FINANCIAL MANAGEMENT 1

Group 2
Submitted to Dr. Shikha Bhatia

Submitted By:

Rishabh Jalan 18PGDM096

Saharsh Saraogi 18PGDM098
Shobhit Madan 18PGDM107
Tushar Singla 18PGDM119
Ubayet Hussain 18PGDM120
 Analysis of Vardhman Textiles
Year 2013-14 2014-15 2015-16 2016-17 2017-18
Debt 253200.91 216649.05 172460.64 117203.52 150029.00
Equity 313202.08 337528.41 384646.86 427322.43 495370
D/E Ratio 0.808 0.642 0.448 0.274 0.303
Cost of Debt (%) 9.215 9.215 9.215 9.215 8.705
Cost of Equity (%) 8.794 11.861 11.900 10.195 8.095
WACC 7.746 9.746 10.213 9.389 7.630

1.000
D/E Ratio Cost of Debt
9.400
0.800
9.200
0.600
9.000
0.400 8.800

0.200 8.600

0.000 8.400
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Cost of Equity WACC

14.000 12.000
12.000 10.000
10.000
8.000
8.000
6.000
6.000
4.000
4.000
2.000 2.000

0.000 0.000
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

Operating Leverage Financial Leverage Combined Leverage

%age Δ in EBIT %age Δ in EPS %age Δ in EPS
%age Δ in Sales %age Δ in EBIT %age Δ in Sales

2013-14 1.324268143 0.814755085 1.078954203

2014-15 0.566300021 1.118480196 0.633395358
2015-16 1.370890322 0.927464308 1.271451844
2016-17 1.589653908 0.819493623 1.30271124
2017-18 0.585605207 0.928832456 0.543929122
1. Vardhman Textile has both Debt and Equity in its Capital Structure so it is regarded
as a Levered Firm.
2. The Debt (term loan) taken by the company is decreasing since 2013-14 and hence
the value of total debt of the firm. It was only in the year 2017-18 the company has
raised money from issue of Debentures which are at a very low rate of interest when
compared to term loans. This indicates strong repayment of the company built over
years.
3. The Equity levels are constantly on a rise. This is basically due to retained earnings by
the company.
4. The Cost of Debt is same for the years 2013-2017 and a decrease was witnessed in
2017-18 because of issue of Debentures which carry low rate of interest. Prior to
2017-18 the company had term loans which have been taken in the ROI bracket of
8.45% to 9.98% and an average of the same has been taken for analysis.
5. The Cost of Equity is volatile due to the Volatility of Beta of the stock with respect to
NSE.
6. The Proportion od Debt in the total capital structure of the company is decreasing
from 2013-14 to 2016-17. In the year the proportion saw a rise due to issue of
Debentures by the company.
 Analysis of Grasim

Year 2014 2015 2016 2017 2018 CAGR

D/E Ratio 0.09276 0.07659 0.03102 0.02364 0.01876 -0.2736
Ke 11.70% 13.16% 11.19% 13.09% 13.65% 0.03123
Kd 7.37 7.34 6.87057 6.85 8.04 0.01774
WACC 11.1394 12.5814 10.9998 12.9272 13.5034 0.03924
Beta 0.8470 1.1269 0.7482 1.1141 1.2212 0.07591

D/E Ratio Ke-Trend

0.1 16.00%
14.00%
0.08
12.00%
0.06 10.00%
8.00%
0.04 6.00%
4.00%
0.02
2.00%
0 0.00%
1 2 3 4 5 1 2 3 4 5

Kd-Trend WACC- Trend

16 16
14 14
12 12
10 10
8 8
6 6
4 4
2 2
0 0
1 2 3 4 5 1 2 3 4 5

Operating Leverage Financial Leverage Combined Leverage

%age Δ in EBIT %age Δ in EPS %age Δ in EPS
%age Δ in Sales %age Δ in EBIT %age Δ in Sales

2013-14 0.69856321 0.958904627 0.669855494

2014-15 0.910072486 1.211167647 1.102250351
2015-16 1.109117061 0.929417765 1.0308331
2016-17 1.190907008 4.873444555 5.803819275
2017-18 0.735985893 1.613166124 1.18726751
1. Grasim has a very low proportion of Debt in its Total Capital Structure.
2. The Debt comprises of both secured as well as unsecured term loans.
3. The beta of stock is usually close 1 which indicates the movement if stock is in high
correlation with the movement of the Index.
4. The Increase in Cost of Debt is seen primarily due to issue of Debentures by the
company in FY 17-18.
 Analysis of Raymond

Ø Debt Structure and Cost of Debt:

1. Over the five years, we can observe that the company has issued debt through both
Term Loan (higher Int. Rate) and Debentures (lower Int. rate). But in the recent time,
the company has tried to paid up most of the Term Loans and managed to issue
Debentures at a lower interest rate. This indicates strong repayment of the company
built over years.
2. Due to issue of more Debentures (Lower Int rate) in place of Term Loan, the overall
cost of Debt has decreased over the years.

