Case StudyNo.

-1

Case Study
On
Radio Mirchi Lucknow during global
Economic Recession

Introduction of Radio Industry in India

Broadcasting began in India with the formation of a private radio service in Madras in 1924. In
the very same year, British colonial government approved license to a private company, the
Indian Broadcasting Company, to inaugurate Radio station in Bombay and
Kolkata. The Company almost went bankrupt in 1930 but the colonial government took away the
two transmitters and the department of labour & Industries started operating them as the Indian
State Broadcasting Corporation. In 1936, this very corporation was renamed all India Radio
(AIR) and was controlled by the Department of Communications.

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Opening doors to Private Sector in Radio Industry of India

Radio Sector in India was opened for private operators after the judgment of Supreme Court
judgment in 1995 and the first private FM radio station launch in 2001 in Bangalore.

According to FICCI report, Indian Radio Industry is projected to post a robust growth of 32%
over the next few years to touch Rs. 12 billion in revenues by 2010 on the back of a robust
economy and easing of stiff investment rules.

Radio Continued to grow fast during FY08. With so many new markets opening up during the
year. The spread of radio has increased significantly. As per estimates based on the increase in
volumes and prevailing prices in the Market, our estimate is that FM radio may have grown at
more than 40-45% this year. Radio Mirchi itself has grown at 35% during the year. This makes
Radio the 2nd fastest growing segment of the media market after the internet space. As this year.
Radio Mirchi itself has grown at 35% during the year. This makes Radio the 2nd fastest growing
segment of the media market after the internet space. This makes the Radio Industry more than
4% of the total advertising industry.

Radio Mirchi at a glance

Radio Mirchi is well known brand of the company Entertainment Network India Ltd.
founded in 1999.

Entertainment Network India Ltd. Is one of India’s leading Entertainment and Media companies
ENIL operates in the Entertainment and Media space through broadcasting of FM Radio,
participating in the Out-of-Home Media and Experiential Marketing.

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ENIL is subsidiary of Times Infotainment Media Limited(TIML),the holding Company
promoted by Bennett, Coleman & Company & Company limited(BCCL)-the flagship
Company of The Times of India Group .The Group is India’s largest media conglomerate.

ENIL in turn has two subsidiaries – Times Innovative Media Ltd and Alternate Brand
Solutions Limited.

The Company Accessed the Capital Markets in 2006 and its shares are listed on the Bombay
Stock Exchange Limited and the National Stock Exchange of India Limited.

Vision

To be a leading city-centric media company by delivering unique audience through media

vehicle like FM Radio, experiential marketing and Out-of-Home Media.

Culture Value

Fun & Responsibility, Inform Risk Taking, Constructive confrontation & Non –Hierarchy
driven.

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 Radio Mirchi Lucknow at a glance

Radio Mirchi Lucknow launched in Aug’2007 with new flavour of radio in town.

Within short span of time Radio Mirchi become market leader in city that shows in Aircheck
data.

Year 2008-09 at glance

Months April May June July Aug Sep Oct Nov Dec Jan Feb Mar
Radio City 30812 37363 50676 54619 40263 36641 71687 34536 30444 32554 31531 55165
Mirchi 21007 35923 51566 56743 48765 41327 108084 49405 43129 39804 38251 65453
RED 15165 7349 6523 14520 11507 16113 25900 4389 3530 6789 7450 17162
Total 66984 80635 108765 125882 100535 94081 205671 88330 77103 79147 77232 137780

CU Trend month wise

120.00
100.00
Secondages in 000

80.00 Radio C ity

60.00 Mirchi
40.00 RED
20.00
-
April May June July Aug S ep Oct N ov D ec Jan Feb Mar
Month

Source: Aircheckindia.com

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 Station Performance -

In term of Revenue

Month Apr May June July Aug Sep Oct Nov Dec Jan Feb Mar
FY0809 14 22 22 23 19 21 35 17 16 15 14 15
LY0708 0 0 3 5 17 17 23 25 20 21 19 24
GOLY(%) 100 100 633 360 12 24 52 -32 -20 -29 -26 -38

40

35

30

25

20

15

10

0
Apr May J une J uly Aug Sept Oct Nov Dec J an Feb Mar

FY08 Line 2 LY

We were growing over last year revenue but as recession hit the economy in October we tend to
de-grow in our revenue reflecting negatively EBITA that can be seen in above graph & data
sheet.

