Presentation

Financial Re- engineering to reduce

Finance Cost through Competitor Analysis

About the Project

AIM

• To Reduce Finance Cost.• To Recommend Sources of Finance.

Reason for doing this project –Trident wants to know • how their competitor are financing ?Requirement • Other than from banks, new securities to invest in.

Limitations• Secondary Data.• 2 Months period.• Analysis done for

the last 5 years.

Study and Research

How it is conducted

The two main sources of information about competitor’s strategy What a competitor is saying about its strategy ?

Annual reports Interview with analysts Statement by managers Press releases

What the competitor is doing ?

R&D Projects Capital Investment Mergers & Acquisitions Strategic Partnerships

Method Followed to study the strategy of competitor

1st Strategy - Analysis of Finance cost is analysed by 3 Parameters

1. Sources of Finance

2. Borrowing

Cost

2. Cash Flow (during the

year)

The most Important parameter that effects the finance cost is:-

Loan Portfolio Credit Rating (Products used by the company to finance) (On the basis of their repayments & Interest)

2nd Strategy - Linking of all the three statements with each other to know the competitor strategy of utilising funds

Trident Competitor Analysis

The analysis has been conducted in two parts:1. Textile IndustryInvolves the comparison of Trident with 4 of its Key competitors in Textile industry• Vardhman Textile Limited.• Welspun India Limited.• Alok Industries.• Nahar Spinning Mills Limited. 2. Paper IndustryInvolves the comparison of Trident with 3 of its Key competitors in paper industry• Tamil Nadu Newsprint and Paper Limited (TNPL)• Ballarpur Industries Limited (BILT)• J.K. Paper Limited

Problem Recognition

Trident Vardhman Nahar Alok Welspun0

2

4

6

8

10

12

14

16

% Finance cost to Revenue

% Finance cost to Revenue

• Undiversified Portfolio.• Cost of Borrowing STB - @10.05% LTB – @10.95%Corporate Loan @12.75%

Vardhman Textile Limited

Public Company Incorporated in 1973 S.P. Oswal is chairman Headquartered at Ludhiana, Punjab. Net Income – US 1.1 Billion Credit Rating: Short Term Rating – CARE A1+ and Long Term Rating – CARE AA

Key Highlights Sourcing also from Company Fixed Deposits. Company’s revenue consistently growing by 9% over the five years, except 2014 and highest profit in 2014.

Vardhman Textile Limited

Financial Analysis Over the five years, Vardhman debt to equity is consistently less

than 2 and less than 1 in 2015 i.e. 0.6%

2015 2014 2013 2012 20110

2

4

6

2.06 2.8

4.1 4.3

3

% Finance Cost to Revenue

Finance Cost

Company utilises the money from Reserves & Surplus for the Long term financing.

No shortage of funds

Welspun India Limited

Public Company Founded in 1985 B.K. Goneka is chairman Headquartered at Mumbai, Maharashtra Welspun India Limited, part of US $3.5 Billion Welspun Group. Credit Rating: - Short Term Rating – IND A1+ and Long Term Rating – IND AA-

 Key Highlights In 2015, more than 7 times increase in share price as compared to previous.

Rs 106.3 to Rs 709.9 Reason for the improved margins in 2015 – Cotton price Selling its product through Welspun Global Brands Ltd and Welspun Retail Ltd. Major Clients of Welspun in Retail – Chevron, Walmart, Target etc.

Welspun India Limited

2015 2014 2013 2012 20110

2

4

64.09

4.074.47

5.475.11

% Finance Cost to Revenue

Finance Cost

Financial Analysis Debt Service Coverage Ratio: 2.67 Times Debt Equity Ratio: 1.72 Times

Company increased its borrowing from banks with focus to increase its capacity and investing heavily in Fixed Asset and Technology.

In 2014, increase of more than 3% in LTB.

In 2015, profit marginsgrown to 26%

Nahar Spinning Mills

Public Company Founded in 1980 Mr Dinesh Oswal is MD. Headquartered at Ludhiana, Punjab. Credit Rating: CRISIL A+

Key Highlights Nahar selling its product through Monte Carlo Brand. In 2012, a worst year for the spinning industry and company's performance was also affected in the year.

