Final Report

1.
SECTOR-CAPITAL GOODS
Capital Goods has been defined as any "product/ equipment of high value, durable (economic
asset life 3 years), used as plant and machinery for agricultural, industrial and commercial
(transportation etc.) purpose in production/ service delivery process". We have adopted "use
based" classification to segment Capital Goods. From the list of classified segments, we have
shortlisted five most representative segments based on - market size of the segment and its user
industry, and IIP weight age of the segment. The five representative segments identified are as
follows:
Textile Machinery
Machine Tools
Electrical and Power Equipment which includes Boilers, Turbines, Diesel Engines,
Transformers,
Switchgear, Motors ,Generators, Earthmoving and Construction Equipment
Process Plant Equipment which includes Pressure Vessels, Cooling Towers, Furnaces and
Heat Exchangers
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2. OBJECTIVE OF THE PROJECT
Major issues
Economy analysis
Industry analysis
Company line of business.
Comparative statement analysis
Ratio analysis
Common size analysis
CAGR analysis
Du-Pont analysis
Cash flow analysis
Trend analysis
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3. METHODOLOGY
We have taken four major companies in capital goods sector i.e.
BHEL
Larsen and toubro
Crompton greaves
Thermax
These companies will be analysed using various models which are discussed as follows:
3.1Comparative Statement Analysis
Statement on which balance sheets, income statements, or statements of changes in financial

position are assembled side by side for review purposes. Changes that have occurred in
individual categories from year to year and over the years are easily noted. The key factor
revealed is the trend in an account or financial statement category over time.
Benefits of comparative
Comparing generated revenue from one period to a different period can add another
dimension to analyzing the effectiveness of the sales effort, as the process makes it
possible to identify trends such as a drop in revenue in spite of an increase in units sold.
A comparative statement helps to address changes in production costs.
By comparing line items that catalog the expense for raw materials in one quarter with
another quarter where the number of units produced is similar can make it possible to
spot trends in expense increases, and thus help isolate the origin of those increases.
3.2Compound Annual Growth Rate - CAGR
The compound annual growth rate is calculated by taking the nth root of the total percentage
growth rate, where n is the number of years in the period being considered.

1

Where r= No of Periods
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3.3Cash Flow Analysis
A cash flow statement or statement of cash flows is a financial statement that shows a
company's incoming and outgoing money (sources and uses of cash) during a time period (often
monthly or quarterly). The statement shows how changes in balance sheet and income accounts
affected cash and cash equivalents, and breaks the analysis down according to operating,
The cash flow statement is intended to:
1. provide information on a firm's liquidity and solvency and its ability to change cash flows
in future circumstances
2. provide additional information for evaluating changes in assets, liabilities and equity
3. improve the comparability of different firms' operating performance by eliminating the
effects of different accounting methods
4. indicate the amount, timing and probability of future cash flows
3.4Dupont Analysis
This is a technique which is used to analyze profitability of a company using traditional

performance and management tools. To enable this, DuPont model integrates elements of
the income statement with those of balance sheet.
Return on net asset (RONA) is a measure of firm’s operating performance. It indicates
the firm’s earning power. It is a product of asset turnover, gross profit margin and
operating leverage. Thus RONA can be computed as follows:

!

" !
3.5 Common size Analysis

A company financial statement that displays all items as percentages of a common base figure.
This type of financial statement allows for easy analysis between companies or between time
periods of a company.
Why common size analysis?
The common-size statement is a financial document that is often utilized as a quick and
easy reference for the finances of a corporation or business.
The use of a common-size statement can make it possible to quickly identify areas that
may be utilizing more of the operating capital than is practical at the time, and allow
budgetary changes to be implemented to correct the situation.
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The common size statement can also be a helpful tool in comparing the financial
structures and operation strategies of two different companies.
The use of percentages in the common size statements removes the issue of which
company generates more revenue, and brings the focus on how the revenue is utilized
within each of the two businesses.
Often, the use of a common-size statement in this manner can help to identify areas
where each company is utilizing resources efficiently, as well as areas where there is
room for improvement.
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4. ECONOMY ANALYSIS
The Indian economy, characterized by strong macro-economic fundamentals, has drawn the
world’s attention as one of the fastest growing economies with future promise. The nation has
continued on its high growth trajectory registering an impressive growth of 9.4% during fiscal
year 2006-2007. The average GDP growth rate reported for the last 4 years is a record 8.6
percent. The industrial sector remained buoyant, driven by robust performances from
manufacturing, services and construction sectors. Foreign trade has been growing at an average
rate of 27% during the past 3 years. Savings and investment rates are estimated at a healthy
32.4% & 33.8% of GDP respectively. It is heartening to note that foreign direct investment
during the fiscal year 2006-2007 has doubled to USD 15 billion and is expected to scale up with
further opening up of core and infrastructure sectors.
The global economy recorded a growth of 5.4% during the year 2006 with an improved US
economy recording a growth of 3.3%. However, some moderation in growth is forecast for the
year 2007 with the global growth rate falling to 4.9% and the US economy slowing to 2.2%. The
oil rich countries, particularly in Middle-East & South East Asian region, have accelerated
investment in the infrastructure & construction sectors. With growing cooperation amongst the
oil producing countries, thanks to windfall gains from stable high oil prices, joint efforts are
being initiated for ramping up exploration facilities and distribution network.
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5.INDUSTRY ANALYSIS
5.1Competitiveness Analysis of Indian Capital Goods sector
The study of the performance of the Capital Goods sector reveals that its fortunes are
inextricably linked with that of the overall Indian industry.
• The Capital Goods value added contributes a fairly constant proportion (9-12 percent) of
the total manufacturing value added, thus establishing that manufacturing as the key end-
user sector of Capital Goods drives the performance of the latter.
• Another key determinant of the demand for Capital Goods is the gross investment
undertaken in the economy. The apparent consumption of Capital Goods constitutes a
constant share (17-21 percent) of the total Gross Domestic Investment in the country.
On the supply side the output of Capital Goods is determined by investments in Capital Goods
sector and capacity utilization. The investments in the Capital Goods sector have declined with
the decline in the relative profitability of the Capital Goods sector with respect to other sectors.
Based on the study of industrial development trajectory and share in world exports of Capital
Goods, we have chosen to compare Indian Capital Goods sector’s competitiveness vis-à-vis three
reference countries – China, Korea and Taiwan, and three benchmark countries – Japan,
Germany and USA.
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Table: Revealed Comparative Advantage for the Capital Goods Sector1
5.2Business Environment Competitiveness Issues
Labour in the Indian Capital Goods sector is highly cost competitive, even after
discounting a comparatively low labour productivity. The labour cost efficiency (which
captures the cost and productivity aspects of labour) for Indian Capital Goods sector is
1.32 times that of China’s and 1.38 times that of Taiwan’s. Among the reference set of
countries only Korea (whose labour cost efficiency is 1.31 times that of India’s) outscores
India on this count. But since the labour factor proportion is low (approximately 7 to 21
per cent) in the total factor usage, this does not translate into a significant relative
advantage. Inflexible labour policies have also eroded this advantage partly.
The raw materials used are largely domestic in origin. With the dismantling of various
price controls on key inputs, Indian Capital Goods manufacturers now procure raw
materials at market prices, which move in line with international prices. The raw material
price indices have risen faster than the machinery price index. It is difficult for the Indian
Capital Goods manufacturers to pass on the rise in prices to the customers, thereby
impacting their profitability. However the rising cost of raw materials has prodded only a
few Indian manufacturers to resort to value engineering techniques for efficient raw
material usage and cost reduction. The quality of raw materials is also not up to the
international standards in terms of dimensional tolerances and metallurgical properties,
and this, in turn, affects the quality of the final product.
Indian Capital Goods manufacturers have working capital requirements as high as 45 per
cent of net sales (against global benchmark of 15 per cent). High interest rate regime in
India results in a substantial 7 to 8 per cent interest rate differential relative to the
reference countries, amounting to 3.1 to 3.6 per cent capital cost disadvantage due to
interest differential and 0.9 per cent due to higher working capital requirement. It is
becoming increasingly difficult for the Indian Capital Goods sector to source capital.
Total bank credit to engineering sector has steadily declined from 20.3 per cent (as share
of total bank credit to all industrial sectors) in 1990 to 9.0 per cent in 2000. This is largely
a result of the shift from developmental banking to universal banking by financial
institutions initially set up to provide finance at lower costs to industry. With a bearish
capital market and reduced FDI inflow (except for electrical machinery segment), the
sector has been crowded out of project funding opportunities.
1
Source: Capital Goods Industry Report, PriceWater House Coopers,2005
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The technological competitiveness of the Indian Capital Goods sector is low. Indian
Capital Goods firms present a full spectrum of technological capabilities - while there are
few firms close to the international frontier in terms of product design capability and
process technology, technological capabilities of most players are extremely limited. The
advantage due to high availability of quality engineers and scientists is lost, partly due to
brain drain and partly due to stagnation of skill sets of scientists and engineers within
India. India has a number of high quality R&D institutions, but the industry–institute
interactions are low, thereby reducing the chances of creation of commercially viable
technologies. Capital Goods sector has a comparative disadvantage with respect to both
product and process technologies. In the case of the Indian Capital Goods manufacturers,
the human resources devoted to design and engineering activity is about 20 to 50 per cent
less than in other industrialized countries. Although Indian firms are capable of achieving
high levels of precision, they are unable to produce high quality products due to lack of
supporting process technologies such as precision measuring, material engineering and
process control.
Negative perceptions about "Made in India" image have damaged the ability of Indian
Capital Goods manufacturers to compete at optimal capacity in world markets, while
promoting their products abroad. This invariably results in price concessions by Indian
manufacturers to offset product bias in export markets, thereby compounding cost
disadvantage. So strong is the negative image that leading Indian Capital Goods exporters
play down their "Made in India" identity as the association of 'country of origin' is more
harmful than helpful. The problem has been further exacerbated by negative self
perception of Indian buyers and lack of strong "Buy Indian" sentiment.
The quality of infrastructure (transport, communication and power) is poor, thus affecting
competitive delivery schedules and increasing operating costs. The delivery time of
locally made Capital Goods in many cases is 1.5 to 2 times longer than in industrialized
nations. Companies tend to lose orders on delivery schedules. Inland transport is slow,
although the railroad density is among the highest in the world. The cost of electric power
is comparable to that in other nations, but the reliability is poor. Many Indian Capital
Goods firms have set up their own captive power plants to obviate the problem. This has
added to the costs. Overall the infrastructure inadequacies are estimated to translate into 5
per cent cost disadvantage for Indian Capital Goods manufacturer’s vis-à-vis foreign
manufacturers.
Indian Capital Goods industry derives some degree of comparative advantage from
cauterization in certain segments like foundry; electronics etc., while engineering
consulting services has exhibited competitive advantages relating to the accumulation of
knowledge assets and advanced tools. However, in the larger frame of picture, ancillaries
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and supporting industries (for bought-outs like hydraulics etc.) are far from being
competitive in terms of technical capability, quality and delivery. The industry is
characterized by relative lack of sub-contracting arrangements, despite large scale SME
presence in engineering sector, thus losing out on opportunities to exploit horizontal
economies of scale or specialization.
Indian Capital Goods sector is strengthened by large home demand with high growth
potential (on flip side even inducing inward orientation). At the same time, low degree of
buyer sophistication neutralizes any accruing size advantage as the companies can get
away with less than desirable quality, with little incentive to innovate.
5.3Firm-level Competitiveness Issues
The ownership pattern in Indian Capital Goods Industry is marked by the dominance of
Public Sector Enterprises (PSEs) in heavy engineering, machine tools, boiler
manufacturing, while private firms prevail in industrial machinery segments such as
cement, sugar and most other non-electrical machinery. The impending privatization of
these large PSEs would radically change the industry structure. The firm structures and
their ownership pattern at the end of the privatization process would significantly affect
the development of this sector in the future.
The Indian Capital Goods sector at present is concentrated in terms of output shares. In
most product groups, there are a few companies at the top of the pyramid, generally large
Public Sector Enterprises (PSEs), followed by a middle layer of companies comprising
large private companies and Multi- National Companies (MNCs) operating in India and a
large number of small units at the bottom. Although the last decade has seen the decline
in PSE’s market share, the dominance of PSEs is partly maintained through preferential
policies like purchase preference. This results in sub-optimal market functioning, leading
to less innovation and thereby low competitiveness.
Indian Capital Goods sector is characterized by a large width of products (almost all
major Capital Goods are domestically manufactured) - a legacy of import-substitution
policy. This is reflected in the import and export weights calculated for the various
reference and benchmark countries. The import weight is defined as the ratio of imports
to domestic consumption and the export weight as the ratio of exports to total domestic
production. Low values for both weights would indicate an inward oriented economy
focused on catering only to its demand through domestic production. In the case of India,
the import weight works to 21 percent, while the export weight is 7 percent. A case in
point is the vibrant German Capital Goods sector, which has an import weight of 32
percent and export weight of 41 percent with a self-sufficiency of 115 percent. Even
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nations with advanced Capital Goods sector do not produce the entire range of Capital
Goods, but instead focus on select segments or sub segments. The Indian Capital Goods
sector, on the other hand, lacks sufficient depth largely due to low demand sophistication
of the Indian market, thus, resulting in comparatively low competitiveness.
Indian firms, in general, lack export thrust in their marketing strategies. The emergence
of global market, through lowering of tariff barriers, has led to blurring of margins
between domestic and export markets. Worldwide Capital Goods firms are
increasingly becoming global in operations. Very few Indian firms have a global
mindset. The focus is largely on the domestic market; exports gain importance only in
case of fall in domestic demand.
Most Indian manufacturers define quality of Capital Goods largely by performance

parameters and dimensional accuracy, and not in terms of aesthetics or finish of the
goods. Most Indian Capital Goods are functionally at par with equipment made elsewhere
in the world, but they rank poorly as far as finish is concerned. This has adversely
impacted the competitiveness of the Indian Capital Goods in a discriminating and
sophisticated export market.
The limited presence of Indian Capital Goods firms in the value chain leads to diminished
cost and differentiation advantage. An emerging trend amongst Capital Goods companies
around the world is the transformation of these engineering companies to a more service
based organization. Some large international firms earn a substantial proportion of their
revenue from services through significant investment in downstream activities.
Indian firms invest less in marketing activities and have low customer orientation. Very
little effort is expended on branding. Investments in marketing, increased customer
orientation and branding could act as entry barriers for foreign firms into the Indian
market. The trend internationally has been towards adopting a solutions approach to
selling. Indian firms continue to adopt a product-oriented approach towards their
customers
Firm level innovation is very low in India. Indian Capital Goods firms source technology,
but very few of them improve upon it. The research spending as a percentage of sales
amongst Indian Capital Goods are low when compared to the R&D spends of companies
in Taiwan and Korea.
Indian Capital Goods firm operational efficiencies are comparatively low. Very few
Indian firms use technology to make their business processes like procurement,
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distribution, marketing and servicing more efficient. Also the use of techno-managerial
processes like JIT, TQM, TPM etc. are limited to large firms only.
5.4Strategic Goals for Indian Capital Goods industry
The strategic goal for the Indian Capital Goods sector can be represented a multiplier of value of
production and export weight. We have created medium-term (2002-07) and long-term (2007-
12) scenarios, co-terminus with tenth and eleventh five-year plan. Below we enumerate the
strategic goals under the two scenarios:
Scenario Terminal Input Variables Output Indicators

