A Look At Murugappa Group Finance Essay

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Some of the well known Brands from the house of Murugappa are ; BSA and Hercules for bicycles , Ajax and ballmaster are known for abrasives , Parryware is a market leader in sanitaryware , gromor and framos are known for fertilizers .One of their product , neem Azal (made from neem) is a market leader in bio-fertilizers . they have some very high profile international tie ups like ; Morgan Crucibles of the UK , Mitsui Sumitomo Insurance of Japan , Wendt of Germany and BorgWarner of the USA . There 8 companies are listed on Bombay stock exchange and national stock exchange and are frequently traded . they also have 43 patents on there name for production innovation. It also has been at the forefront of safety in all the manufacturing facilities, promoting awareness and caring for the Health of its employees and protecting the environment. Almost all the manufacturing facilities of the group companies have been awarded the highest and contemporary certifications for Quality and Environment protection. Because of absence of consolidated financial data for the whole group and its 8 listed companies ,therefore to understand the financial history of the group we will focus on the flagship company of the group , which is Tube investments of India Limited . Tube Investments : Tube investments is the flagship company of the murugappa group with a contribution of Rs. 2440 crores towards the revenue of the group . TI was setup in year 1949 .they were india’s first integrated biccle manufacturers of that time . TI has business of : bicycles and electri scooters , Engineering business, metal forming business. From plain steel tubes they have emerged as a primary point of reference for precision tubular solutions in the automotive industry . now foray in power transmission , mobility and infrastructure also , automotive and industrial chains . FINANCIAL REVIEW Profits & Profitability With largely stable price of commodities, steel and oil, the strong focus on improving operating efficiencies, control overcosts and a good product mix, the overall performance of allthe segments of the Company was very good. The earnings before Interest, Tax, Depreciation & Amortisation beforeexceptional items grew from Rs. 124 Crores to Rs. 265 Crores,a growth of 114%. The Company has also improved itsoperating EBITDA margin from 5.7% to 11.3%.Capital ExpenditureIn keeping with its policy of pursuing and investing in longterm growth opportunities, the Company invested inestablishing green field facilities for manufacture of productscatering to the requirements of the Railways. A new facilityfor manufacture of doorframes is also being established atSanand, Gujarat. Apart from these facilities, the Companycontinued to invest in equipment for modernisation,enhancing productivity and improving quality. The totalinvestment in capital assets was Rs. 83 Crores. Depreciationon the assets of the Company is provided based on theirestimated useful life, leading to a higher charge towardsdepreciation in the case of some assets of the Company.AcquisitionDuring the financial year, the Company acquired a majoritystake in the Sedis Group, manufacturers of industrial chainsin France, by acquiring 77.13% stake in Financiere C10 S.A.S(FC10) with an agreement to buy the balance shares within aperiod of three years. The cost of acquisition of the 77.13%stake was Rs. 43.6 Crores. FC10 specialises in themanufacture of customised chains for a variety of industrialuses. FC10 possesses five global patents and has a veryimpressive list of customers. The management team at FC10is very capable and experienced and have steered thecompany profitably through turbulent times in the recent past.The acquisition will provide the Company’s chains businesswith access to new technologies to manufacture productsthat are currently being imported into India. In addition, thebusiness will also be able to enhance its presence in theEuropean market by leveraging the Sedis brand and itsdistribution network. Interest CostOn the back of a good performance by all the segments ofthe Company, the cash generated helped to keep theborrowings lower and consequently, the interest cost for the year was contained at around the same level as last year.The average rate of interest for the year was at 6.6% against7.3% in the previous year. As in the previous years, theCompany uses a judicious mix of long and short term funds,domestic and foreign currency borrowings and appropriatetenors to ensure the interest cost is kept at the lowest.Exchange Differences on International Trade & BorrowingsThe Company has entered into forward contracts andderivatives to hedge the foreign exchange fluctuation riskarising out of exports and repayment of long term foreigncurrency borrowings.From the year 2007-08, the Company opted to account suchexposures in line with the method prescribed in AccountingStandard 30 (AS 30). Applying the criteria laid down for HedgeAccounting, an amount of Rs. 2.8 Crores has been chargedto the Profit & Loss Account and a sum of Rs.4.4 Crores hasbeen taken to the Hedge Accounting Reserve. The amountin the Reserve account will be reversed when the transactionoccurs and the actual loss / gain is accounted.InvestmentsThe Company invested Rs.92.5 Crores in the rights issues ofCMSGICL. This investment will enhance the capital of the subsidiary and put it on a sound footing to grow its businessfurther.During the year, a wholly owned subsidiary was establishedin China to facilitate the operation of the e-scooters andbicycles business. The value of the investment made wasRs.1.85 Crores.The Company also acquired FC 10 in France for aconsideration of Rs. 43.6 Crores for the 77.13% holding.Subsequent