Ø Equity Structure and Cost of Equity:

1. The Equity levels are constantly on a rise. This is basically due to increasing retained
earnings by the company.
2. But cost of Equity has decreased over the years except for 2016-2017. This is due to
decrease in Beta value over the years except once in 2016-2017.
3. That means Raymond’s performance deviates very little from the market and doesn’t
add a lot of risk to a portfolio, but it also doesn’t increase the theoretical potential for
greater returns.
4. The exception in 2016-2017 is due to Raymond’s high Beta value in this year; the
volatility or the systematic risk of Raymond in comparison with Market or Benchmark
increased.

Ø Leverage:

1. Raymond has both Debt and Equity in its Capital Structure so it can be considered as
a Levered Firm.
3. Its D/E ratio has decreased over the years which means investor’s interests are better
protected in the event of a business decline.
4. However, it may also indicate that a company is not taking advantage of the
increased profits that financial leverage may bring.
5. Performance in 2017-2018 has been phenomenal for Raymond. Thus, we can observe
a sharp increase in Sales, EBIT and also in EPS. Because of this company’s degree of
combined Leverage has increased manifold.

Ø WACC:

1. Except for once in 2016-2017, Raymond’s WACC has decreased over the years. At the
same time, company’s ROI has increased. This means company has profitable
opportunities from investor’s perspective.
2. Also, decrease in WACC indicates the company has managed to curb the cost of
capital very effectively; Less risk firm.
 Analysis of Siyarams
Amount in lakhs
2016-
Year 2013-14 2014-15 2015-16 17 2017-18
Debt 8521.67 5776.54 4952.13 6324.24 13449.60
Equity 39962.48 43495.01 51070.46 59660.8 67862.43
D/E Ratio 0.213 0.133 0.097 0.106 0.198
Cost of Debt (%) 12.05 11.01 10.61 12.54 9.45
Cost of Equity
(%) 9.38 11.80 12.5 12.51 12.1
WACC 7.77 10.43 12.6 11.316 11.169

0.250
Debt-Equity Ratio WACC
0.200 14.00
12.00
0.150 10.00
8.00
0.100 6.00
4.00
0.050
2.00
0.00
0.000
2013-14 2014-15 2015-16 2016-17 2017-18
2013-14 2014-15 2015-16 2016-17 2017-18

Cost of Debt Cost of Equity

14.00 14.00
12.00 12.00
10.00 10.00
8.00 8.00
6.00 6.00
4.00 4.00
2.00 2.00
0.00 0.00
2013-14 2014-15 2015-16 2016-17 2017-18 2013-14 2014-15 2015-16 2016-17 2017-18

1. Siyarams has a very low proportion of Debt in its Total Capital Structure.
2. The Debt comprises of both secured as well as unsecured term loans. The unsecured
term loans are interest free.
3. The beta of stock is usually close 1 which indicates the movement if stock is in high
correlation with the movement of the Index except for the year 2013-14.
4. Increase in debt has been observed during FY 2017-18. This can be due to the
decrease in the interest rate to 9.45%.
5. There has been a consistent increase in the EBIT and EPS for Siyarams over the
mentioned FY.
Year 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

1,04,796.0 1,30,343.2 1,51,029.8 1,57,393.3 1,73,275.5

Sales 0 8 4 1,60,891.07 4 8
PBT 8,178.58 9,801.87 3,057.14 12,711.35 13,598.59 17,127.23
Finance Cost 2,515.01 2,871.38 11,894.87 3,136.19 3,169.82 3,421.80
EBIT 10693.59 12673.25 14952.01 15,847.54 16,768.41 20,549.03
EPS 58.85 68.58 83.97 89.69 97.09 119.05

%age Δ in 18.512585 5.98936196 22.546085

EBIT 6 17.980865 5 5.8108072 2
%age Δ in 6.52932559 10.090795
Sales 24.378106 15.87083 6 -2.173974 5
%age Δ in 16.533559 6.81195665 22.618189
EPS 9 22.440945 1 8.2506411 3

Degree of Degree of Degree of

Operating Financial Combined
Leverage Leverage Leverage
%age Δ in %age Δ in %age Δ in
EBIT EPS EPS
%age Δ in %age Δ in %age Δ in
Sales EBIT Sales

2013-
14 0.7593939 1.119697494 0.850291
2014-
15 1.1329505 0.80125259 0.90778
2015-
16 0.9173018 0.879242525 0.806531
2016-
17 -2.672896 0.704285541 -1.88248
2017-
18 2.2343219 0.996812117 2.227199
 Analysis of Bombay Dyeing

(amount in ₹ Crores)
2013-
Year 14 2014-15 2015-16 2016-17 2017-18
Debt 553.96 906.03 1215.07 1009.35 2230.32
Equity 1463.55 1552.09 1286.2 1265.28 636.65
D/E Ratio 0.379 0.584 0.945 0.798 3.503
Cost of Debt (%) ( Before Tax) 17.918 17.00074072 13.86074522 16.53480054 15.59495681
Cost of Equity (%) 13.375 17.477 16.039 14.517 16.576
WACC 13.146 15.422 12.961 13.211 12.173