Year VoP VoP Export Export Export RCA
CAGR Weight Value CAGR Index
Baseline 2001 20 - 5% 1 - 0.2
Medium 2007 31.7 8% 20% 6.35 36.2 0.91
Term
Long 2011 51.1 12% 30% 15.33 19.3 1.51
Term
Table: Scenario for Strategic Goals2
Thus a two-pronged thrust is needed to achieve export competitiveness. The productivity growth
is obviously preferable to growth due to increases in factor inputs, since the latter might be
subject to diminishing marginal returns. Also since the factor inputs are usually supply-
constrained in short and medium run, an improvement in factor efficiency is distinctly more
significant. The sources of TFP growth for Indian Capital Goods industry broadly comprise
infrastructure, reorientation in the industrial policies, restructuring of PSEs and adoption of
technology. The growth in TFP has to be complemented by increased export orientation resulting
in higher export weight for Indian Capital Goods.
5.5Firm-level Strategies
Enhance Market Position [Capital Goods Firms]
Attain market leadership through acquisition and consolidation to gain economies of

scale in a price sensitive industry. Market leadership will also create clout with
distributors and make it easier to reinvest in maintaining product leadership.
2
Source: Capital Goods Industry report, Thomson Research, 2006
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Build and nurture brands for creating a franchise in the export markets and stabilizing
market shares in a sector characterized by slow pace of technological development
Enhance value-chain presence by providing custom-engineered products and special

design services to cement relationships with customers and mitigate price pressures
Provide value to the customers in terms of return on investment with emphasis on

solutions-approach instead of product-approach to selling. In order to satisfy demanding
customers, Capital Goods firms can provide better value-for-money by either adding
more sophisticated controls or reducing equipment complexity.
Build and strengthen distribution channels through direct marketing channel in export
markets or regional distribution network to sell on 'stock-and-sale' basis
Build technology leadership [Capital Goods Firms]
Adopt latest product and process technologies to enhance product quality, productivity,
manufacturing flexibility, and operating efficiency. Allocate more resources for in-house
R&D in product development.
Embrace technologies in business processes by investing in internet technologies (like e-

commerce through b2b e-markets or private exchanges, e-procurement, e-CRM etc.) and
supply chain management to provide better value to the customers (in terms of pricing
and convenience), and to boost profitability by finding new avenues of sales growth and
productivity gains
Increase emphasis on diversified product lines, customer bases, and markets [Capital
Goods Firms]
Build diversified product lines to reduce business risk and mitigate cyclical pressures.
New products, offering increased value to customers, enable the price base to be reset,
also easing price pressures. However, Indian Capital Goods firms should guard against
over-diversification, which would dilute focus and core competency.
Enhance service-orientation and focus on fee-based activities to optimize mix of project

services and products portfolio
Increase presence in after-market products (used in maintenance and repair functions) as
these are less sensitive to general economic conditions and may even be counter-cyclical.
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6.COMPANY OVERVIEW
Larsen & Toubro Limited (L&T)
Larsen & Toubro Limited (L&T) is India's largest engineering and construction conglomerate
with additional interests in Electricals, electronics and IT. A strong customer-focus approach and
constant quest for top-class quality have enabled L&T to attain and sustain leadership position
over 6 decades. L&T enjoys a premiere brand image in India and its international presence is on
the rise, with a global spread of over 30 offices and joint ventures with world leaders.
Larsen & Toubro Limited (L&T) is India's largest engineering and construction conglomerate
with additional interests in Electricals, electronics and IT. A strong customer-focus approach and
constant quest for top-class quality have enabled L&T to attain and sustain leadership over 6
decades.
EPC project business constitutes a critical part of the L&T's engineering core. L&T has
integrated its strengths in basic and detailed engineering, process technology, project
management, procurement, fabrication and erection, construction and commissioning, to offer
single point responsibility under stringent delivery schedules. Strategic alliances with world
leaders enable L&T to access technical know-how and execute process intensive, large scale
turnkey projects to maintain its leadership position.
L&T's international presence is on the rise, with a global spread of over 30 offices and joint
ventures with world leaders. Its large technology base and pool of experienced personnel enable
it to offer integrated services in world markets.
L&T enjoys a brand image in India and several countries offshore. With factories and offices
located all over the country and abroad, L&T operations are supplemented by a comprehensive
distribution network and nationwide ramifications for customer service and delight
THERMAX LTD
• Sustainable solutions in Energy and Environment, on this principle Thermax has

developed energy-efficient and eco friendly solutions for industry and commerce. For
over 3 decades, Thermax has been helping customers improve their processes, conserve
energy, increase their competitiveness and adhere to environmental norms.
Thermax equipment helps several tens of thousands of customers the world over enjoy increased
profitability, and earn community goodwill by:
• Maximizing energy efficiency and slashing operating costs

• Minimizing waste
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• Recovering precious resource from waste
• Keeping pollutants out of the waters and the air
Thermax products and systems are in use in over 40 countries over the world, supported through
a network of subsidiaries, manufacturing facilities and Sales and Service offices in 14 countries.
Thermax main operations are headquartered in India, with five manufacturing facilities, 12 sales
and service offices and a widespread franchisee and dealer network.
Business Areas
In focus with the business mission; to provide Sustainable solutions in Energy and Environment,
Thermaxs core business comprise 6 major business areas.
• Boilers and Heaters

• Absorption Cooling
• Water and Waste Solutions
• Chemicals for Energy and Environment applications
• Power and Cogeneration systems
• Air Pollution and Purification
Thermax provides standard products in these 6 areas of business. Drawing on decades of

research and experience in process productivity improvement and energy generation, Thermax
also customizes integrated sustainable solutions for the project requirements of a wide range of
industries.
Strategic Alliances
Thermax has sourced cutting-edge technologies for its business operations through alliances with
world technology majors, like Babcock & Wilcox USA, Kawasaki Thermal Engineering
Company, Japan; Eco Tech, Canada; Honeywell, USA; Bloom Engineering, Germany; Struthers
Wells and Ozone Systems, USA.
BHARAT HEAVY ELECTRICALS LTD.
BHEL is the largest engineering and manufacturing enterprise in India in the energy-
related/infrastructure sector, today. BHEL was established more than 40 years ago, ushering in
the indigenous Heavy Electrical Equipment industry in India - a dream that has been more than
realized with a well-recognized track record of performance. The company has been earning
profits continuously since 1971-72 and paying dividends since 1976-77.
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BHEL manufactures over 180 products under 30 major product groups and caters to core sectors
of the Indian Economy viz., Power Generation & Transmission, Industry, Transportation,
Telecommunication, Renewable Energy, etc. The wide network of BHEL's 14 manufacturing
divisions, four Power Sector regional centres, over 100 project sites, eight service centres and 18
regional offices, enables the Company to promptly serve its customers and provide them with
suitable products, systems and services -- efficiently and at competitive prices. The high level of
quality & reliability of its products is due to the emphasis on design, engineering and
manufacturing to international standards by acquiring and adapting some of the best technologies
from leading companies in the world, together with technologies developed in its own R&D
centres
BHEL has acquired certifications to Quality Management Systems (ISO 9001),

Environmental Management Systems (ISO 14001) and Occupational Health & Safety
Management Systems (OHSAS 18001) and is also well on its journey towards Total Quality
Management.
BHEL has
Installed equipment for over 90,000 MW of power generation -- for Utilities, Captive and
Industrial users.
Supplied over 2,25,000 MVA transformer capacity and other equipment operating in
Transmission & Distribution network up to 400 kV (AC & DC).
Supplied over 25,000 Motors with Drive Control System to Power projects,
Petrochemicals, Refineries, Steel, Aluminum, Fertilizer, Cement plants, etc.
Supplied Traction electrics and AC/DC locos to power over 12,000 kms Railway network.
Supplied over one million Valves to Power Plants and other Industries.
BHEL's operations are organized around three business sectors, namely Power, Industry -
including Transmission, Transportation, Telecommunication & Renewable Energy - and
Overseas Business. This enables BHEL to have a strong customer orientation, to be sensitive
to his needs and respond quickly to the changes in the market.
BHEL's vision is to become a world-class engineering enterprise, committed to enhancing

stakeholder value. The company is striving to give shape to its aspirations and fulfill the
expectations of the country to become a global player.
The greatest strength of BHEL is its highly skilled and committed 42,600 employees. Every
employee is given an equal opportunity to develop himself and grow in his career. Continuous
training and retraining, career planning, a positive work culture and participative style of
management all these have engendered development of a committed and motivated workforce
setting new benchmarks in terms of productivity, quality and responsiveness.
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CROMPTON GREAVES LTD.
Crompton Greaves (CG) is part of the US$ 3 billion Avantha Group, conglomerate with an
impressive global footprint.
Since its inception, CG has been synonymous with electricity. In 1875, a Crompton
'dynamo' powered the world's very first electricity-lit house in Colchester, Essex, U.K.
CG's India operations were established in 1937, and since then the company has retained
its leadership position in the management and application of electrical energy.
Today, Crompton Greaves is India's largest private sector enterprise. It has diversified
extensively and is engaged in designing, manufacturing and marketing technologically
advanced electrical products and services related to power generation, transmission and
distribution, besides executing turnkey projects. The company is customer-centric in its
focus and is the single largest source for a wide variety of electrical equipments and
products.
With several international acquisitions, Crompton Greaves is fast emerging as a first
choice global supplier for high quality electrical equipment. The company is organized
into three business groups viz. Power Systems, Industrial Systems, Consumer Products.
Nearly, two-thirds of its turnover accrues from products lines in which it enjoys a
leadership position. Presently, the company is offering wide range of products such as
power & industrial transformers, HT circuit breakers, LT & HT motors, DC motors,
traction motors, alternators/ generators, railway signaling equipments, lighting products,
fans, pumps and public switching, transmission and access products. In addition to
offering broad range of products, the company undertakes turnkey projects from concept
to commissioning. Apart from this, CG exports its products to more than 60 countries
worldwide, which includes the emerging South-East Asian and Latin American markets.
Thus, the company addresses all the segments of the power industry from complex
industrial solutions to basic household requirements. The fans and lighting businesses
acquired "Super brand" status in January 2004. It is a unique recognition amongst the
country's 134 selected brands by "Super brands", UK.
The quality of households is enhanced when their money is invested into products such as
fans and lighting for basic comforts. Their lives are literally touched by delight. Similarly,
Crompton helps electricity boards and other utilities to reach electricity to the last home
and factory. Therefore, every individual in India who uses electricity can be considered as
Crompton customer. Hence, the company continues to further and consolidate the
initiatives that Colonel Crompton set into motion by focusing on meeting increasing
customer demands for products that are eco-friendly, energy efficient and with intelligent
monitoring and control Systems.
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7.ANALYSIS
7.1COMPARATIVE ANALYSIS
7.1.2 L & T
Comparative Balance sheet

2003 2004 2005 2006 2007 CAGR (%)
Liabilities & Capital

Current Liabilities 210.79 296.20 487.65 601.23 1137.66 52.42
Yoyo % change 40.52 64.64 23.29 89.22
Long term liabilities 4700.71 2769.19 3453.70 3497.08 6431.78 8.15
YoY % change -41.09 24.72 1.26 83.92
Share Capital 248.71 24.88 25.98 27.48 56.65 -30.92
YoY % change -90.00 4.42 5.77 106.15
Reserves 2967.89 2622.44 3289.95 4937.00 6864.90 23.32
YoY % change -11.64 25.45 50.06 39.05
Total 8128.10 5712.71 7257.28 9062.79 14490.99
Assets
Current Assets 18877.74 12929.76 15443.58 19459.23 30496.10 12.74
YoY % change 31.90 43.00 5.97 82.80
Net Fixed Assets 5539.05 2140.1 2214.98 2973.46 5453.86 -0.39
YoY % change -61.36 3.50 34.24 83.42
Other Assets 13338.69 10819.12 13182.1 16445.55 24876.02 16.86
YoY % change -18.89 21.84 24.76 51.26
Total 37755.48 25888.98 30840.66 38878.24 60825.98
Comparative Income Statement
CAGR
2003 2004 2005 2006 2007 (%)
Sales 10691.14 10979.10 14524.89 16657.75 20678.81 17.15
% change 2.69 32.30 14.68 24.14
COGS 304.27 336.51 468.07 682.09 786.52 23.65
% change 10.60 39.10 45.72 15.31
Gross Profit 469.33 1068.07 1405.23 1737.46 3004.24 29.50
% change 127.57 31.57 23.64 72.91
Total
expenses 10750.62 11424.41 14337.77 16087.77 19955.76 14.96
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% change 6.27 25.50 12.21 24.04
PAT 374.02 771.06 1127.69 1306.12 2271.52 31.01
% change 106.15 46.25 15.82 73.91
Current Liabilities
The current liabilities of the company have shown fluctuation, this is due to the repayment
because in the year 2005 the company spent large some on the payment of short term liabilities.
But again the current liability increased. It grew at a rate of 52% in this period of five years
YoY % change Current Liabilities

