Sujana Machine Tools company profile.pptx

sujana machine tools

1. Sujana Machine Tools Dr M Manickaraj NIBM, Pune

2. Profile of the Company Promoted by Arun, a mechanical engineer, in 1977 manufactures Wheel Lathe Machines. Offering retrofitting, maintenance and repair services. Over time he has started two more units – Sujana Industrial Corporation (SIC) and Sujana Engineering Corporation (MEC) in the same line of activity. He is running two other business units. Turnover of the group has grown from Rs.3 lakhs to Rs.60 crore over the period 1977 to 2007. Sole customer is Indian Railways. Started getting orders from companies like Visakhapatnam Shipyard and Larsen & Toubro Ltd. Able to win international tenders because of quality and price competitiveness. Arun and his wife are the owners/directors of all the units and Arun alone is running all the units.

3. Banking Relationship Availing facilities from Modern Bank since 1977. No default so far. SEC and SIC are being merged with SMT as instructed by the Bank. The company had achieved Sales of Rs.245 million by November 2007 and had orders for Rs.550 million on hand. It has also won few tenders and expects to get few more big orders. To meet the increasing demand it needs the following facilities: Term Loan Enhancement of Cash Credit limit Enhancement of BG limits Enhancement of LC limit

4. Issues for Discussion Credit Analysis Industry analysis Business analysis Management appraisal Financial analysis Qualitative Quantitative SWOT analysis Structure a package including fund based and non-fund based facilities. What security structure and covenants will you stipulate for sanctioning the above facilities? What suggestions will you offer to Mr. Arun for attaining his dream of making his company big and listed on stock exchanges? What is your view on Modern Bank’s suggestion to merge SIC and SEC with SMT?

5. Machine Tools Industry Growth potential is very high Overall economic growth Growth in user industries Potential for import substitution Potential for exports Less competition Cyclical in nature

6. Business of SMT Very long existence and well established Good relationship with its customer (Indian Railways) but dependent on a single customer Highly competitive in terms of quality Facing less competition Receiving orders from new customers Current orders position is very good Looking forward to better and bigger opportunities Capacity constraint

7. Management of SMT Technically competent and experienced Strong commitment Aspirations are very high Single man show No succession plan Lacking professionalism

8. Financial Analysis

9. Quality Check Despite a steep increase in sales, capital from SIC and SEC have been withdrawn from the business during 2006-07. The level of sales of the three units does not commensurate with the size of the units. There is holding and cross holding among the group companies. SIC has investments worth Rs. 17.9 million made in the group companies. Whereas capital available in the company is Rs. 10.4 million only. This indicates diversion of funds. Level of receivables is too high.

10. Quantitative Financial Analysis Historical performance Since the units are getting merged the historical financial statements are not comparable with the projected statements Quality issues need to be addressed by redrawing the historical financial statements Both the issues can be addressed by preparing consolidated financial statements of the three units Future/Projected performance

11. Consolidated Balance Sheets of SMT for 2006 and 2007   2006 2007 Equity Capital 35.20 15.80 Reserves and Surplus 22.30 35.70 Term Loans 0.30 2.00 Net Deferred Tax Liability 4.10 4.00 Current liabilities & Provisions 115.20 185.10 Creditors for purchases 44.30 71.30 Other creditors 15.90 25.40 Credit from banks 52.80 85.40 Provisions 2.20 3.00 Total Liabilities 177.10 242.60

12. Consolidated Balance Sheets of SMT for 2006 and 2007 …   2006 2007 Net Fixed Assets 19.50 19.00 Investments 18.30 15.20 - In MIPPL 12.80 15.20 - In MMPL 5.40 --- - Others 0.10 --- Other Current Assets 15.00 Current assets 139.30 193.40 Inventory 55.70 43.40 Sundry Debtors 70.00 117.20 Cash and bank balances 8.40 16.00 Loans and advances 5.20 16.80 Total Assets 177.10 242.60

13. Consolidated Profit and Loss Account of SMT for FY 2007   2006 2007 Net Sales 81.50 241.20 Income from Services 13.20 54.20 Other income 0.10 2.60 Expenditure 76.90 265.30 Manufacturing expenses 45.00 225.60 Employees emoluments 7.30 9.00 Administration, Selling & Distribution Expenses 24.60 30.70 EBITDA 17.90 32.70 Depreciation 1.90 1.90 EBIT 16.00 30.80 Interest 6.90 8.60 Bank Charges 2.30 2.70 Profit before tax 6.80 19.50 Provision for Taxes 0.40 6.20 Net Profit After Tax 6.40 13.30

14. Projected Financials   2007-08 2008-09 (Estimated) (Projected) Balance Sheet Data :     Equity Capital 25.80 25.80 Reserves and Surplus 57.90 71.30 Net Worth 83.70 97.10 Term Loans 22.10 16.70 Long-term Funds 105.80 113.80 Current liabilities 143.00 139.00 Total Liabilities 248.80 252.80 Net Block 38.10 38.00 Investments outside the business and non-current assets 28.00 28.10 Current assets 182.70 186.70 Total Assets 248.80 252.80