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In Terms of Profitability

FY0809 Rs (In Lacs)

STATION P & L Q1 Q2 Q3 Q4
Airtime Sales 52 49 64 39
Activation Income 6 4 3 5
TOTAL REVENUE 58.00 53.00 67.00 44.00
Personnel 11.50 11.50 10.50 10.50
Studio / Transmission Costs 2.10 2.50 2.66 2.00
Energy Costs 2.45 2.85 2.75 2.15
Marketing & Sales Promotion 0.20 0.14 0.65 0.33
Activation Expenses 3.00 2.00 1.50 2.50
Office G & A Expenses 0.27 0.30 0.48 0.42
Printing & Stationery 0.07 0.03 0.06 0.04
Repairs 0.13 0.09 0.08 0.04
Travel & Conveyance 0.23 0.75 0.72 0.47
Communication Costs 0.23 0.27 0.30 0.24
Staff Welfare 0.13 0.18 0.25 0.19
Professional fees – Legal & Auditors 0.01 0.00 0.05 0.01
Business Promotion 0.03 0.05 0.08 0.02
Provision for Doubtful debts 2.60 1.50 2.40 0.80
TOTAL DIRECT COSTS 22.96 22.16 22.48 19.71
License 2.32 1.95 2.68 1.76
Royalty 4.33 4.40 4.35 3.95
Rent 3.43 3.43 3.43 2.95
TOTAL INDIRECT COST 10 10 10 9
TOTAL COSTS 33 32 33 28
EBITDA 25 21 34 16
%age 43% 40% 51% 36%

Pre recession Radio Mirchi was operating with 40-50% EBITDA but cause of pro recession and
post recession it drip down by 10-15 %

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Management Challenge during Recession Period-

1. To Uplift the Major drop in Revenue & achieve the targeted EBITDA.

2. To control over Cost.

3. To Maintain Liquidity Flow for smooth business

4. SWOT Analysis

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 Corrective Measures taken by Management to come out from Recession-

1. For Uplift the Revenue trend & EBITDA-

Time is best teacher and can make any one learn this principal; the same was applied to Radio
Mirchi Management during the time of recession.

A- Flexible ER (Effective Rates)-

Management worked on its Pricing Strategy, There is four time band to play our spots.(Morning,
Afternoon, Evening and Night. Where morning, Evening is called Prime Band & Afternoon is
non prime band.

Variable pricing is as per time band. Being prime time 50% on prime charged to that of average
rate So management decided to make combo offers to promote & consume its unutilized
inventory in afternoon and night to attract Retailers & SME. New combo offers and property
were designed to sell it more effectively.

B- New Property(Classified) Introduced in Market-

Logic given by management to introduce Classified was to trap the unexplored small ticket size
retailers having limitation to spend in advertising.

Classified offer clients, afternoon time zone on very low ER and fixed rotates with limited words
with bunch of other advertisers. In other words the package was of festival offer in economy
class by aviation industry to invite more and more no of customers who will to enjoy given
service but due to budget limitation were not able to spend

Classified product was of very much similar in nature to that of Print Industry (News paper
industry)

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 Company Exposures-

Stations get more revenue in recession period.

Consumption of Inventory increases in afternoon rather than prime band which was idle before
launching Classified.

Station got new client which is untouched of radio reason of his low budget.

Client Exposure-

Clients get best deal in market with best brand.

Client got good response from Market.

C- Focus on On Ground Activities-

It was one of the best practices used very effectively to get two things done in one time.
Objective behind this was to recall own Brand along with listener connect. This not only helped
in pulling listener but also help in establishing more happening brand in the city.

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For Achieving Targeted EBITDA-

The most challenging part of operation was to drive the desired EBITA with growing revenue or
to sustain at the base of last year revenue.

Management during the recession phase do not have any other option rather than trying
defensive strategy, coz competition was also a challenge on the same time during the recession.

Management focused on both the element of EBITDA: Top line and bottom line

TOP LINE (Revenue)

Revenue

1- Management focussed on client retention

2- Focus on Event income with more & more On Ground Activity.