100
80
60
40
20
0
2003 2004 2005 2006 2007
YoY % change 40.52 64.64 23.29 89.22
Long Term Liabilities
The long term liability has increased constantly over the period of five years. This shows that the
company is increasing its long term borrowings. This can be also related to the increase of debt
equity ratio over the period and the increase in EPS and ROE. The long term borrowings
increased at a constant growth rate of 8% over the period of 5 years.
19
YoY % change long term liabilities
100
80
60
40
20
0
-20
-40
-60
-80
2003 2004 2005 2006 2007
YoY % change -41.09 24.72 1.26 83.92
Share Capital
The share capital has shown year on year decrease of 30%. This is because of the company going
for a buyback in the year 2004. This is also reflected in the increase of the D/E ratio and the
increase in the EPS in the corresponding year.
YoY % change Share Capital

150
100
50
0
-50
-100
-150
-200
2003 2004 2005 2006 2007
YoY % change -90.00 4.42 5.77 106.15
Reserves
The reserves increased by more than 200% in the period of 2003 to 2007 with a CAGR of 23%.
The increase in on account of higher retention ratios. The company’s retention ratio has
decreased but the profit has increased with a CAGR of 31%.
20
YoY % change Reserves
60
50
40
30
20
10
0
-10
-20
-30
2003 2004 2005 2006 2007
YoY % change -11.64 25.45 50.06 39.05
Current Assets
The current asset has increased by a CAGR of 12%. Most of this increase can be explained by
the increase in the receivables of the company which increased to three times of its value in
2003. This is also reflected in the increase in the current ratio of the company. The sharp decline
in the years 2006 is due to the decline in the rate of change of the current asset.
YoY % change Current Asset

90
80
70
60
50
40
30
20
10
0
2003 2004 2005 2006 2007
YoY % change 31.90 43.00 5.97 82.80
Net fixed Assets
The net fixed asset of the company has decreased at a constant rate of 0.39%. This is because the
company has not invested in fixed asset in the span of 5 yrs. This shows that the company has
21
not gone for expansion projects. Net fixed asset in the given period declined from Rs 5823 Cr to
Rs 5453 Cr.
YoY % change Assets

100
50
0
-50
-100
-150
2003 2004 2005 2006 2007
YoY % change -61.36 3.50 34.24 83.42
Other Assets
Other assets comprises of the deferred tax assets and the investments by the company in shares,
mutual funds, marketable securities, bonds and other companies. An increase of 16% is seen in
this type of assets. The company has resorted to investing the cash available into other assets.
The investments increased by more than 7 times in the span of 5 years.
YoY % change other Assets

60
40
20
0
-20
-40
2003 2004 2005 2006 2007
YoY % change -18.89 21.84 24.76 51.26
Sales
The sales of the company have a CAGR of 17%. This can be attributed to the growth in the
infrastructure sector of the economy which also grew at CAGR of more than 10%.
22
% change Sales
35
30
25
20
15
10
5
0
2003 2004 2005 2006 2007
% change 2.69 32.30 14.68 24.14
% change COGS
50
45
40
35
30
25
20
15
10
5
0
2003 2004 2005 2006 2007
% change 10.60 39.10 45.72 15.31
Gross Profit
The gross profit of the company increased by a CAGR of 29.5% throughout the 5 year period.
This is because of the increased efficiency on account of better management of the inventory,
other current assets and investments of the company. Although the year on year growth rate
declined as shown in the graph.
23
% change Gross Profit
140
120
100
80
60
40
20
0
2003 2004 2005 2006 2007
% change 127.57 31.57 23.64 72.91
Expenses
Total expenses increased at a CAGR of 15%. This change can be accounted by the increase in
expenses of raw material which increased approximately 4 times in the span of 5 years. Other
significant contributor to the increase in the expenses is the compensation to employees and
purchase.
% change total Expenses

30
25
20
15
10
0
2003 2004 2005 2006 2007
% change 6.27 25.50 12.21 24.04
PAT
24
The profit after tax has increased at a CAGR of 31%. This increase can be attributed to the
management’s efficiency in manufacturing, advertising and selling the products. This is also
reflected in the net profit margin ratio of the company. although the rate of increase of PAT is
showing e declining trend.
% change PAT
120
100
80
60
40
20
0
2003 2004 2005 2006 2007
% change 106.15 46.25 15.82 73.91
7.1.2 Thermax
items 2002 2003 2004 2005 2006 2007

current liabilities 201.75 210.79 296.2 487.65 601.23 1137.66
% change 4.4807931 40.519 64.635381 23.291295 89.222095
long term
liabilities 14.88 1.25 9 6.64 7 2.17
- -
% change 91.599462 620 26.222222 5.4216867 -69
reserve 339.96 363.6 344.14 384.97 435.57 566.12
% change 6.9537593 -5.3520352 11.864358 13.143881 29.97222
sh . Cap 23.83 23.83 71.49 71.49 23.83 23.83
% change 0 200 0 -66.6667 0
total liabilities 614.67 632.44 755.9 968.83 1087.25 1749.9
% change 2.890982 19.52122 28.16907 12.22299 60.94734
25
items 2002 2003 2004 2005 2006 2007
net fixed assets 110.43 101.99 102.38 134.97 144.42 189.74
% change -7.64285 0.38239 31.83239 7.001556 31.3807
Investments 170.37 242.21 286.53 318.43 396.97 574.12
% change 42.167048 18.298171 11.133215 24.664761 44.625538
Current assets 546.59 492.525 601.8 872.845 979.95 1609.585
-
% change 9.8913262 22.186691 45.03905 12.270793 64.251748
Total assets 614.67 632.44 755.9 968.83 1087.25 1749.9
% change 2.890982 19.52122 28.16907 12.22299 60.94734
% change in current liabilities

100
90
80
70
Axis Title
60
50
40
30
20
10
0
1 2 3 4 5
Series1 4.48079306 40.5189999 64.6353815 23.2912949 89.2220947
We can see that thermax current liabilities is increasing at an increasing rate. trend line also
shows that how these current liabilities is increasing and shows a increasing trend .thermax may
have liquidity problem if it grow s at such a faster rate .
26
% change in long term liabilites
700
600
500
400
Axis Title
300
200
100
0
-100
-200
1 2 3 4 5
Series1 -91.599462 620 -26.222222 5.42168674 -69
Here thermax long term liabilities show that it’s decreasing at increasing rate and thus trend line
also shows the down trend. we can say that company is try to decrease its financial risk by
decreasing the long term liabilities like borrowing, debt etc. it want to decrease the obligation of
paying the net interest rate .
% change in reserve
35
30
25
20
Axis Title
15
10
5
0
-5
-10
1 2 3 4 5
Series1 6.95375926 -5.3520352 11.8643575 13.1438813 29.9722203
We can see that thermax is increasing the reserve at an increasing rate. Thus despite of fall of
reserve one year the overall reserve is much higher .its shows that company is increasing its
retained earnings and thus decreasing the cost of debt .
27
% change in share capital
250
200
150
Axis Title
100
50
0
-50
-100
1 2 3 4 5
Series1 0 200 0 -66.66666 0
Company share capital remains same after period of 5 years. During this five years company
once issue the shares to preference share holders but after the two years company buy back the
same amount of preference share, leaving the overall share capital constant.
% change in total assets

70
60
50
Axis Title
40
30
20
10
0
1 2 3 4 5
Series1 2.89098215 19.5212194 28.1690699 12.2229906 60.9473442
Company total asset is increasing at an increasing rate and thus trend line shows the upward
movement. We can say that company is having growth opportunity as it’s increasing its assets
and at the same time increasing its reserve by giving less dividend.
28
% change in total liabilities
70
60
50
Axis Title
40
30
20
10
0
1 2 3 4 5
Series1 2.89098215 19.5212194 28.1690699 12.2229906 60.9473442
Company total liabilities is increasing just because of increase in reserve and partly because of
increase in current lialiities.it is not at all bad as its suggest the company is having a growth
opportunity.
% change in investment
50
45
40
35
Axis Title
30
25
20
15
10
5
0
1 2 3 4 5
Series1 42.1670481 18.2981710 11.1332146 24.6647614 44.6255384
Company is increasing its investment first a decreasing rate then at a increasing rate .mainly
investment is in mutual fund which shows that company is looking income other than its core
business. It is very good for any business to have multiple source of income which thrermax is
trying to do. Mutual fund holds around 95 % of total investment of this company.
29
% change in current asset
70
60
50
40
Axis Title
30
20
10
0
-10
-20
1 2 3 4 5
Series1 -9.8913262 22.1866910 45.0390495 12.2707926 64.2517475
Here we can see that company is increasing its current asset at an increasing rate. We have also
seen early that company is also increasing its current liabilities at increasing rate. This shows that
company is using its current asset to pay back its current liabilities .this strategy is appropriate
for any company. It will decree the cost of capital.
% change in fixed assets

35
30
25
20
Axis Title
15
10
5
0
-5
-10
1 2 3 4 5
Series1 -7.6428506 0.38239043 31.8323891 7.00155590 31.3806951
Company is increasing its fixed assets at a much faster rate. This shows that company possibility
of future earnings.futher company is using the retained earnings to pay for fixed assets which are
further reducing the cost of capital.
30
Comparative Income Statement
items 2002 2003 2004 2005 2006 2007
Sales 618.35 734.51 818.28 1312 1700.3 2246.91

% change 18.79 11.40 60.34 29.60 32.15
COGS 272.64 304.27 336.51 468.07 682.09 786.52
% change 11.60 10.60 39.10 45.72 15.31
Gross Profit 345.71 430.24 481.77 843.93 1018.21 1460.39
% change 24.45 11.98 75.17 20.65 43.43
Total
expenses 625.93 713.92 798.82 1274.65 1634.90 2121.62
% change 14.06 11.89 59.57 28.26 29.77
PAT 27.51 58.56 65.46 67.20 102.53 187.80
% change 112.87 11.78 2.66 52.57 83.17
% change in sales
70.00
60.00
50.00
Axis Title
40.00
30.00
20.00
10.00
0.00
1 2 3 4 5
Series1 18.79 11.40 60.34 29.60 32.15
Here we can see that company sales has increase at a faster rate .its shows company
compatibility, reach and competitiveness in the market. It suggests that company is growing
rapidly. With trend line also suggest the upper trend which suggest that in future also company is
expected to show its growth in the same manner.
31
% change in cogs
50.00
45.00
40.00
35.00
Axis Title
30.00
25.00
20.00
15.00
10.00
5.00
0.00
1 2 3 4 5
Series1 11.60 10.60 39.10 45.72 15.31
Here we see that company cost of goods sold has increased in third year very rapidly because of
high cost of input .even in fourth year the cost increases very much. but In 5th year that is in
2007 company COSG of goods sold is increase but at a decreasing rate which is good and
company should focus to reduce it in a high rate to bring it close to the market values.
% change in gross profit