Nahar Spinning Mills

Financial Analysis Company’s Debt to equity is less than 1 but in 2015 is 1.40. Current ratio 3.50% and Quick ratio 1.74%.

2015 2014 2013 2012 201102468

3.62.9

5.26.4

3.4

% Finance Cost to Revenue

Finance Cost

From the Last 2 years company is maintaining its finance cost less than 4.

Company’s borrowing cost is high in past years

Alok Industries Limited

Public Company Founded in 1986 Mr Dilip B. Jiwrajka is MD. Headquartered at Mumbai, Maharashtra Net Income US $2.1 Billion (2014) Credit Rating: CRISIL ‘A-/Stable’

Key Highlights Sourcing from 12% - 14.50% Debentures. Operating EBIDTA/Interest indicates the Company’s ability to

service its debt costs through profits. Operating EBIDTA/Interest decreased from 2.27 in the previous year to 1.62 in the current year

Alok Industries Limited

Debt to Equity for long term loans decreased from 1.61 to 1.22 in the current year. Current ratio was 1.58 in the current year compared to 1.49 in the previous year

2015 2013 2012 20110

5

10

15

2014.5

11

12.811.4

% Finance Cost to Revenue

Finance Cost

Alok Industry finance cost is highest among all the competitors of Trident

Tamil Nadu Newsprint and Paper Limited

Government owned corporation Founded in 1979 Mr Thiru. C.V. Shankar, IAS is MD. Headquartered at Chennai, Tamil Nadu,

India. Credit Rating: Short Term – IND A1 & Long Term – IND A+Key Highlights

11% Non-convertible debentures, 8.75% Non-convertible debentures, Commercial paper for STB. Fixed deposit for LTB TNPL’s is focusing on Mill Expansion Plan and Mill Development Plan and to finance these plans, TNPL is borrowing from different sources.

Tamil Nadu Newsprint and Paper Limited

Financial AnalysisTNPL’s borrowing cost is very less The average cost of Long term loan availed as on 31.3.2014 is 8.87 %. (31.3.2013: 7.74%) Working Capital loans 10.19% (31.3.2013: 9.81%). Overall cost is 9.28 % (31.3.2013: 8.42%).

2015 2014 2013 2012 201102468

107.2

5.336.43

9.17

3.6

% Finance Cost to Revenue

Finance Cost

Ballarpur Industries Limited

Public Company Founded in 1945 Lala Karamchand Thapar is Founder Headquartered at Gurgaon, India Revenue US $1 Billion Credit Rating: Long Term – IND A+ and Short Term – IND A1+ Key Highlights

Focuses on PenetrationBILT focuses on North India market and PILT focuses on Southern and Western market. Retail SectorP3 is a unique offering that successfully combines world class stationery merchandise, convenience of buying & price integrity and direct office sales.

Ballarpur Industries Limited

Financial AnalysisMost diversified Portfolio. Debentures, Non Convertible Debentures, Zero couponconvertible bonds, Fixed Deposits

2015 2014 2013 2012 20110

4

87.9

5.64.3

2.43.5

% Finance Cost to Revenue

Finance Cost

Finance cost is due to high borrowing from market

J.K. Paper Limited

Public Company Founded in 1981 Lala Juggilal Singhania & Lala Kamlapat is

Founder Headquartered at New Delhi, India. Credit Rating: Long term – IND BBB+ and Short Term – IND A2+Key Highlights Tie-up with HP (Hewlett Packard) to manufacture and sell ‘’Color

Lok’’ Paper. (License to produce).

1.255 Foreign Currency convertible bonds at interest rate of 6 months @ EURIBOR + 4.75% (2011) and in 2012 @ 6.455%.

J.K. Paper Limited

Financial AnalysisOver the 5 years company’s finance cost increased due to Low credit rating and also increased long term borrowing.

2015 2014 2013 2012 20110

2

4

6

8

10 9.4

7

3.39 3.7 4.12

% Finance Cost to Revenue

Finance C...