15. Projected Financials … Operating Data : 2007-08 2008-09 Gross sales / Receipts 540.00 575.00 Less: VAT / Excise duty 39.20 40.60 Net Sales 500.80 534.40 Other income 0.00 0.00 Manufacturing expenses 426.80 457.00 Gross Profit 74.00 77.40 Administration and Selling Expenses 39.00 39.50 EBITDA 35.00 37.90 Depreciation 2.80 3.10 EBIT 32.20 34.80 Interest 10.50 13.60 Profit before tax 21.70 21.20 Profit after tax 14.20 13.40

16. Financial Ratios Profitability Ratios   2006 2007 2008 2009 EBITDA/Net Sales 21.96% 13.56% 6.99% 7.09% EBIT / Net Sales 19.63% 12.77% 6.43% 6.51% Net Profit/Net Sales 7.85% 5.51% 2.84% 2.51% EBIT / Total Assets 9.03% 12.70% 12.94% 13.77% EBIT/Capital Employed 27.68% 57.57% 30.43% 30.58% Net Profit / TNW 11.13% 25.83% 16.97% 13.80%

17. Resource Management / Efficiency Ratios   2006 2007 2008 2009 Net Sales / Total Assets 0.46 0.99 2.01 2.11 Net Sales / Net Fixed Assets 4.18 12.69 13.14 14.06 Net Sales / Current Assets 0.59 1.25 2.74 2.86 Net Sales / Working Capital 3.38 29.06 12.61 11.20

18.   2006 2007 2008 2009 Liquidity Current Ratio 1.21 1.04 1.28 1.34 Quick Ratio 0.73 0.81     Solvency Debt to Equity 0.01 0.04 0.26 0.17 TOL / TNW 2.08 3.71 1.97 1.60 Interest Cover 1.70 2.18 2.35 1.99 Holding Periods Inventory Period 264 60     Receivables Period 313 177     Creditors Period 210 98    

19. Cash Flow Statement of SMT   2006-07 2007-08 2008-09 Profit after tax 13.30 14.20 13.40 Plus: Depreciation 1.90 2.80 3.10 Plus: Interest 8.60 10.50 13.60 Change in Current Assets:   10.70 -4.00 - Inventory 12.30     - Sundry Debtors -62.20     - Loans and Advances -11.60     Change in Current Liabilities   -41.70 -4.00 - Creditors for purchases 27.00     - Other creditors 9.50     - Provisions 0.80     Cash flow from Operating Activities -0.40 -3.50 22.10

20. Cash Flow Statement of SMT …   2006-07 2007-08 2008-09 Fixed assets -1.40 -21.90 -3.00 Investments 3.10 2.20 -0.10 Cash Flow from Investing Activities 1.70 -19.70 -3.10 Capital -19.40 10.00 0.00 Term loans 1.70 20.10 -5.40 Cash credit 32.60 -0.40 0.00 Interest -8.60 -10.50 -13.60 Cash Flow from Financing Activities 6.30 19.20 -19.00 Net Cash Flow 7.60 -4.00 0.00 Opening balance of cash 8.40 -- -- Closing balance of cash 16.00 -- -- Change in Reserves   4.00  

21. Cash Flow Ratios of SMT   2007 2008 2009 Interest Cover -0.05 -0.38 1.63 Debt Service Cover 1.16

22. SWOT of SMT Strengths Experienced and technically competent management Longstanding relationship with customer Employment to large number of workers Able to win global tenders and get orders from new customers Orders position is very good Weaknesses / Risks Managed by a single person No succession plan Management lacks professionalism Not being able to achieve targets / Lack of planning Quality of financial statements is poor Inadequate capital Diversion of funds and other resources Dependent on a single government customer Difficulty in realising bills from customers

23. SWOT of SMT Opportunities Favourable economic conditions High growth in sectors consuming machine tools Huge market potential including import substitution Potential to export Threats Cyclical Business Competition

24. Structuring a Package Term loan for expansion project? Cash credit? BG: Financial BG? Performance BG? LC? Any other?

25. Security Structure!!! Covenants!!!

26. Security Cover Facility Primary Security Collateral Term Loan (Rs.16.2 mn .) New plant (Rs. 22.2 mn ) Existing fixed assets (Rs.38.10 mn ) Cash Credit (Rs. 85 mn .) Stock and debtors (Rs. 182.7 mn ) Existing fixed assets and new plant BG (Rs. 140 mn ) Cash margin Stock, debtors, existing fixed assets and new plant LC (Rs. 7.5 mn .) Stock bough t under LC, Cash margin Stock, debtors, existing fixed assets and new plant Any other: Mortgage of promoter’s bungalow (Rs. 12 mn ) Personal guarantee of Mr. Arvind and Mrs. Arvind (Rs. 63 mn + Rs. 11.20 mn ) Corporate guarantee (SMPL and SIPPL)

27. Suggestions to the Management of SMT? Managerial Governance Succession plan Strategic partnership Building up capital Improving working capital management Shortening manufacturing cycle Pricing of products appropriately Strengthening marketing capabilities Shifting all plants to a single location

28. Financing Individual Units or Merged Unit? Financing the entire group will help banks in: Checking the problems of diversion of funds Checking non-reliability of financial information, to a large extent Realistic assessment of credit needs Monitoring and control.