80.00
70.00
60.00
50.00
Axis Title
40.00
30.00
20.00
10.00
0.00
1 2 3 4 5
Series1 24.45 11.98 75.17 20.65 43.43
Here we see that inspite of increase in cogs company gross profit I increasing at a faster rate .it
shows that increase in cogs didn’t create any problem and company was able to increase its gross
profit. This suggest that company has increased the price of the project undertaken to cope up
with the increase in the cogs.
32
% change in total expenses
70.00
60.00
50.00
Axis Title
40.00
30.00
20.00
10.00
0.00
1 2 3 4 5
Series1 14.06 11.89 59.57 28.26 29.77
Here we see that company total expenses is increased in third year very rapidly which caused the
decline in pat at severe rate. Then again in the next year it manage to decrease the total expenses
% change which was must for thermal to get and maintain a reasonable pat
% change in pat
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
1 2 3 4 5
Series1 112.87 11.78 2.66 52.57 83.17
% change in pat has decreased very much in 2 nd and third year because of increase in total
expenses as well as cost of goods sold. But the point is that company is able to maintain the last
year pat. It doesn’t show the negative growth in pat. After that year thermax increased its pat
very much by bringing down the total expenses and cost of goods sold .trend line shows the
constant change in pat over the 5 years.
7.1.3 Crompton & Greaves Ltd:
PL STATEMENT
33
Total income:
TOTAL INCOME
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
2004-03 2005-04 2006-05 2007-06 CAGR
% INCREASE YEAR ON YEAR
TOTAL INCOME 7.48 15.12 97.12 41.71 36.35%
The total income of the firm has increased every year with maximum % increase taking place in
the year 2006 compared to year 2005. The total income of the firm is growing at a CAGR of
36.35%. The increase in the total income has come mainly from increase in industrial sales.
Total Expenses:
TOTAL EXPENSES
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
2004-03 2005-04 2006-05 2007-06 CAGR
TOTAL EXPENSES 4.87 14.19 95.96 42.72 35.28%
The total expenses has shown a gradual increase year on year with the maximum increase taking
place in the year 2006 which is understandable because in the same year the total income of the
firm has shown the maximum % increase. So, there must be high demand for its products in that
34
particular year. From the income statement we can make out that the increase in total expenses is
because of the increase in raw material expenses & also compensation to employees.
PAT:
PAT
200.00
150.00
Axis Title
100.00
50.00
0.00
2004-03 2005-04 2006-05 2007-06 CAGR
PAT 183.09 38.40 121.07 23.48 80.84%
Its PAT has been increasing year on year. But it has increased disproportionately in the
year 2004 & 2006 compared to their previous year respectively. The high increase can be
attributed to more % increase in sales compared to expenses.
ASSET
Total Assets:
TOTAL ASSETS
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
-20.00
2004-03 2005-04 2006-05 2007-06 CAGR
TOTAL ASSETS -4.35 -7.20 110.58 48.93 29.17%
The total assets of the company have shown a dramatic increase of 110 % in the year
2006 compared to 2005 because of the increase in the current assets. The increase in
35
current asset is because of the increase in the receivables by about 117 % & inventories
by about 235 %. Though there was an increase in investment in plant & machinery by
about 100% it got discounted because of increase in depreciation in that particular year.
%
2005 2006 increase
inventories 177.75 595.89 235.24
receivables 604.75 1316.11 117.63
Investments:
INVESTMENTS
30
20
10
Axis Title
0
-10
-20
-30
2004-03 2005-04 2006-05 2007-06 CAGR
INVESTMENTS 23.9091933 8.79677754 -22.262032 -0.9678906 0.93%
The increase in the year 2004 is because of the investment in equity shares & in 2005 is
because of increase in investment in mutual funds. The decrease in the last two years is
because of redemption by the firm in its equity investments.
Current assets
36
CURRENT ASSETS
160.00
140.00
120.00
100.00
Axis Title
80.00
60.00
40.00
20.00
0.00
-20.00
2004-03 2005-04 2006-05 2007-06 CAGR
CURRENT ASSETS -1.52 0.37 145.95 38.89 35.55%
The increase in current asset in the year 2006 is because of the increase in the receivables
by about 100 % & inventories by about 200 %.
LIABILITIES:
Net worth:
NET WORTH
100.00
80.00
60.00
Axis Title
40.00
20.00
0.00
-20.00
-40.00
2004-03 2005-04 2006-05 2007-06 CAGR
NET WORTH -22.70 19.90 87.46 23.36 21.00%
The decrease in the year 2004 is because of decrease in security premium reserves. The
increase in the year 2006 is because of increase in free reserve.
37
Total borrowings
TOTAL BORROWINGS
140.00
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
-20.00
-40.00
2004- 2005- 2006- 2007-
CAGR
03 04 05 06
TOTAL BORROWINGS -26.45 -7.16 34.22 114.24 18.37%
The drop in borrowings in the first two years is because of mainly decrease in bank &
financial institution borrowings. The increase of about 117 % in the year 2007 is because
of increase in foreign borrowings.
1. Current liabilities:
CURRENT LIABILITIES
180.00
160.00
140.00
120.00
Axis Title
100.00
80.00
60.00
40.00
20.00
0.00
-20.00
2004- 2005- 2006- 2007-
CAGR
03 04 05 06
CURRENT LIABILITIES 13.23 -10.49 163.00 44.41 40.07%
The increase of 163 % in the year 2006 can be attributed to the increase in sundry
creditors, provision & deposits & advances from employees.
38
7.1.3.BHEL
items 2002 2003 2004 2005 2006 2007

5288.13 5401.42 7429.42 9978.9 13463.41 18653.82
current liabilities
2.1423452 37.545682 34.316003 34.918779 38.551972
% change
long term liabilities 14.88 1.25 9 6.64 7 2.17
- -
% change 91.599462 620 26.222222 5.4216867 -69
4224.85 4558.91 5051.18 5782.14 7056.62 8543.5
reserve
7.9070263 10.797976 14.471074 22.041666 21.070711
% change
244.76 244.76 244.76 244.76 244.76 244.76
sh . Cap
0 0 0 0 0
% change
10580.82 10881.44 13405.47 16668.84 21417.5 27587.49
total liabilities
2.841179 23.19574 24.34357 28.48825 28.80817
% change
items 2002 2003 2004 2005 2006 2007

1239.03 1236.57 1203.26 1141.91 1173.11 1294.88
net fixed assets
-0.19854 -2.69374 -5.09865 2.732264 10.3801
% change
10.34 10.38 28.98 8.95 8.29 8.29
Investments
-
0.3868472 179.19075 69.116632 -7.3743017 0
% change
8588.66 8963.68 11412.73 14779.12 19436.06 25268.27
Current assets
4.3664553 27.321926 29.496799 31.510266 30.007162
% change
10580.82 10881.44 13405.47 16668.84 21417.5 27587.49
Total assets
2.841179 23.19574 24.34357 28.48825 28.80817
% change
39
% change in current liabilities
50
45
40
35
Axis Title
30
25
20
15
10
5
0
1 2 3 4 5
Series1 2.14234521 37.5456824 34.3160031 34.9187786 38.5519716
We can see that BHEL’s current liabilities increased at an increasing rate initially and then
became more or less constant. Trend line shows that how these current liabilities are increasing
and shows an increasing trend. BHEL is in a comfortable state as far as its current liabilities are
concerned.
% change in reserve
25
20
Axis Title
15
10
0
1 2 3 4 5
Series1 7.90702628 10.7979758 14.4710740 22.0416662 21.0707109
40
We can see that BHEL’s reserve is increasing at an increasing rate. Its shows that company is
increasing its retained earnings and thus using more of these internal sources of capital to fulfill
its capital needs rather than going for debt .
% change in total assets

35
30
25
Axis Title
20
15
10
5
0
1 2 3 4 5
Series1 2.84117866 23.1957351 24.3435702 28.4882451 28.8081708
Company’s total asset is increasing at an increasing rate and thus trend line shows the upward
movement. We can say that the company is having other investment opportunities as its
increasing its assets and at the same time increasing its reserve by giving less dividend.
% change in total liabilities

35
30
25
Axis Title
20
15
10
5
0
1 2 3 4 5
Series1 2.84117866 23.1957351 24.3435702 28.4882451 28.8081708
41
Company total liabilities are increasing just because of increase in reserve and partly because of
increase in current liabilities. It is not at all bad as it suggest that the company is having growth
opportunity and so it is going for more sources of fund finance its needs.
% change in investment
200
150
100
Axis Title
50
-50
-100
1 2 3 4 5
Series1 0.38684719 179.190751 -69.116632 -7.3743016 0
BHEL’s investment increased initially and then has decreased sharply and later increased
marginally but overall during the past 3 years the investment value has remained almost
constant. Most of the company’s is in equities which is around 98% of the company’s
investment.
% change in current asset

40
35
30
Axis Title
25
20
15
10
5
0
1 2 3 4 5
Series1 4.36645530 27.3219258 29.4967987 31.5102658 30.0071619
42
Here we can see that the company is increasing its current assets at an increasing rate. We have
also seen early that company is also increasing its current liabilities at increasing rate. This
shows that company is using its current asset to pay back its current liabilities. This strategy is
appropriate for any company. It will decrease the cost of capital.
% change in fixed assets

12
10
8
6
Axis Title
4
2
0
-2
-4
-6
1 2 3 4 5
Series1 -0.1985424 -2.6937415 -5.0986486 2.73226436 10.3801007
The company’s fixed asset decreased at a greater pace initially and this is in fact a sign of worry
for the company as it is capital intensive industry and fixed assets forms a major part of its
investments. But later on the fixed assets grew at a greater pace thus offsetting the initial lag.
Comparative income statement
items 2002 2003 2004 2005 2006 2007
7551.52 7735.73 8906.71 10696.37 14772.21 19067.02

Sales
2.44 15.14 20.09 38.10 29.07
% change
3481.81 3334.68 3807.84 5299.1 7292.04 8792.13
COGS
-4.23 14.19 39.16 37.61 20.57
% change
4069.71 4401.05 5098.87 5397.3 7480.17 10274.89
Gross Profit
8.14 15.86 5.85 38.59 37.36
% change
7613.13 7881.68 9012.63 10925.74 14148.01 17862.11
Total expenses
43
3.53 14.35 21.23 29.49 26.25
% change
467.95 444.51 658.15 953.4 1679.16 2414.7
PAT
-5.01 48.06 44.86 76.12 43.80
% change
% change in sales
45.00
40.00
35.00
30.00
Axis Title
25.00
20.00
15.00
10.00
5.00
0.00
1 2 3 4 5
Series1 2.44 15.14 20.09 38.10 29.07
Here we can see that company sales have increased at a faster rate .its shows company
compatibility, reach and competitiveness in the market. It suggests that company is growing
rapidly. With the trend line also suggesting the upper trend which suggests that in the future also
the company is expected to show its growth in the same manner.
44
% change in cogs
45.00
40.00
35.00
30.00
25.00
Axis Title
20.00
15.00
10.00
5.00
0.00
-5.00
-10.00
1 2 3 4 5
Series1 -4.23 14.19 39.16 37.61 20.57
Here we see that the company’s cost of goods sold has increased rapidly in the first three years
because of high cost of input. Then from the fourth year the cost of goods sold has started
declining at an increasing rate. In 5th year that is in 2007 company’s COGS is increasing but at
a decreasing rate which is good for the company and it should focus to reduce it in a high rate to
bring its competitiveness in the market.
% change in gross profit

45.00
40.00
35.00
30.00
Axis Title
25.00
20.00
15.00
10.00
5.00
0.00
1 2 3 4 5
Series1 8.14 15.86 5.85 38.59 37.36
Here we see that the company’s gross profit has decreased sharply in the year 2005 and it can be
because of sharp increase in the COGS for the company in the year same year. Then in the next
year the gross profit has increased sharply basically due to sharp increase in the sales during that
year, as explained in the above graph.
45
% change in total expenses
35.00
30.00
25.00
Axis Title
20.00
15.00
10.00
5.00
0.00
1 2 3 4 5
Series1 3.53 14.35 21.23 29.49 26.25
BHEL’s total expenses have been increasing sharply over the year and it has been one of the
main reasons for decline in the profit of the company. This increase in the total expenses is due
to increase in the raw material cost over the years. In the last year the total expenses cooled off a
bit due to decrease in the COGS.
% change in pat
90.00
80.00
70.00
60.00
Axis Title
50.00
40.00
30.00
20.00
10.00
0.00
-10.00
1 2 3 4 5
Series1 -5.01 48.06 44.86 76.12 43.80
PAT of BHEL has been increasing at a decent rate over the years which are 41.57% at a
normalized rate year on year. Its profit declined in the 3rd year mainly due to increase in the
COGS and also in the 5th year due to decrease in the sales of the company.
46
7.2CASH FLOW ANALYSIS
7.2.1 L & T
The table and the graph below show the cash flow positions at the end of years 2003 to 2007. As
can be seen from the graph the net cash flow from the operating activities declined up to the year
2005 after which it again increased. In the period of 5 years the cash flow from operating activity
has increased. The income statement it can be seen that the income is also increasing with a
CAGR of 31%. The adjustment for depreciation decreased to almost half from 2003 to 2004.
Cash out flow due to change in adjustments for (profit)/loss on sale of assets changed
significantly between the years 2003 to 2004. Adjustment for dividend income has also varied
between the years 2003- 2007. The fluctuation in the cash flow from operations can be attributed
to the increase in inventory across the years.
Cash Flow
3000
2000
1000
Rs In Crores
-1000
-2000
-3000
2003 2004 2005 2006 2007
Net cash flow from operating
1316.73 660.23 297.29 1016.89 2225.17
activities (indirect method)
Net CF from investment activities -329.18 -13.58 -88.25 -1353.76 -2562.51
Net CF from financing activities -819.26 -564.66 244.12 164.66 1239.37
47
It can be seen from the diagram that the company is investing and the investment has grown in
the subsequent years. This is also in line with the high retention ratio of the company. The
company has primarily invested in the purchase of fixed assets and purchase of investments. The
expenditure for purchase of fixed assets is a capital expenditure and will be beneficial to the
company in terms of increasing the operating efficiency. The increase in the profit across the
years confirms the same. It can be seen that the investments of the company in bonds and shares
of other companies is generating an increasing stream of dividends and interests.
L & T’s cash flow engine is not only generating enough cash to cover “keeping the company
whole”, it is also able to throw off increasing investment stream annually for growth and
investment, and the amount of excess cash has increased in the span of 5 years as can be seen
from the diagram below. A glance at the working capital account differences indicates that
receivables, other than assets have grown over a period of 5 years. This picture is consistent with
the company investing more on fixed asset and expansion.
L & T has good news from the investing activity that the investing cash flow is negative. This
implies that the company is looking to invest in capital and fixed assets and is in a growing
curve.
Cash flow -closing balance

2000
1800
1600
1400
Rs In Crores
1200
1000
800
600
400
200
0
2003 2004 2005 2006 2007
Cash flow -closing balance 457.81 537.2 990.36 815.99 1718.02
The company has good news that the company is looking to grow by taking long term debts.
This is also confirmed from the higher D/E ratio across the time window of 5 years. The
company has a sustained and healthy repayment schedule to service its debt.
A company like L & T has projects of higher gestation periods and long term financing when
ensured with proper servicing of debt is a sign of growth i.e. a positive sign for the investors.
This is also reflected in the increasing return on earnings and increasing EPS.
48
L & T is not issuing much stock; instead it is buying back substantial amount of its stocks. It is
the single largest use of fund outside capital expenditure. This is a good news scenario because
company may be cashing in what it considers a low price t buy back its stocks, or perhaps
protecting itself from takeover attempts. In either event the company appears to have enough
cash to make this large non- routine investment.
7.2.2 Thermax
CASH FLOW ANALYSIS