3- Introduced new property & ideas to interact clients for positive business sign.

4- Change in Pricing Strategy: new combo package offered along with value add services

Cost Cutting-

1- Management has work to reduce some major station cost like, Personal Cost,
Energy Cost, Transmission Cost, Royalty & Licence Fee to reach on targeted
EBITDA.

2- Management has taken all necessary corrective measures to reduce with budget.

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2. Bottom Line (Cost)

In the time of recession Revenue got extremely drop & so its become necessary to control over
its cost.

To control over cost management have taken corrective measures on every line item with very
sensitivity.

Cost is divided into two category-

1- Direct Cost
2- Indirect Cost

Direct Cost

A- Personal Cost

In any of the organization the major chunk is of personnel cost, and so far this industry was
concerned the Man power cost was very high as the 50% of the employee were taken on the
basis of ITR (intellectual rights) used as product for creative purpose.

Thus to minimise this cost new slots of shows were redesigned for better use of available
resources or were resized where required.

Rest of the operation staff were made to be multitasking to get the best utilization of resources.

B- Studio & Transmission Cost

Management has taken some conscious decision to reduce Studio & Transmission cost-

Outsource All Transmission Operation to Outsource Company.

Station is running 24 hours, so management decided with meeting of all competitors to shut
down after 12.

Revise & Negotiate rate of AMC Charges for Studio Machineries.

All these corrective measures impacted on S & T cost, it reduces around 15-20%.

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C- Energy Cost

Energy cost is very important & much impacted on Pnl. So management have concentrated
his mind on control it-

AC & others switched off by 5.00 PM , to reduce some electricity bill.

Power & DG Running Cost on transmission site now outsourced.

Regular maintenance of Studio genset, so that can be reduce Diesel bill.

Above exercise positive impacted on our Pnl & station reduce Energy cost
By approx. 20%

D- Some Other Direct Cost

Travel & Conveyance – Travel exp is a regular big exp for the station. So management
decide to take corrective action like reduce meeting frequency, cut the travel allowance &
negotiate with travel vendor for rate etc & its impacted positive sign in Cot line item. Cost
reduce by 15-20%.

Communication Cost-To reduce Communication Cost surrender some phone line, negotiate
with service provider for tariff etc & save by 10%

Indirect Cost

1-License Fee

We paid license fee to govt by Fix rate of 4% of Gross Revenue. It’s a major hit on Pnl so it
has proposed with govt to reduce license fee to phase out new stations.

One corrective action has to be taken by management that is we booked business & given
direct discount to client so impacted double one is on license fee & other on net revenue
drop. Now we started to adjust discount with gross revenue so it’s impacted positively on
License Fee.

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2-Royalty

Earlier only New Retro played on station in every show so royalty with concern
Label Authority was going to be high in comparison with Old Retro.

So management changed Programme & timing & provide listeners new flavour of Radio with
Mix of Old Retro & New Retro & save Royalty with Approx. 10%.

3-Rent

On the time of recession real estate rate going to be down so we negotiate with landlord to
reduce rent of premises & he ready to reduce annual premium of rent which was 10% of rent
therefore we save 10% saving in Rent line item.

3. To Maintain Liquidity Flow for smooth business

In the time of recession the main problem which come front on every organisation is Liquidity
Crunch & station was not so far with this problem.

From come out this problem management taken some strong corrective measure that is follows-

Business on Cash n Carry

We started to do the business on cash n carry basis & some clients which is enjoying credit limit
finance department reduce their credit limit & force to do business on cash n carry.

For this management offer them some facilities like direct discount, flexible ER, & value adds
etc & its given positive response from client.

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Extend Vendors Credit Limit

Management were obtaining one month credit from vendor for their payment except some
crucial exp.

So Management force to vendors to extend this credit limit with two months to maintain
liquidity.

4. SWOT Analysis

Strength

Largest operating network & reach among Listeners

Company have the largest operating network among private FM radio broadcasters with 32
stations among four metropolitan cities. It has an also highest listenership among private FM
radio broadcasters in India. Company believe in industry-leading operating network and listener
reach enable it to offer an advertising platform to advertisers.

Radio Mirchi brand is widely recognized

Management have focused on investing in and developing the Radio Mirchi brand, which
recognized in its markets. As per ILT wave 5,Radio Mirchi brand has awareness 100% in
Mumbai & 100% in Delhi.