to the close of the financial year, the stake ofDBS Bank Ltd, Singapore (DBS) in Cholamandalam DBSFinance Ltd (CDFL) was purchased by the Murugappa Group.Accordingly, the Company acquired 1,75,82,000 equity sharesof CDFL for a consideration of Rs. 160 Crores from DBS.Consequent to this acquisition, CDFL has become asubsidiary of the Company. The Company will also beacquiring the 1% Fully Convertible Cumulative Preference Shares issued by CDFL and currently held by New AmbadiEstates Pvt. Ltd. Having exited the personal loan businessand focusing on its core strengths of vehicle financing andhome equity, the business is expected to perform well in theyears ahead.The operations of Tubular Precision Products (Suzhou)Company Ltd were not profitable. Considering the difficultmarket conditions and the time it would take to reach thedesired profitability benchmarks of the Company, it was decided to liquidate the subsidiary. The liquidation processcommenced in December 2009 and concluded by March2010. The loss on the liquidation of the subsidiary wasRs. 39.95 Crores and this has been fully absorbed in theaccounts for the current financial year. The assets of the company will be relocated to the various plants in India tomeet the higher demand from these plants.TII Shareholding TrustArising out of the amalgamation of TIDC India Ltd (TIDC) with the Company in 2004, the TII Shareholding Trust was vestedwith 1,01,51,870 shares of the Company. Out of this,57,50,000 shares were sold in 2007-08. The balance sharesare to be disposed of before December 2010. Review of Performance The highlight of the year was the improved performance by all the business segments of the Company. Good growth in volume, largely stable prices with respect to key raw materials and focus on operating efficiencies enabled the Company to report a higher Profit before Tax at Rs.129.50 Crores against Rs. 83.02 Crores, last year, a growth of 56%. The Profit reported above is after providing Rs.39.95 Crores towards diminution in value of investments and other amounts receivable relating to the Company’s subsidiary viz., Tubular Precision Products (Suzhou) Co Ltd. The operating profit excluding the said provision grew by 366% over the previous year. The Bicycles division’s turnover grew by 31% and the division reported a profit before interest and tax of Rs. 68.72 Crores against Rs. 29.17 Crores in the previous year. A significant growth in volume, good product mix and higher sales through the retail formats pioneered by the Company contributed to this performance. As many as 79 new models were introduced catering to the various customer segments based on consumer insights and feedback and these products have met with very good response from the market. The division continues its focused marketing efforts across all segments, from toddlers to the high-end performance bicycles, for the discerning bicycle enthusiast. The electric scooters launched by the Company last year have gained market acceptance garnering a good market share in the southern part of the country. The division has been working on improving the performance of motors, controller and battery in line with the expectations of the consumers. The Engineering division of the Company grew its tubes business by 20% in volume terms and 5% in turnover. A significant part of the growth came through the higher sale of the value added tubes and tubular components. The profit before interest and tax grew by 415% from Rs. 16.54 Crores to Rs.85.10 Crores. This was achieved through higher volume, good product mix, focus on internal efficiencies and better utilisation of resources. The export market was affected due to the recession and consequently, exports were down by 12%. Your Company is also pursuing growth opportunities in new segments linked with the infrastructure industries that offer higher potential; this will help de-risk the revenue streams in the coming years. In the Metal Formed Products division, there was a double digit growth in volume of all segments, excluding export of industrial chain which continues to be affected by the recession. With an improvement in the sale of new models and growth in the existing models, the sale of car doorframes was higher at 31%. The new facility for manufacture of doorframes at Sanand, Gujarat is nearing completion and is expected to be commissioned in the first quarter of this financial year. In the Railways segment, there was an increase of 49% on the sale of cold rolled formed sections for wagons. The new facility at Uttarakhand for manufacture of these sections was commissioned during the year and this will help your Company to increase revenue in the current year. The facility for manufacture of side wall, end wall and roof assemblies for passenger coaches at the plant near Chennai has been commissioned and the output of this facility will contribute to the growth of this division from this financial year. During the year under review, the sale of automotive chains increased by 53%. This was possible due to the increased off-take by major customers on the back of growth in the industry. The facility established at Uttarakhand for manufacture of chains is functioning at full capacity and given the growth trends; there is a need to pursue expansion of capacities at all the plants. Management Discussion and Analysis The Management Discussion and Analysis Report, which forms part of this Annual Report, sets out an analysis of the individual businesses including the industry scenario, performance, financial analysis, investments and risk mitigation. Dividend Your Directors are pleased to recommend a dividend of Rs.1.50 per equity share of Rs.2 each. MURUGAPPA GROUP FINANCIAL HISTORY PGDMB11-06

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