Issues 11% Debentures, 8.75% Debentures, Fixed deposits

Recommendations

The following are the products used by the competitor: Non-Convertible Debentures Commercial Paper Zero Coupon Convertible Bonds Debentures Company Fixed Deposits Foreign Currency Convertible Bonds

Some of the new products in the market which Trident can go for:- 1.Capital Indexed Bonds 2. Extendable Notes 3. Floating Rate bonds 4. Fixed Rate bonds

Non Convertible debentures

Pros and cons of NCD’s

Interest Rates offered are attractive. Listed on NSE and BSE can be traded in thesecondary market similar to trading in shares. Fairly liquid, as most NCD’s are traded..

Low Participation Rating Errors and Downgrades Interest Rate Sensitivity

Rating RequirementMinimum credit rating shall be P-2 of CRISIL or such equivalent rating by other agencies.

Non-Convertible Debentures (NCDs) will mean secured, negotiable money market instruments with original maturity of less than one year issued by corporates.

Commercial Paper

Commercial Paper (CP) is an unsecured money market instrument issued in the form of a promissory note.

Rating RequirementMinimum credit rating shall be ‘A3’ as per rating symbol and definition prescribed by SEBI.

Pros and cons of NCD’s

Quick and cost effective way of raising working capital.

They are cheaper than a bank loan. Unsecured and thus does not

create any liens on assets of the company.

Available only to a few selected blue

chip and profitable companies. Very closely regulated by the RBI guidelines.

Debentures

Debentures are offered to the public for subscription in the same way as for issue of equity shares. Debenture is issued under the common seal of the company acknowledging the receipt of money.

Pros and cons of NCD’s

Cost is relatively lower than preference shares and equity shares.

Interest on debenture is a tax deductible expenditure.

Does not result in dilution of interest of equity shareholders.

Payment of interest on debenture is obligatory.

Redemption of debenture involves a

larger amount of cash outflow. During depression, the profit of the

company goes on declining.

Company Fixed Deposits

Apart from banks there are companies in India that accept money from general public for a fixed term and pay interest. These companies are authorized by the Reserve Bank of India to perform these tasks Rating Requirement

The companies are rated based on certain ceilings and based on the rating a person may decide whether he should invest or not in a company.

Foreign Currency Convertible BondsFCCB or the Foreign Currency Convertible Bonds is a type of convertible bond issued in a currency different than the issuer’s domestic currency. It can be regarded as an instrument used to raise money by the issuing company in the form of a foreign currency.

SavingsProduct Company

Rate of Interest

Trident Term Loan /

Working Capital Loan

*Savings on monthly basis

Short Term Borrowings  

Non-Convertible Debentures*

BILT 9.60%

10.05%

30 lac/m

Commercial Paper* Welspun / TNLP 9 % 70 lac/m

Long Term Borrowings  

Debentures* J.K. Paper 8.75%

10.95%

2.3 Crore/m

Fixed Deposits*Vardhman/TNLP/BILT/

J.K. Paper10% 1 Crore/m

Savings are shown for every product that is being used by the competitor by taking the base of borrowings with both long term and short term.

• Average Long term Borrowing is 12652 million• Average Short Tem Borrowing is 8097.4 million

New Products

Capital Indexed Bonds Capital indexed bonds are inflation protection securities. Such bonds, therefore, provides good hedge against inflation risk. The basic feature of bonds would be that the coupon rate for the bonds would be specified in real terms

Extendable NotesExtendable notes are issued for 10 years with flexibility to the issuer to review interest rates every two years. The interest rate is adjusted every two years to reflect then prevailing market conditions by trying the interest rate to a spread over a bond index such as two years treasury notes.

New Products

Floating Rate bondsFloating rate notes (FRNs) are bonds that have a variable coupon, equal to a money market reference rate, like LIBOR or federal funds rate, plus a quoted spread

3 months USD LIBOR +0.20%

Fixed Rate bondsA fixed rate bond is a long term debt paper that carries a predetermined interest rate. The interest rate is known as coupon rate and interest is payable at specified dates before bond maturity.

Conclusion

Inspired by challenge

The company has tremendous scope of cost savings. Trident Limited is now into its expansion stage and such

information helps in making important strategic decisions.

small contributor to the bigger success story of Trident Group.