to 17.19% in 2011. This implies that the company is able to generate equivalent amount of profit with respect to increase in sales. And thus it indicates that the company is working efficiently by utilizing its resources. Return on capital employed (ROCE)/ Return on investment The return on capital employed has increased from 28.87% in 2006 to 29.99% in 2011. This is much higher than the standard ratio of 20%. This is because increase in the profit margin. Return on equity (ROE)/ Return on net worth The return on equity has increased from 31.83% in 2006 to 34.88% in 2011. This is because the company is able to generate more return on equity this current financial year in terms of issue of Foreign Currency Convertible Bonds (FCCBs), thus the shares allotted on conversion of FCCBs were entitled to Dividend. The dividend for the current year was free of tax in the hands of shareholders which directly impacted on the growth potential of the companys earnings with high ROE of 34.88%, which is much higher than the standard ratio of 15-20%. ANALYSING LEVERAGE: Debt to equity ratio The debt to equity ratio has increased from 13% in 2006 to 25% in 2011, but is still considerably below the acceptable level of 50%. Thus it clearly indicates that the company has additional debt capacity of 25% of total capital, which ensures the company to borrow more 25% over the specific amount of time. For the current year 2011 we can say that the for every $5 worth of the creditors investment the shareholders have invested $20. Thus it indicates that the company is running in good condition and has the ability to pay debts. Debt service coverage ratio The debt service coverage ratio has decreased from 35.72 in 2006 to 14.18 in 2011. This is because the Company had borrowed USD 17 million through an ECB Term loan amounting to Rs.796.2 million, repayable in 3 annual instalments. And during this current year (2011) the Company has repaid the 2nd of the 3 annual instalments amounting to USD 5.67 million equivalents to Rs. 241.18 million. And still the company need to pay Rs. 313.84 million in the third instalment, because of which the industry is facing problems in paying a regular and periodical interest income to the lenders.

LIQIDITY ANALYSIS: Current ratio The current ratio has decreased from 2.28 in 2006 to 2.23 in 2011, but it is still higher than the standard current ratio of 2:1. So for the current year we can say that the company has greater liquidity and lower risk for short term lenders. Currently the company is having assets that are 2.23 times the liabilities. Thus they dont have any risk of falling short to pay the debts in case the industry runs out of business. Quick ratio/ Acid-test ratio The quick ratio has increased from 1.17 in 2006 to 1.55 in 2011, which is satisfactorily above the standard quick ratio of 1. This is because the current year (2011) gross turnover has increased to Rs. 24883 million showing a top line growth, because of Raw materials and Packing materials were valued at a cost on weighted average basis. As a result the company was able to quickly convert it into cash. Even the finished goods, including traded goods and work in process are valued at lower of cost and net realisable value, because of which the industry was easily able to convert it into cash and able to cover its financial obligations. OPERATING PERFORMANCE ANALYSIS: Fixed asset turnover ratio Fixed asset turnover ratio has decreased from 3.59 in 2006 to 3.21 in 2011, but still it is on the better side. This is because the company has still been effectively investing in fixed assets to generate revenue. Inventory turnover ratio The inventory turnover ratio has increased from 6.81 in 2006 to 7.02 in 2011. This is because the company has been able to manage its inventory more effectively. And even a lesser amount of money is been required to finance the inventory because it is valued at a cost of weighted average basis.