400
300
200
100
-100
-200
-300
Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007
100.61 54.65 107.39 209.36 352.43
Net cash inflow/(outflow) from
-72.53 -33.1 -74.31 -90.77 -216.01
investment activities
Net cash inflow/ (outflow) from
-27.31 -25.86 -37.76 -91.9 -93.92
financing activities
Cash flow -- closing balance 37.04 32.73 28.05 54.74 97.24
From the analysis of the cash flow statements of Thermax Ltd., it can safely be inferred that the
company has been steadily improving its cash position. The net cash flow in the year 2003 was
very minimal, after which it drastically fell down to a negative figure for two consecutive years,
following which it showed a steep rise in the recent financial two years.
One justification for this steep rise in the cash flow movements on the positive side can be
attributed to the rise in the firm’s investment and financing activities, and not only the operating
ones. The firm’s investments have shown a steady increase, form which returns have also pushed
its cash flow. At the same time, if we look at the firm’s tax figures, we can safely derive that it
49
has reduced its debt component steadily, due to which its outflow in the form of interest
payments have come down substantially.
7.2.3 Crompton Greaves
Cash Flow Analysis

600
400
200
Axis Title
-200
-400
-600
-800
2003 2004 2005 2006 2007
161.5 195.4 125.24 192.53 370.35
14.6 -14.69 -25.72 -102.63 -724.5
-86.2 -157.32 -29.38 50.48 388.29
Net cash inflow/(outflow) due to
net increase/(decrease) in cash & 89.9 23.39 70.14 140.38 34.14
cash equivalents
1. The company is getting a positive cash flow from operating activities & it is showing an
increasingly upward trend. This is happening because of more efficient management of
working capital by getting enough leverage from the creditors by postponing the payment
to them. This gets reflected in increasing bills payable compared to bills receivable.
2. During these five years, the company has increased its investment in CAPEX. The
funding for its CAPEX has been done mainly from borrowing which gets reflected in
increasing debt-equity ratio. The company couldn’t manage to fund its CAPEX from cash
flow from operating activities because most of the years its CAPEX is more than its cash
inflow from operating activities. During these periods the company has not raised any
fresh equity capital. The company has also been very liberal in paying out dividends
because for the last four years it has paid dividends.
3. The cash flow from financing activities is negative in the first two years because the
company was repaying its past borrowing & the CAPEX was less in those years & the
funding for it was mainly done from cash flow from operating activities. During the last
50
two years the cash flow from financing activities is coming out to be positive because it
has to borrow money to fund its increasing CAPEX.
7.2.4 BHEL
BHEL has been performing quite well over the years as its cash flow from its operating activities
has really been good except in 2005 when it declined drastically from 1695 cr in 2004 to 818 cr
in 2005. The major reasons for this decline can be attributed to the sharp increase in its
receivables from 632 cr in 2004 to 1555 cr in 2005. Also its inventories have increased sharply
from 7 cr in 2004 to 103 cr in 2005.
The cash outflow in 2005 is less than the other years which might seem to be a matter of concern
for the company but on looking deep into the components of investing activities, it reveals that
the company’s purchase of fixed assets has infact increased over the previous years at a
handsome rate of 11.11%. The major reason for the investing activity to be less in this year is
due to receipt of 112.19 crores as interest which is 43.3% more than the last year and thus makes
the total investing activity to be less than the other years.
Cash Flow Analysis

7000
6000
5000
Rs Crore
4000
3000
2000
1000
0
-1000
-2000
1240.28 1695.51 818.3 1623.83 2821.37
-110.26 -109.57 -35.26 -156.51 -212.66
-285.7 -247.21 -264.82 -511.21 -933.77
Net cash inflow/(outflow) due to
net increase/(decrease) in cash & 844.32 1338.73 518.22 956.11 1674.94
cash equivalents
Cash flow -- closing balance 1320.91 2659.64 3177.86 4133.97 5808.91
The cash outflow for the years 2006 and 2007 has increased a lot as compared to the other years
and the reason for this is that the company has gone for dividend payout to the tune of 474 cr and
51
405 cr in the two years respectively which was an increase of 116% in 2006 as compared to the
previous year.
The net cash inflow in the year 2005 is less as compared to the other years even though the net
outflow due to investing activity has decreased in this year. The major reason for this a
substantial decrease in the net cash flow from operations and this is mainly due to increase in the
trade receivables and inventories, as explained above. If we ignore this year then the overall
increase in the net cash flow over the years has really been good.
7.3.COMMON SIZE STATEMENT ANALYSIS
Industrial Sales as % of Sales

102.00
100.00
% of Sales
98.00
96.00
94.00
92.00
90.00
88.00
86.00
84.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 99.41 99.33 99.37 99.49 99.52
L&T 94.83 93.74 90.51 92.59 90.51
CROMPTON GREAVES 99.64 99.65 99.66 99.81 99.86
THERMAX 99.17 99.44 99.78 98.96 99.64
Since BHEL, L&T, Crompton Greaves and Thermax are in the Capital Goods sector and
therefore their major sales would be industrial sales and all most all the players are having 99%
of their sales in the industrial segment only except L&T, which is having around 90% in the last
year which is really good for the company since its sales are diversified to some extent as it is
also having infrastructure and InfoTech as its subsidiary and so it is in a better position to hedge
itself in case of a downturn in the Capital Goods Sector.
52
Raw Material Expenses as % of Sales
70.00
% of Sales
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 40.63 40.54 47.48 47.81 44.75
L&T 29.72 39.69 39.60 39.14 39.60
THERMAX 57.66 58.05 63.75 59.37 61.44
L&T is again efficient in sourcing raw materials at cheaper rates as compared to its competitors
and over the years it has been almost at the same of its sales. Its nearest competitor, BHEL is
sourcing raw materials at a rate which is around 5% more than L&T as a percentage of sales. So
this gives L&T a major advantage over its competitors.
Compensation to Employees as % of
Sales
25.00
% of Sales
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 21.44 20.99 15.60 12.72 12.42
L&T 6.88 6.98 7.35 6.33 7.35
THERMAX 12.25 12.38 8.73 9.40 8.91
Again L&T is having an edge over its competitors and is able to source cheap labour for its
projects. Other players are also ok but a major concern is for BHEL as it is in this business for
53
long and still its labour cost is way above the major players which could reduce its profit
margins. Though BHEL has improved itself a lot over the years whereas Crompton Greaves has
given its edge in sourcing cheap labours over the years. Thermax is having good capabilities in
sourcing cheap labour which around the industry average.
Selling and Distribution Expenses as

% of Sales
8.00
% of Sales
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 1.79 1.98 1.69 1.48 1.39
L&T 7.25 1.57 1.24 1.39 1.24
THERMAX 4.66 4.49 4.06 4.14 3.13
BHEL and L&T are having low selling and distribution expenses as compared to the other two
players because they are in this industry for long and have established a long network of
distribution channels as compared to the other players. Also, they have build up their brands over
the years which has lead to cheaper selling and distribution expenses
Despite all the above mentioned problems, BHEL is being able to overtake its competitors in
PBDITA margin as percentage of its sales and over the years it has been increasing consistently.
Though other players are also improving but there are minor hiccups in between. L&T was also
growing consistently over the years except in 2006 where it got a hit in its profit due to increase
in its cost for outsourced manufacturing jobs which rose from 16.75 in 2005 to 20.31 in 2006 as
a percentage of sales. Even Thermax got a hit on its PBDITA in the year 2005 due to increase in
the raw material expenses from 58.05 in 2004 to 63.75 in 2005 as a percentage of sales.
54
PBDITA as % of Sales
25.00
20.00
% of Sales
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 13.28 15.23 17.48 19.40 21.18
L&T 11.60 12.92 17.66 13.56 17.66
THERMAX 12.42 11.83 8.73 10.99 12.97
EBIT as % of Sales
25.00
% of Sales
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 10.92 13.00 15.44 17.73 19.75
L&T 7.41 11.03 16.00 12.10 16.00
THERMAX 10.81 10.90 7.98 10.26 12.50
Again EBIT of BHEL has been impressive over the years as compared to other players and has
been increasing consistently. EBIT of around 20% in the last year for BHEL has really been
good. L&T was also growing consistently over the years except in 2006 where it got a hit in its
55
profit due to increase in its cost for outsourced manufacturing jobs which rose from 16.75 in
2005 to 20.31 in 2006 as a percentage of sales. Even Thermax got a hit on its EBIT in the year
2005 due to increase in the raw material expenses from 58.05 in 2004 to 63.75 in 2005 as a
percentage of sales.
Depreciation as % of Sales
4.50
% of Sales
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 2.36 2.22 2.05 1.66 1.43
L&T 4.19 1.88 1.66 1.46 1.66
THERMAX 1.98 1.51 0.91 0.94 0.81
Depreciation for Thermax has been the lowest as compared to the other players. For most of
them it is almost the same and has been consistently declining over the years.
PAT as % of Sales
14.00
% of Sales
12.00
10.00
8.00
6.00
4.00
2.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 5.75 7.39 8.91 11.37 12.66
L&T 3.50 7.02 10.98 7.84 10.98
THERMAX 7.97 8.00 5.12 6.03 8.07
56
PAT of BHEL has been impressive over the years as compared to other players and has been
increasing consistently. L&T was also growing consistently over the years except in 2006 where
it got a hit in its profit due to increase in its cost for outsourced manufacturing jobs which rose
from 16.75 in 2005 to 20.31 in 2006 as a percentage of sales. Even Thermax got a hit on its PAT
in the year 2005 due to increase in the raw material expenses from 58.05 in 2004 to 63.75 in
2005 as a percentage of sales.
Common Size BS
Depreciation as % of Total Assets

45.00
% of Total assets
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 20.50 17.99 15.71 13.26 11.30
L&T 20.72 12.78 11.67 9.67 7.66
THERMAX 18.08 14.24 11.11 10.48 7.14
Depreciation as a % of total assets has been decreasing at almost a constant rate over the years
for all the players except Crompton Greaves which has been increasing at a rapid pace. This is a
matter of concern for Crompton Greaves because if we see at the investment rate of the company
then it is almost constant or decreasing as a % of sales. But in contrast, Thermax is following an
aggressive policy of investment over the years which are around 30-35% as a % of sales and it is
way ahead of other players in this field.
57
Net Fixed Assets as % of Total Assets
% of Total assets 45.00

40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 11.36 8.98 6.85 5.48 4.69
L&T 41.53 19.78 16.80 18.08 21.92
THERMAX 16.13 13.54 13.93 13.28 10.84
From the graph it is clear that BHEL has been the most efficient firm out of the four over here in
terms of not engaging large resources in fixed assets as fixed assets carry a cost with it whether
the firm is able to sell to its products or not. Other players are also improving upon it over the
years.
Current Assets as % Total Assets

% of Total assets
100.00
90.00
80.00
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 82.38 85.13 88.66 90.75 91.59
L&T 50.58 67.93 71.41 67.61 65.05
THERMAX 41.78 46.11 51.44 48.58 55.17
58
Again BHEL is having more of current assets rather than fixed assets as compared to other
players. But if we give a closer look at the components of the current assets then it reveals that
BHEL is having large amount of cash and bank balance as a % of total assets as compared to
other players, which shows that the company is not able to use its resources properly as its
money is lying idle and might be the company is not having enough opportunities to invest.
Cash and bank balance as % of Total

Assets
% of Total assets
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 12.14 19.84 19.06 19.30 21.06
L&T 3.43 4.97 7.51 4.96 6.91
THERMAX 5.86 4.33 2.90 5.03 5.56
BHEL is having large amount of cash and bank balance as a % of total assets as compared to
other players, which shows that the company is not able to use its resources properly as its
money is lying idle and might be the company is not having enough opportunities to invest.
Inventories as % of Total Assets

25.00
% of Total assets
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 18.39 15.69 17.66 17.65 15.42
L&T 13.03 18.18 18.47 15.06 14.78
THERMAX 9.67 10.84 13.50 11.80 15.00
59
Other players are maintaining a healthy bank and cash balance as which is around 6-7% of its
total assets on an average which is good for an industry like capital goods.
Since Capital Goods industry is a capital intensive industry and these companies need substantial
amount of resources to be engaged in inventories, so looking at this fact we can say that an
inventory of around 15% of total assets on an average is good for these companies as maintained
by them.
Receivables as % of Total Assets

% of Total assets
50.00
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 46.10 41.67 43.08 43.82 43.57
L&T 34.12 44.79 45.43 47.59 43.36
THERMAX 23.54 28.39 33.19 29.71 32.84
Receivables for Thermax has been less as compared to other players which shows that the
company is able to sell its products more in cash rather than on credit which shows that the
company is having good demand for its products.
60
Net Worth as % of Total Liabilities
% of Total Libilities
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
BHEL 44.15 39.51 36.16 34.09 31.86
L&T 24.11 24.47 25.15 30.19 27.82
THERMAX 61.26 54.98 47.11 42.25 33.71
Initially BHEL and Thermax were having more of reserves and surplus as part of net worth in
their kitty which they used it over the years for their operations or investing activities and finally
have come to the industry level. L&T and Crompton Greaves are maintaining a constant rate of
net worth as a % of their total liabilities. All the companies are maintaining more or less the
same paid up capital over the years as a source of financing.
Reserves and Surplus as % of Total

Liabilities
70.00
60.00
50.00
40.00
30.00
20.00
10.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 41.90 37.68 34.69 32.95 30.97
L&T 22.25 24.24 24.96 30.02 27.60
THERMAX 57.49 45.53 39.74 40.06 32.35
61
Initially BHEL and Thermax were having more of reserves and surplus as part of net worth in
their kitty which they used it over the years for their operations or investing activities and finally
have come to the industry level. L&T and Crompton Greaves are maintaining a constant rate of
net worth as a % of their total liabilities.
Total Borrowings as % of Total