( Amounts in Rs
Crores)
Year 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18

Sales 2,329.26 2,656.23 2,378.27 1,845.01 1,710.29 2,692.75

-
PBT 97.81 33.14 34.94 85.24 71.28 37.19
Finance
Cost 174.74 191.02 227.22 282.64 368.44 412.51

EBIT 272.55 224.16 262.16 197.40 439.72 449.70

-
EPS(in Rs) 3.67 1.18 1.19 4.13 2.02 1.67

%age Δ in
EBIT 82.245 116.952 75.298 222.756 102.270
%age Δ in
Sales 114.038 89.536 77.578 92.698 157.444
%age Δ in
EPS 32.153 100.847 -347.059 -48.910 82.673

Degree of Operating Degree of Financial Degree of Combined

Leverage Leverage Leverage
%age Δ in EBIT %age Δ in EPS %age Δ in EPS
%age Δ in Sales %age Δ in EBIT %age Δ in Sales

2013-
14 0.721214123 2.557973191 1.844846393
2014-
15 1.306209476 1.159693856 1.514803105
2015-
16 0.970606406 -0.21695898 -0.210581775
 2016-
17 2.403023616 -4.55436416 -10.94424463
2017-
18 0.649561671 1.237033801 0.803529742

Observations-

1. Bombay Dyeing has both debt and equity in its capital structure so it is regarded as a
levered firm.
2. Debt has risen consistently over the years and there was a sharp increase in debt in
2017-2018. Debt in 2017-18 rose by Rs 1,220.97Cr as compared to 2016-17.
3. The cost of debt has been very high for the company hovering around the 15%-18%
mark. It could be due to repayment defaults or low credit rating rating.
4. Equity had been consistent till 2017-18. However, it was reduced to half in 2017-18.
5. The proportion of debt in the total capital structure is increasing significantly. It has
gone over the ideal ratio of 1:1 and has climbed up to 3.5:1.
6. Cost of Equity has been quite consistent due to the consistent level of Beta with
respect to NSE.
 Industry Analysis
Cost of Debt(in Cost of Debt-Equity
%) (before tax) Equity(in %) Ratio WACC(in %)
Grasim 7.37 11.7 0.093 11.139
Raymond 11.36 14.46 0.997 10.95
2013-14 Siyarams 12.05 9.38 0.213 7.77
Vardhaman Textiles 9.215 8.793991419 0.808426655 7.746373079
Bombay Dyeing 17.918 13.375 0.379 13.1461
Grasim 7.34 13.16 0.077 12.581
Raymond 11.28 12.9 0.854 10.354
2014-15 Siyarams 11.01 11.80 0.133 10.43
Vardhaman Textiles 9.215 11.86144505 0.64186908 9.7461008
Bombay Dyeing 17.001 17.477 0.584 15.4216
Grasim 6.87 11.19 0.031 11
Raymond 10.36 12.05 0.822 9.67
2015-16 Siyarams 10.61 12.5 0.097 12.6
Vardhaman Textiles 9.215 11.89957292 0.448360972 10.21273402
Bombay Dyeing 13.861 16.039 0.945 12.9606
Grasim 6.85 13.09 0.024 12.927
Raymond 10.07 14.36 0.649 11.299
2016-17 Siyarams 12.54 12.51 0.096 11.316
Vardhaman Textiles 9.215 10.19532932 0.274274206 9.389293949
Bombay Dyeing 16.535 14.517 0.798 13.2111
Grasim 8.19 13.65 0.019 13.503
Raymond 9.35 8.34 0.619 7.49
2017-18 Siyarams 9.45 12.1 0.198 11.169
Vardhaman Textiles 8.705 8.095 0.302862507 7.62973271
Bombay Dyeing 15.595 16.576 3.503 12.1733

1. Looking at the data from all the 5 firms in the textile industry we can conclude that in the
textile industry all the firms have both Debt and Equity in their Capital Structure.
2. Grasim Industries has the lowest Cost of Debt in the industry. This shows that it has the
highest credibility in the 5 companies we have analysed. Highest Cost of Debt is of Bombay
Dyeing which shows it has comparatively low credibility in the market.
3. Cost of Equity is dependent on the Beta calculated. Cost of Equity is basically the return that
the Shareholders are getting from investment in the company. From shareholders point of
view Vardhman Textiles is having lowest return in the 5 companies due to very high
Volatility in the Beta of Vardhman Textiles.
4. Grasim has the lowest Debt to Equity Ratio from the 5 companies we have analysed.
Bombay dyeing has the highest of all. The ratio is as high as 3.5 for Bombay Dyeing for FY 17-
18 where the company has invested in a project for which the amount is due and shown as
UNBILLED REVENUE in the balance sheet.