Proven Ability to success fully operate in diverse markets

Our FM radio stations are located in diverse regions in India and we have been attracting local
listeners in each of these markets. Our superior understanding of preferences enables us to
provide content that is customized to the taste,language,culture of the local audience.

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Strong Advertisement Sales Capabilities

Based on Aircheck data we have attracted highest advertisers among other FM Radio
Broadcasters.
Our sales team has established relationship with advertisers & Advertising Agency. Our sales
team woks independently of advertising efforts of other entities in the TIMES Group. We follow
several innovative advertising practises such as per second billing, providing services for
production of advertisement in nominal cost and offering our studio space for pre-production
work,which has strengthen our relationship with advertisers and advertising agency.

High Quality studio and transmission equipment

For our studio transmission facilities, we have invested in high quality equipment of our key
equipment, such as transmitters, mixers codecs from united states & Canada based suppliers. We
believe that our investment helps in increase the quality of broadcast and coverage in each of
our local markets.

Weakness

Lack of Autonomous Body of FM Broadcasting Player

There is a lack of corporate body of Players which could be corporate for common goal.

No Standard guideline provided by TRAI

There is no standard guideline provided by TRAI that could be applied on every FM broadcaster.
Like about price fixation etc.

Retention

Large number of players entering this space so there has been pressure in retention of talent at
Radio Mirchi.

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Opportunity

Network Expansion

After Implementation of Phase II Policy of FM radio privatisation, private sector planning likely
to be available in many more cities and will enable advertisers to reach out consumer base, using
radio as medium. This could result in radio getting a large advertisement spends.

Rationalization of License fees

The shift from a fixed license fee to the revenue share model in phase II policy of broadcasting is
expected to result in more viable business models and growth for the FM broadcasting Industry.

Local Advertising

Globally, the local retail segment constitutes a large part of radio’s advertising. As per the CII-
KPMG Report, while local advertising contributes 70% of radio revenue in USA, In India, the
share of local advertising is only about 8% of Radio Revenue. Ideally, a localized medium like
radio can be effectively used for promotions & region-specific advertising campaigns, apart from
being bundled cross-media promotion strategies. This would make the medium more attractive
number of local advertisers, rather than being independent on a concentrated set of advertisers.

Internet Radio

As Internet Connection have become faster and software for cyberspace has become
sophisticated, audio listeners have benefited. Free, downloadable audio computers have made
listening to audio via the computer possible. Traditional of radio stations have begun to take
advantage of the new software, as well as the ability to deliver graphics, data and video at the
same time, to enhance their listening experience. The Internet has also extended the reach of
radio stations become own markets, which was determined by the strength of their broadcast
signals, to the world.

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Threats

Entry of New Competitors

When we start that time only there is only one 2 competitors in market but now this time the
third competitors has also come & 2 players ready to launch their stations very soon .Now
market share would be divided & impacted on EBITDA.

To maintain the listenership & market share

Entry of new competitors there is a big threat to keep maintains our internship in market .

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Case Study No.-2

Case Study
on
Activity Based Costing

Company Name- Innovative Pharma

Brief of Problem faces by Company

• Innovative Pharma Produces Products – A & B.

• Historically, the profitability of the division had been tied to A.

• In the last two years , however , the division has been facing intense competition, and its
sales of A have dropped.

• Much of the competition was from foreign sources, and the divisional manager was
convinced that the foreign producers were guilty of dumping.

• One of the competing firms sold A at $20 per unit - $11 less than what Innovative
Pharma was offering. Innovative Pharma managers believed that A is costing about $21
to produce.

• In View of this, they were considering to emphasis producing and selling more of B,
where margin was high and they had virtually no competition for it. Some of the
customers for B were willing to accept a 25% increase in the price & still purchase same
quantity as before.

• After a soul-searching meeting, the divisional head requested an investigation of the

production costs and comparative efficiency. The controller reported that as far as he
could determine, the division’s efficiency was similar to that of other competitors.

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 • The Controller did mention the possibility of using Activity- based Costing,a method that
might improve product costing.