Liabilities
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 4.89 4.01 3.21 2.59 0.31
L&T 35.24 25.60 26.20 21.26 25.86
THERMAX 0.20 1.19 0.69 0.64 0.12
Since BHEL had more of bank and cash balance with it and Thermax had more of reserves and
surplus with it over these years, so these companies didn’t go for any huge borrowings whereas
L&T and Crompton Greaves had to resort to borrowings to finance its operations and projects.
62
Sundry Creditors as % of Total
Liabilities
45.00
40.00
35.00
30.00
25.00
20.00
15.00
10.00
5.00
0.00
Mar Mar Mar Mar Mar
2003 2004 2005 2006 2007
BHEL 14.37 12.96 12.60 13.09 12.83
L&T 16.84 20.95 24.24 27.21 25.54
THERMAX 15.04 14.70 21.39 15.21 17.81
Sundry Creditors for L&T has been increasing over the years at a constant rate which is a good
sign for the company as its credibility is increasing in the market. Also the sundry creditors as a
% of total liabilities for Crompton Greaves are above the industry average which shows that the
company is utilizing its credibility with its suppliers in an efficient way.
63
7.4 .CAGR ANALYSIS
Balance Sheet
Bhel Larsen & toubro Crompton thermax

greaves
Current Liabilities 36.32 52.42 40.1 54.10
Long term 18.37 -38.20
liabilities -36.59 8.15
Share Capital ---- -30.92 8.77 ----
Reserves 17 23.32 22.34 13.60
Current Assets 29.56 12.74 35.55 31
Net Fixed Assets 1.16 -0.39 27.95 14.5
Other Assets -5.46 16.86 .93 35.5
Findings from the CAGR analysis of balance sheet items :-
• Larsen & toubro current liabilities is increasing at a much faster rate i.e. 52 % and at the
same time the current assets is increasing just 12.74 % which suggest that company is
using its short term liabilities for the long term assets which may bring the problem of
liquidity and at the same time cost of capital increases .so l & t should be cautious and
should try to decrease its current liabilities.
• Bhel and thermax are decreasing its long term liabilities at around 35 % which suggest
that company is reducing its financial risk .at the same time both company has not issued
any share capital wchich suggest that company instead of investing in fixed assets ,they
are reducing their obligation to pay back the interest .
• Crompton greaves has cagr of 27.95 % in net fixed assets which suggest that company is
in growth stage and expected to grow in future at a much faster rate .
• Larsen & toubro has decreased its share capital by 30 .92 % which will increase the EPS
of of the company and thus valuation of stock will increase . Thus wealth maximization
, the main aim of company , will be achieved.
64
Cagr Analysis Of Income Statement
Bhel Larsen & toubro Crompton thermax

greaves
Sales 25.30 17.15 36.35 32.25
COGS 27.42 23.65 30.91 26.80
Gross Profit 23.6 29.5 37.36 35.73
Total expenses 22.70 14.96 35.28 31.3
PAT 52.67 31.01 80.84 33.82
Findings from the CAGR analysis of INCOME STATEMENT items
In terms of sales, Crompton greaves is best performing company as its is having the cagr of
36.35 % while Larsen is growing at a average rate of 17.15 % .
• We can see that in terms of cogs , larsen & toubro is very much cost efficient but at the
same time Larsen gross profit cagr is lesser than Crompton greaves and thermax which
suggest that Larsen price for the project undertaken is also low.
• In terms of total expenses Larsen and toubro is doing a excellent job as it is increasing at
only 14.96 % whereas other three companies is increasing at a much higher rate .
• Well pat cagr shows something different its Crompton greaves , which pat is increasing
at 80 % for the last five years .whereas bhel pat cagr is also very good as it increasing at
53.67 % ehich is much above than l & t and thermax pat cagr
65
7.5DUPONT ANALYSIS
7.1.Larsen and toubro
2003 2004 2005 2006 2007

A. Sales/NA Turn Over 0.80 1.01 1.10 1.01 0.83
B.GP/ sales Gross Margin 0.04 0.10 0.10 0.10 0.15
Operating
C.EBIT/GP Leverage 3.24 2.64 1.33 1.25 1.30
D.EBIT/NA(AxBxC) RONA 0.11 0.26 0.14 0.13 0.16
Financial
E. PAT/EBIT leverage 0.30 0.54 0.62 0.58 0.62
Financial
F. NA/NW leverage 4.15 4.09 3.98 3.31 3.59
D.PAT/NW
(DxExF) ROE 0.12 0.29 0.34 0.26 0.33
H. RE/PAT Retention 1.52 1.24 1.29 1.18 1.27
I. RE/NW (GxH) Equity Growth 0.18 0.36 0.44 0.31 0.42
J. EBIT/Sales profit margin 0.14 0.26 0.13 0.13 0.19
It can be seen that the L & T’s RONA has a almost constant value except for the year 2004
where is increased sharply from 11% to 26%, this is because of the increase in the asset turn over
in the corresponding year. The return on net asset in the year ending 2007 stands at 16%.
The return on equity shows an impressive increase from 12% in 2003 to 33% in 2007. This is on
account of increase in financial leverage and better RONA.
L & T’s PAT/EBIT has increased where as NA/NW has declined but the combined effect has
been favorable. RONA increased by .05 percent points.
The dividend paid has increased on account of increase in dividend paid from 2003 to 2007.
The retention ratio has hence decreased. Although retention ratio has decreased slightly, the
return on earnings has shown an increase, this is due to increase in financial leverage. This has
translated into equity growth which has also increased to 42% in 2007.
The Chart below (DUPONT Chart) is showing L & T’s performance in terms of share holder’s
return.
66
DuPont Chart: L & T’s Financial performance, 2007
9.5.2.Crompton greaves
2003 2004 2005 2006 2007

A. sales/NA turnover 1.193399 1.346846 1.666038 1.564805 1.428264
B GP/sales gross margin 0.37 0.35 0.35 0.37 0.32
operating
C. EBIT/GP leverage 0.24 0.28 0.25 0.24 0.31
D EBIT/NA
(A*B*C) rona 0.105974 0.131991 0.145778 0.138955 0.141684
financial
E. PAT/EBIT leverage 0.17 0.39 0.53 0.59 0.48
financial
F. NA/NW leverage 3.32 4.11 3.18 3.58 4.32
G. PAT/NW
(D*E*F) roe 0.059812 0.211568 0.245695 0.2935 0.293796
H. RE/PAT retention 1 0.27 0.83 0.9 0.5
equity
I. RE/NW(G*H) growth 0.059812 0.057123 0.203927 0.26415 0.146898
67
7.5.3.BHEL
2003 2004 2005 2006 2007
0.72 0.73 0.71 0.78
0.78
A. Sales/NA Turn Over
16.03 19.04 7.65 10.99
14.80
B.GP/ sales Gross Margin
Operating 0.57 0.60 0.61 0.66 0.65
C.EBIT/GP Leverage
6.52 8.33 3.3 5.62 7.49
D.EBIT/NA(AxBxC) RONA
Financial 0.53 0.57 0.58 0.64 0.64
E. PAT/EBIT leverage
Financial 2.27 2.53 2.77 2.93 3.14
F. NA/NW leverage
G.PAT/NW 9.25 12.43 15.82 23.00 27.48
(DxExF) ROE
0.78 0.71 0.81 0.72 0.83
H. RE/PAT Retention
7.21 8.79 12.83 16.51 22.87
I. RE/NW (GxH) Equity Growth
0.09 0.11 0.05 0.07 0.10
J. EBIT/Sales profit margin
It can be seen that the BHEL’s RONA has been fluctuating over the years and it also came to a
low of 3.3% in 2005. It is mainly because of decrease in the gross profit margin in the year 2005
to 7.65 from 19.04 in the previous year. It is because of sharp increase in the COGS for the
company in the same year.
The return on equity shows an impressive increase from 9.25% in 2003 to 27.48% in 2007. This
is on account of increase in financial leverage of the firm.
BHEL’s PAT/EBIT has declined where as NA/NW has increased but the combined effect has
been favorable.
The dividend paid has increased on account of increase in dividend paid from 2003 to 2007.
The return on earnings has shown an increase, this is due to increase in financial leverage. This
has translated into equity growth which has also increased to 27.48% in 2007.
The Chart below (DUPONT Chart) is showing BHEL’s performance in terms of share holder’s
return.
68
DuPont Chart: BHEL’s Financial performance, 2007
69
7.6. SUSTAINABLE GROWTH RATE MODEL
return on equity
40.00
35.00
30.00
in terms of %
25.00
20.00
15.00
10.00
5.00
0.00
2003 2004 2005 2006 2007
l&t 11.63 29.13 34.01 26.31 32.82
bhel 9.25 12.43 15.82 23.00 27.48
thermax 15.11 15.75 14.72 22.32 32.71
crompton greaves 5.93 21.70 25.05 29.54 29.57
industry 10.48 19.75 22.40 25.29 30.65
The ROE is useful for comparing the profitability of a company to that of other firms in the same
industry.it is a measure of a corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested. Here we can see that roe for all the
companies are more or less same at the end . so we cant judge which company is better in terms
of roe .
As a risk averse investor I would like to invest in bhel because this is the only stock which is
growing at a consistent rate and all other are having volatility in their roe . so less risk will be
there , but obvious less return will be there .
As a risk taker investor I will prefer to go with thermax because for last three years company’s
roe is growing at a rapid pace which suggest high future return followed by high future risk.
70
Financial Leverage
Financial Leverage
5.00
4.50
4.00
3.50
3.00
2.50
2.00
1.50
1.00
0.50
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 4.15 4.09 3.98 3.31 3.59
Cromton Greaves 4.15 4.09 3.98 3.31 3.59
Thermax 3.33 4.12 3.19 3.58 4.32
Bhel 2.27 2.53 2.77 2.93 3.14
Industry 3.47 3.71 3.48 3.28 3.66
Larsen and Tubro has a very high D/E ratio as compared to the industry values. This value is
high owing to the high amount of debt at 25 percent of the total asset (see common size Balance
sheet). Simultaneously the company has decreased the equity capital within this span of 5 years
from 2 percent in 2003 to 0.22 percent in 2007. The higher value of the debt to equity ratio leads
to an increase in the earnings per share from Rs 15 in 2003 to 85 in year 2007.
Again when we look at the debt equity ratio of crampon and greaves, it has decreased marginally
across the time window. This is also reflected in the EPS of the shares which show a marginal
decrease. Thermax on the other had has a very low debt to equity ratio.
BHEL has a low debt equity ratio compared to the industry average. It is around 0.10 from 2003
to 2006 but decreases sharply in the year 2007. The decrease is because bonds worth 500 corers
expired in mar 2006. After paying back 500 corers the borrowings component decreased.
Debt to Asset Ratio
The debt to asset ratio for BHEL is quite good compared to the industry average, while its debt
to equity is not as high. This shows the company has large assets and it is a healthy sign. The
decrease in the debt – asset ratio is because the company has disposed some of its fixed asset in
the latter years. L & T is also has a good debt to asset ratio which is almost constant across the
71
time window. Considering the debt to asset ratio it can be said that out of the companies BHEL
and L& T are comparatively highly levered. For a sector like this where the gestation period of
the projects is high and the inventory cost ids high, debt- equity and debt – asset ratio is bound to
be on the higher side. Also when we look at thermax, it is not relying on the debt. This makes the
company’s stocks less riskier.
return on assets
16.00
14.00
12.00
in terms of %
10.00
8.00
6.00
4.00
2.00
0.00
2003 2004 2005 2006 2007
l&t 2.80 7.13 8.55 7.94 9.13
bhel 4.14 5.42 6.34 8.82 9.85
thermax 9.39 9.43 7.79 9.97 13.60
industry 4.53 6.81 7.64 8.75 9.86
Return on assets measures a company’s earnings in relation to all of the resources it had at its
disposal [the shareholders’ capital plus short and long-term borrowed funds]. Return on assets
[or ROA for short] tells an investor how much profit a company generated for each re1 in assets.
The return on assets figure is also a sure-fire way to gauge the asset intensity of a business.
Here also we see that in case of return of assets thermax is rank 1 for the last two years company
is able to use its asset in a best possible manner. We can say that less money can be reinvested
into it to continue generating earnings .this is a good thing .
The lowest return on assets is of Crompton greaves where for last two years there return on
assets is decreasing which suggest that they are very much less efficient in using their total
assets .The lower the profit per rupee of assets, the more asset-intensive a business is. The higher
the profit per dollar of assets, the less asset-intensive a business is. All things being equal, the
72
more asset-intensive a business, the more money must be reinvested into it to continue
generating earnings. This is a bad thing
net profit margin

14.00
12.00
10.00
in terms of %
8.00
6.00
4.00
2.00
0.00
2003 2004 2005 2006 2007
l&t 3.50 7.02 7.76 7.84 10.98
bhel 5.75 7.39 8.91 11.37 12.66
thermax 7.97 8.00 5.12 6.03 8.70
industry 4.68 6.58 6.63 7.63 9.28
Net Profit margin is very useful when comparing companies in similar industries. A higher profit
margin indicates a more profitable company that has better control over its costs compared to its
competitors. Profit margin is displayed as a percentageThe Net Profit Margin measures the Net
Earnings in relation to the Net Sales. After all the bills are paid and expenses covered, this ratio
measures how much net profit remains out of each dollar of sales. As with the other margin
ratios, the higher the Net Profit Margin, the better.
Here in our industry we can see that bhel has increased its net profit margin from 5 .75 % to 12
.66 %. Its really show its effeicieny and continous improvement . further it is having highest
highest net profit margin in comparision to others players . so in terms of profit margin bhel is a
best stock among the other three players .
Further the caution is we have seen that thermax was having highest gross margin but in terms
of net profit margin below industry average . this is mainly because the thermxa is having 2.5 %
of the total expenses outsourced.they .Have incurred outsourced profeesional expenses whereas
no other company have this expense and their income from interst and dividend is also very low
in comparison to other companies . companiation of this low indirect income and high indirect
expenses have resulted in low net profit margin instead of very good high gross profit margin.
Crompton greaves is well below the industry average in terms of net profit margin also.
73
2. Dividend pay-out ratio
Dividend Payout
35
30
25
Axis Title
20
15
10
0
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 26.6 25.03 15.98 30.28 17.84
BHEL 0.22 0.29 0.19 0.28 0.17
C&G 0 7 1 0 2
Thermax 0.02 0.04 0.03 0.02 0.00
This ratio looks at the dividend payment in relation to net income and can be calculated as
follows:
)(
#
$
!%& #
$
'(
!"
Generally, the low growth companies have higher dividends payouts and high growth companies
have lower dividend payouts.
74
Tax Rate
Tax Rate
50.00
45.00
40.00
35.00
30.00
Axis Title
25.00
20.00
15.00
10.00
5.00
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 20.30 27.80 19.75 24.82 24.39
BHEL 43.49 40.07 39.26 34.43 35.12
C&G 29 21 10 16 34
Thermax 25.57 26.20 35.20 40.67 35.36
The general trend in the industry in terms of its tax rate is showing a steady trend, except for
Crompton and Greaves which is showing an upward trend. This can be attributable to the
reduction in its debt component.
By seeing at the ratios from the Sustainable Growth Rate Model we can conclude that L&T has
outsmarted most of the stocks over the years. This is because of its higher ROE over the years
than the industry and its competitors. Also its Net Profit Margin is the second highest after
BHEL. Though BHEL has the highest Net Profit Margin but it was not able to capitalize on this
as its ROE is lowest among the competitors and the below the industry average. The possible
reason for this is that BHEL has almost zero debt and it is not utilizing its financial leverage to
its best use. Also, L&T has distributed highest dividend as compared to other players and it is
way ahead of them. The effective tax rate for L&T has also been one among the lowest which
shows that the company is managing its resources in an efficient manner as compared to others.
75
7.7 OTHER RATIOS
Acid test/Quick ratio

A stringent test that indicates whether a firm has enough short-term assets to cover its immediate
liabilities without selling inventory. The acid-test ratio is far more strenuous than the working
capital ratio, primarily because the working capital ratio allows for the inclusion of inventory
assets.
Companies with ratios of less than 1 cannot pay their current liabilities and should be looked at
with extreme caution. Furthermore, if the acid-test ratio is much lower than the working capital
ratio, it means current assets are highly dependent on inventory. Retail stores are examples of
this type of business.
The term comes from the way gold miners would test whether their findings were real gold
nuggets. Unlike other metals, gold does not corrode in acid; if the nugget didn't dissolve when
submerged in acid, it was said to have passed the acid test. If a company's financial statements
pass the figurative acid test, this indicates its financial integrity.
Quick Ratio
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 1.16 1.08 1.15 1.13 1.18
Cromton Greaves 1.16 1.02 1.14 0.98 0.91
Thermax 0.96 0.69 0.55 0.67 0.62
Bhel 1.16 1.08 1.15 1.13 1.18
Industry 1.11 0.96 1.00 0.98 0.97
76
Laresen & Tubro
The quick ratio of the company is very much constant in this time span, showing that it has a
sound liquidity. A value greater than one also indicates that the company has sufficient quick
assets to dispose its quick liabilities.
Crompton & Greaves
Crompton Greaves has a healthy value of quick ratio in the years 2003 to 2005. It is less than one
in 2006 and 2007. The decline is due to the decrease in the current assets or the increase in the
inventories compared to the previous years. This is because the current liabilities increased by
nearly 400 percent while the quick assets (current assets- inventories) increased only by 200
percent.
Thermax
The quick ratios of thremax over the time window of 5 years is less than one, which shows a bad
liquidity position of the company. It goes on decreasing constantly, which is partly due to
increase in inventory, decrease in current assets and increase in current assets.
This is because the current liabilities increased by more than 450 percent while quick assets
increased by only 175 percent. this is because of lower inventory turnover and larger holding
period of inventory. Thus if thermax’s inventory do not sell, and it has to pay all its current
liabilities, it may find it difficult to meet its obligations as the quick ratio stands at 0.62 at the end
of financial year 2007.
BHEL
The quick ratio is close to one throughout the time window of 5 years. The balance sheet shows
that both the current assets and current liabilities have increased over the years. The company has
a sound liquidity position and the values are at par with the industry.
77
CASH RATIO
The cash ratio is an indicator of a company's liquidity that further refines both the current
ratio and the quick ratio by measuring the amount of cash; cash equivalents or invested funds
there are in current assets to cover current liabilities. The operating cash flow ratio can gauge a
company's liquidity in the short term. Using cash flow as opposed to income is sometimes a
better indication of liquidity simply because, as we know, cash is how bills are normally paid off.
Chart Title
0.60
0.50
0.40
Axis Title
0.30
0.20
0.10
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 0.26 0.28 0.33 0.38 0.45
Cromton Greaves 0.36 0.52 0.45 0.47 0.49
Thermax 0.18 0.11 0.06 0.09 0.09
Bhel 0.24 0.36 0.32 0.31 0.31
Industry 0.26 0.32 0.29 0.31 0.33
Larsen & Tubro

Larsen and tubro has an increasing cash ratio over the 5 year time window. This shows that the
company has a very comfortable liquidity situation and that the company can meet 45% of the
current liability with the most liquid asset i.e. cash. The cash reserve of the company has
increased by 275% in the span of 5 years.
78
Crompton Greaves
Crompton greaves has also performed better than the industry average and has a healthy cash
ratio. The cash and bank balance has increased by 340 percent in this period. The liquidity
position of the company is comfortable as it has better ratios than the industry average.
Thermax
The cash ratio suggests that the company has liquidity crunch, it has very low liquidity compared
to the industry average. This is because the current liabilities have increased by 463 percent
while the cash and bank balance has increased only by 175 percent. This may be because of the
money being invested in other long term investments. The investments have increased by more
than 600 percent in this period. The company may not be having high liquidity because it is
investing in long term assets.
BHEL
BHEL has cash ratio which is close to the industry average. It has been almost constant
throughout the period. It shows an efficient management of cash in investing activities. There has
been an investment of 1294.51 cr in fixed assets in the past 5 years. Although the operating cash
flow increased by nearly 240 percent, cash ratio remained almost constant because the company
invested in fixed assets.
79
LEVERAGE RATIOS
Leverage ratios are used to calculate the financial leverage of a company to get an idea of the
company's methods of financing or to measure its ability to meet financial obligations. There are
several different ratios, but the main factors looked at include debt, equity, assets and interest
expenses. A ratio used to measure a company's mix of operating costs, giving an idea of how
changes in output will affect operating income. Fixed and variable costs are the two types of
operating costs; depending on the company and the industry, the mix will differ.
Debt to Equity ratio
The Debt to Equity Ratio measures how much money a company should safely be able to borrow
over long periods of time. It does this by comparing the company's total debt (including short
term and long term obligations) and dividing it by the amount of owner's equity.
The Graph below shows the debt to equity ratio for the four companies in the capital goods
sector.
D/E Ratio
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 0.68 0.96 0.96 1.42 1.08
Cromton Greaves 1.02 0.97 0.75 0.54 0.93
Thermax 0.00 0.02 0.01 0.02 0.00
Bhel 0.11 0.10 0.09 0.08 0.01
Industry 0.45 0.51 0.45 0.51 0.51
80
Larsen & Tubro
Larsen and Tubro has a very high D/E ratio as compared to the industry values. This value is
high owing to the high amount of debt at 25 percent of the total asset (see common size Balance
sheet). Simultaneously the company has decreased the equity capital within this span of 5 years
from 2 percent in 2003 to 0.22 percent in 2007. The higher value of the debt to equity ratio leads
to an increase in the earnings per share from Rs 15 in 2003 to 85 in year 2007.
Debt to Asset Ratio
Chart Title
0.80
0.70
0.60
0.50
Axis Title
0.40
0.30
0.20
0.10
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 0.76 0.76 0.75 0.70 0.72
Cromton Greaves 0.76 0.76 0.75 0.70 0.72
Thermax 0.31 0.24 0.24 0.15 0.22
Bhel 0.56 0.60 0.64 0.66 0.68
Industry 0.60 0.59 0.59 0.55 0.59
81
1. DEBTORS TURNOVER RATIO: It indicates the number of times the turnover of
debtors take place in a year.
Chart Title
6
4
Axis Title
0
2003 2004 2005 2006 2007 AVG
DEBTORS TURNOVER RATIO
L&T 2.34 2.26 2.42 2.12 1.91 2.21
BHEL 1.48 1.68 1.68 1.78 1.78 1.68
THERMAX 4.34 4.5 4.89 5.28 5.1 4.822
CROMPTON GREAVES LTD 2.91 3.29 3.68 3.34 3.35 3.314
AVG 2.7675 2.9325 3.1675 3.13 3.035 3.0065
a. L& T: For L & T, debtor turnover ratio is always less than the industry average
throughout the five years which means that its debtors remain outstanding for a
longer period of time compared to industry peers. Moreover, the ratio is showing a
declining trend over the last five years. It can happen because of either of following
two reasons:
1. It has not been able to manage its debtors more efficiently.
2. It has got a liberal credit policy compared to industry.
Since, it is a big firm with a very high turnover, so the high debtor turnover ratio
may not affect its financial position much.
82
b. BHEL: It has got the lowest debtors turnover ratio compared to the rest of the firms.
There is no particular trend in the way the ratio is moving over the last five years. The
low turnover ratio can be attributed to the reasons cited above.
c. THERMAX: It has got the highest debtors turnover ratio among the four firms. The
high ratio implies that it has got less average collection period. It means that there is a
prompt payment on the part of the debtors which helps the company to maintain
liquidity.
d. CROMPTON & GREAVES LTD: It has got higher turnover ratio compared to
industry average throughout the last five years. In 2005, the ratio increased by around
.4 & next year it decreased by same margin.
% YEAR ON YEAR INCREASE

SALES DEBTORS
2004-03 7.950805 -4.65003
2005-04 14.79234 2.761257
2006-05 97.78128 117.6288
2007-06 35.93383 35.75765
The high increase in the year 2005 can be attributed to more % increase in sales
compared to debtors & the decrease in 2006 can be attributed to more % increase in
debtors compared to sales. So, there is a no particular trend about this ratio.
83
WORKING CAPITAL TURNOVER:
This ratio indicates the efficiency with which it generates sales using its working
capital.
Chart Title
140.00
120.00
100.00
80.00
Axis Title
60.00
40.00
20.00
0.00
-20.00
-40.00
2003 2004 2005 2006 2007 AVG
WORKING CAPITAL TURNOVER
L&T 4.40 4.66 4.31 4.75 3.70 4.36
BHEL 2.17 2.24 2.23 2.47 2.88 2.40
THERMAX 13.75 15.64 122.39 -23.26 -13.3 23.04
CROMPTON GREAVES LTD 6.17 10.21 8.52 7.70 8.45 8.21
AVG 6.62 8.19 34.36 -2.08 0.43 9.50
a. L & T: it has got an average working capital turnover of 4.36 which means that
for generating 1 unit of sales it needs .23 of working capital. The remaining
amount can be met from other sources of funds. Since, it is large firm with a very
high market share so its low WCT can’t be attributed to low sales. It can be only
because of high working capital.
b. BHEL: It has go the lowest WCT among the four firms when compared to the
industry average. The low value of WCT can’t be attributed to its sales because
sales have been increasing year on year which can be seen from the table below.

2004-03 2005-04 2006-05 2007-06
SALES 15.1373 20.0934 38.1049 29.0736
84
The low value of WCT can be attributed to high working capital in the
denominator. The high working capital is because of high value of current assets
compared to liabilities. The high value of current assets is because of high value
of accounts receivable compared to accounts payable in the current liability side.
c. THERMAX: It has got the highest WCT among the four firms in the first 3 years
& after that it has got negative working capital in the last two years. Moreover in
the year 2005 it has shown dramatic rise in its WCT & in the next year its WCT
has become negative from the value of 122.
The high increase in the year 2005 can be attributed to dramatic decrease in
working capital which is due to about 85 % increase in sundry creditors. The
negative value of WCT in the subsequent year is due to working capital becoming
negative. The working capital became negative because of continued high
increase of sundry creditors which made current liability more than current asset.

2004-03 2005-04 2006-05 2007-06
sundry creditors 16.79807 86.47286 -20.1747 88.46363

2004-03 2005-04 2006-05 2007-06
CURRENT
LIABILITIES 40.519 64.63538 23.29129 89.22209
CURRENT ASSETS 31.90145 43.0002 5.973474 82.80002
d. CROMTON & GREAVES LTD:

Its average WCT is less than the industry average. Moreover, its WCT is
increasing year on year.
85
Earning Per Share (EPS)
EPS
120
100
80
Axis Title
60
40
20
0
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 15.04089239 61.98142027 86.79600538 95.06952092 80.18900702
BHEL 18.16 26.89 38.95 68.60 98.66
C&G 5.11 14.48 20.04 44.30 7.81
Thermax 2.45740663 2.746957616 2.819974822 8.608732158 15.76826196
Whatever income remains in the business after all prior claims, other than owners claims (i.e.
ordinary dividends) have been paid, will belong to the ordinary shareholders who can then make
a decision as to how much of this income they wish to remove from the business in the form of a
dividend, and how much they wish to retain in the business. The shareholders are particularly
interested in knowing how much has been earned during the financial year on each of the shares
held by them. For this reason, an earning per share figure must be calculated. Clearly then, the
earning per share calculation will be:
*&+ ,( !(,(* #

$

!"
& &,
(
(% ")(
As we can see from the chart above, the industry is showing a diverse trend in terms of its
Earning per share. One one hand, Bhel and Thermax are showing an upward trend, but on the
other hand, Larsen &Tubro and Crompton & Greaves are showing a downward trend.
Price/Earning Ratio (P/E ratio)
86
Price Earning Ratio
45
40
35
30
Axis Title
25
20
15
10
5
0
L&T BHEL C&G Thermax
31.03.2003 35.04 12.30 10.06 11.23
31.03.2004 15.84 22.48 10.64 27.13
31.3.2005 11.52 19.70 21.62 42.11
31.3.2006 25.59 32.75 23.69 36.17
31.3.2007 20.20 22.91 25.54 24.32
The P/E ratio is a useful indicator of what premium or discount investors are prepared to
pay or receive for the investment. The higher the price in relation to earnings, the higher
the P/E ratio which indicates the higher the premium an investor is prepared to pay for
the share. This occurs because the investor is extremely confident of the potential growth
and earnings of the share.
The price-earning ratio is calculated as follows:
-(. !(
* '(")(
!(
* & (

&
!"
High P/E generally reflects lower risk and/or higher growth prospects for earnings. As we can
see from the chart above, only Crompton & Greaves is showing an upward trend, the rest three
industry players are showing a downward trend. The year 2004, 2005,and 2006 are showing an
upward trend for the whole industry. It can be indicative of a general economic upturn in those
three years which is leading to a flourishment in the whole industry.
87
Market Value to Book Value Ratio
Market Value to Book Value Ratio

60.00
50.00
40.00
Axis Title
30.00
20.00
10.00
0.00
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 12.62 25.86 20.38 24.14 17.53
BHEL 1.14 2.79 3.12 7.53 6.30
C&G 0.60 2.31 5.92 7.00 7.55
Thermax 16.26 17.44 19.15 38.57 49.53
The industry is showing a general downturn, with Thermax showing a upward trend in this
ratio.
88
Profitability Ratios
Dividend Yield Ratio
Dividend Yield
8
7
6
5
Axis Title
4
3
2
1
0
31.03.2003 31.03.2004 31.3.2005 31.3.2006 31.3.2007
L&T 0.75 1.58 0.75 0.83 0.56
BHEL 1.79 1.16 0.85 0.76 0.64
C&G 0 7 1 0 2
Thermax 0.018518856 0.018124491 0.012018464 0.009704015 0.020236969
The dividend yield ratio indicates the return that investors are obtaining on their investment in
the form of dividends. This yield is usually fairly low as the investors are also receiving capital
growth on their investment in the form of an increased share price. It is interesting to note that
there is strong correlation between dividend yields and market prices. Invariably, the higher the
dividend, the higher the market value of the share. The dividend yield ratio compares the
dividend per share against the price of the share and is calculated as:
#!"
#
$
/

"0 !(
*
#!" & #
$
/&. &, )( &

For this industry in the specified time frame, all the market players are showing a downward
trend in this ratio. This is indicative of the nature of the Capital Goods sector, where there is
always a need of a very high capital investment, which compels companies in the domain to
retain most of their earnings and distribute less of it in the form of dividends.
From the above ratios it is evident that the smaller player’s i.e Crompton Greaves and Thermax
are riding the show as they are getting high valuation for their share prices and it is totally
justified by looking at the efficiency at which they are managing their affairs and their better
89
future prospect of earnings. If we see at the cash and quick ratio of Thermax then it is really low
as compared to other players and the industry average and it can be a matter of concern for the
company as it can run out of cash but if we look at the debtors turnover ratio of Thermax, it is
high as compared to others players and this shows that the company is highly efficient in getting
back its cash from its debtors, so it can afford to go for lower cash and quick ratio. Also the
working capital turnover of Thermax and L&T is high which shows their efficiency in managing
their working capital to generate sales. If we look at the debt/equity ratio then L&T has been
utilizing its financial leverage to the best use of the company s that it can save tax and generate
more earnings for the share holders. BHEL is having low D/E ratio which show under utilization
of its financial leverage. Though EPS of L&T and BHEL are higher as compared to the smaller
players because they are older in this industry as compared to the smaller players. But if we look
at the dividend yield then it is really high for Crompton Greaves and the higher P/E of C&G and
Thermax is really justified by seeing their future prospect
90
8. FINDINGS & CONCLUSION
Findings from DU-PONT analysis
40.00
35.00 return on equity
30.00
25.00
in terms of %
20.00
15.00
10.00
5.00
0.00
2003 2004 2005 2006 2007
l&t 11.63 29.13 34.01 26.31 32.82
bhel 9.25 12.43 15.82 23.00 27.48
thermax 15.11 15.75 14.72 22.32 32.71
industry 10.48 19.75 22.40 25.29 30.65
The ROE is useful for comparing the profitability of a company to that of other firms in the same
industry. it is a measure of a corporation's profitability that reveals how much profit a company
generates with the money shareholders have invested. Here we can see that roe for all the
companies are more or less same at the end . so we cant judge which company is better in terms
of roe .
As a risk averse investor i would like to invest in bhel because this is the only stock which is
growing at a consistent rate and all other are having volatility in their roe . so less risk will be
there , but obvious less return will be there .
As a risk taker investor i will prefer to go with thermax because for last three years company’s
roe is growing at a rapid pace which suggest high future return followed by high future risk.
Findings from CAGR analysis
According to cagr analysis we would rank 1 to Crompton Greaves as it is having a highest cagr
of around 28% in its net fixed assets which will give future benefit at a high rate .further it is also
having a growth rate 0f 80.84 % in its pat which is really appreciable .and it is having a very low
91
difference in cagr of current liabilities and current assets which will remove the liquidity
problem. We would rank 2 to bhel , firstly because it stand second in the cagr of pat i.e. 50 %
and secondly company is total expenses is having a low cagr in comparison except Larsen and
toubro. We would rank 3 to thermax as it cagr in sales is much higher than Larsen and toubro
.and further thermax gross profit is also high in comparison to larsen .
Finally Larsen and toubro will be rank 4 as it is less competitive in terms of cagr.
Findings from Common size analysis
We would rank 1 to bhel because company cogs to sales % . selling and distribution expenses as
a % of sales stands very low in comparison to other companies and at the same time its pat to
sales % and net fixed assets to total assets % is very high which suggest that company present
and future condition both is good .
We would rank 2 to Larsen and toubro because company stand next to bhel, in terms of cogs to
sales % . selling and distribution expenses as a % of sales. Futher at the same time in terms of
profitability also company stand next to bhel. We would rank 3 to thermax as its pat to net sales
% and cosg to net sales as well and distribution to sales % is much better than Crompton
greaves. Finally Crompton greaves will be the 4 th one as it is having lowest pat to sales % ,
highest selling expenses to sales % etc.
Findings From Cash Flow Analysis
1. L &T: The net cash flow –closing balance of L & T has increased by 200% over the last
five years & it is the maximum among the four firms. This increase can be attributed to
increased cash flow from operating activities which has come mainly from CAPEX. The
company is not reluctant to raise more debt from the market in order to fund its CAPEX
& in the same time the company keeps repaying its debt.
2. BHEL: The net cash flow-closing balance of BHEL has increased by 100 % over the last
5 years. Like L & T , it has also maintained positive cash flow from operating activities
because of healthy management of its working capital.
3. CROMPTON & GREAVES LTD: In the first two years it had a negative cash flow but
now it has improved it dramatically because of better working capital management where
it has been able to get enough cushion from its creditors by postponing the payment.
4. THERMAX: It had a negative cash flow but in the last two years it has been able to
make a turnaround in generating positive cash flow. But to fund its CAPEX it is not
raising any capital from market. Instead it is funding it from cash flow operating
activities which is not a good sign.
Findings From sustainable growth rate model
92
By seeing at the ratios from the Sustainable Growth Rate Model we can conclude that L&T has
outsmarted most of the stocks over the years. This is because of its higher ROE over the years
than the industry and its competitors. Also its Net Profit Margin is the second highest after
BHEL. Though BHEL has the highest Net Profit Margin but it was not able to capitalize on this
as its ROE is lowest among the competitors and the below the industry average. The possible
reason for this is that BHEL has almost zero debt and it is not utilizing its financial leverage to
its best use. Also, L&T has distributed highest dividend as compared to other players and it is
way ahead of them. The effective tax rate for L&T has also been one among the lowest which
shows that the company is managing its resources in an efficient manner as compared to others.
Findings from Benchmarking Ratios
By looking at the Benchmarking ratios, it is clear that the smaller players like Crompton greaves
and Thermax are managing their resources in an efficient manner as their gross profit margin is
really good and above the industry average and their current assets and average receivables
period are lower than the industry and above the way ahead of the two bigger players L&T and
BHEL. Also their inventory turnover ratio is higher than the other players, which shows that
these stocks can outperform the bigger players in the future with unexpected profits due to their
efficient inventory management and better demand for their goods in the market which is evident
from the lower receivables period. But overall, L&T has again outsmarted the players as it is
around the industry average or above it in almost all the parameters and its gross and net profit
margin has been impressive.
Findings from Other Important Ratios
From the above ratios it is evident that the smaller players i.e Crompton Greaves and Thermax
are riding the show as they are getting high valuation for their share prices and it is totally
justified by looking at the efficiency at which they are managing their affairs and their better
future prospect of earnings. If we see at the cash and quick ratio of Thermax then it is really low
as compared to other players and the industry average and it can be a matter of concern for the
company as it can run out of cash but if we look at the debtors turnover ratio of Thermax, it is
high as compared to others players and this shows that the company is highly efficient in getting
back its cash from its debtors, so it can afford to go for lower cash and quick ratio. Also the
working capital turnover of Thermax and L&T is high which shows their efficiency in managing
their working capital to generate sales. If we look at the debt/equity ratio then L&T has been
utilizing its financial leverage to the best use of the company s that it can save tax and generate
more earnings for the share holders. BHEL is having low D/E ratio which show under utilization
of its financial leverage. Though EPS of L&T and BHEL are higher as compared to the smaller
players because they are older in this industry as compared to the smaller players. But if we look
at the dividend yield then it is really high for Crompton Greaves and the higher P/E of C&G and
Thermax is really justified by seeing their future prospect.
93
From the above table we can see that Larsen & Toubro and Bhel are very close to each other.
Larsen ranks highest in terms of cash flow analysis and sustainable growth rate model and stand
next to Bhel in case of benchmark ratios. whereas Bhel rank highest in only in common size
analysis and stand next to Larsen & toubro in terms of sustainable growth rate model .at the same
time Bhel rank lowest in benchmark ratios and other important ratios .so we can say that Larsen
& toubro is the better company In comparison to Bhel .so Larsen & toubro is best company
among the companies which we have taken in our capital goods industry. Bhel stand next to
Larsen and toubro and its far better than other two companies i.e. Crompton greaves and
thermax.While in comparison to Crompton greaves and Thermax, both of the companies are
more or less same efficient.
L&T Bhel Crompton greaves Thermax

Cash flow analysis 1 2 3 4
Common size analysis 2 1 4 3
Cagr 4 2 1 3
Du pont ----- ------ ----- ----
Sustainable growth rate model 1 2 3 4
Benchmark ratios 2 4 3 1
Other imp. ratios 3 4 2 1
94
9. REFERENCES
1.
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1.

We have taken four major companies in capital goods sector i.e.

3.1Comparative Statement Analysis

Statement on which balance sheets, income statements, or statements of changes in financial

A comparative statement helps to address changes in production costs.

3.2Compound Annual Growth Rate - CAGR

The cash flow statement is intended to:

This is a technique which is used to analyze profitability of a company using traditional

3.5 Common size Analysis

5.1Competitiveness Analysis of Indian Capital Goods sector

5.2Business Environment Competitiveness Issues

5.3Firm-level Competitiveness Issues

Most Indian manufacturers define quality of Capital Goods largely by performance

5.4Strategic Goals for Indian Capital Goods industry

Scenario Terminal Input Variables Output Indicators

Table: Scenario for Strategic Goals2

Enhance Market Position [Capital Goods Firms]

Attain market leadership through acquisition and consolidation to gain economies of

Enhance value-chain presence by providing custom-engineered products and special

Provide value to the customers in terms of return on investment with emphasis on

Build technology leadership [Capital Goods Firms]

Embrace technologies in business processes by investing in internet technologies (like e-

Enhance service-orientation and focus on fee-based activities to optimize mix of project

Larsen & Toubro Limited (L&T)

• Sustainable solutions in Energy and Environment, on this principle Thermax has

• Maximizing energy efficiency and slashing operating costs

• Boilers and Heaters

Thermax provides standard products in these 6 areas of business. Drawing on decades of

BHARAT HEAVY ELECTRICALS LTD.

BHEL has acquired certifications to Quality Management Systems (ISO 9001),

BHEL's vision is to become a world-class engineering enterprise, committed to enhancing

Comparative Balance sheet

Liabilities & Capital

Comparative Income Statement

YoY % change Current Liabilities

Long Term Liabilities

YoY % change Share Capital

YoY % change Current Asset

Net fixed Assets

YoY % change Assets

YoY % change other Assets

% change total Expenses

items 2002 2003 2004 2005 2006 2007

% change in current liabilities

% change in total assets

% change in fixed assets

items 2002 2003 2004 2005 2006 2007

Sales 618.35 734.51 818.28 1312 1700.3 2246.91

% change in gross profit

7.1.3 Crompton & Greaves Ltd:

items 2002 2003 2004 2005 2006 2007

items 2002 2003 2004 2005 2006 2007

% change in total assets

% change in total liabilities

% change in current asset

% change in fixed assets

Comparative income statement

items 2002 2003 2004 2005 2006 2007

7551.52 7735.73 8906.71 10696.37 14772.21 19067.02

% change in gross profit

Cash flow -closing balance

CASH FLOW ANALYSIS

7.2.3 Crompton Greaves

Cash Flow Analysis

&+ ,( !(,( #