• To Assist the Division Head in understanding the production activities and costs
associated with the two products , prepared the following data:

Innovative Pharma : Production & Cost Data

Production Data

Description A B

Production(No. of Units) 50000 10000

Selling Price($) 31.86 24.00

Overhead per unit 12.89 6.45

Prime Cost (Direct 8.53 6.26

Material & Labour per
Unit($)

No. of Production runs 10 20

(Set Ups)

No. of Order Received 40 100

No. of Machine Hours 12500 6000

No. of Direct Labour 25000 2500

Hours
No. of Development Hours 5000 5000

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No. of Material Moves 50 40

Cost Data

Overhead Pool Amount ($)

Setup Cost 24,000

Machine Cost 185,000

Receiving Cost 210,000

Development Cost 200,000

Material Handling Cost 90,000

Total 709,000

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Innovative Pharma

Worksheet
Cost
Eleme
Driver nt Activity Consumption Activity Cost Product Cost
Activity as Prod Prod Per
List Type Given A B Total Total Unit Prod A Prod B
E=(C+ G=F/ H=(G X I=(G X
A B C D D) F E C) D)

Developme No. of Develo

nt Developme pment
nt Hours Cost 5000 5000 10000 200,000 20 100000 100000
No. of
Production Production Set up
Set up Runs Cost 10 20 30 24000 800 8000 16000
No. of Receivi
Order ng
Receiving received Cost 40 100 140 210000 1500 60000 150000
No. of
Machine Machin 1250
Machining Hours e Cost 0 6000 18500 185000 10 125000 60000
Materia
No. of l
Material Material Handlin
Handling Moves g Cost 50 40 90 90000 10 50000 40000

Total
Overhead
Cost 34300 36600

Volume
Production 50000 10000

Prime Cost
Per
Unit(From
the Caes) 8.53 6.26

Ovehead
Per Unit(H-
6/H-7 & 8
so on) 6.86 36.6
Total Cost
Per Unit
(8+9) 14.39 42.86

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 Selling
Price(From
the Case) 31.86 24.00

Recommendation:

 Eliminate- Non Value Adding activities and processes

 Simplify to reduce cycle time and improve consistency of performance.

 Automate to improve efficiency and consistency of performance.

 Outsource to lower costs and lower risk by converting fixed costs into variable costs

 Share by creating common processes across products, functions and markets.

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Case Study No.-3

Case Study
On
Unique Industries Ltd.

The Unique Industries Ltd is a manufacturing company which Financial Statements are

following-

Balance Sheet

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 Balance Sheet
As on 31 March'2003
Liability Amount Assets Amount

Creditors 280,000 Cash 70,000

Bill Payable 140,000 Debtors 350,000

Outstanding Exp. 40,000 Stock 490,000

Provision for Tax 100,000 Fixed Assets,net 1,050,000

Long Term Debt 840,000 Goodwill 140,000

Preference Share Capital 280,000

Equity Share Capital 140,000

Reserves 280,000

Total 2,100,000 2,100,000

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Profit & Los A/c

Profit & Loss A/c

For the Period ended 31 March,2003

Particular Amount

Sales :
Cash 280000
Credit 1120000

Total Sales 1400000

Less: Expenses:

Cost of good sold 840000

Selling,administration & General Exp 140000
Depreciation 98000
Interest on Long-term debt 42000 1120000

Profit before Taxes 280000

Taxes 140000

Profit after Taxes 140000

Less:Preference dividend 17000

Net Profit for ordinary Shareholders 123000

Add: Reserve at 1 April 2003 182000
305000
Less:Dividend paid to equity shareholders 25000
Reserve at 31 March'2003 280000

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 The Ratios for the years 2001 & 2002 for Unique Industries Ltd. And their

industry ratios are given below:

Particulars 2001 2002 Industry Ratio

Current Ratio 2.54 2.10 2.30

Acid Test Ratio 1.10 0.96 1.20

Debtor Turnover Ratio 6.00 4.80 7.00

Stock Turnover 3.80 3.05 3.85

Long Term Debt to total Capital 37% 42% 34%

Gross Profit Margin 38% 41% 40%

Net Profit Margin 18% 16% 15%

Return on equity 24% 29% 19%

Return on total assests 7% 6.80% 8%

Tangible assets turnover 0.80 0.70 1.00

Interest coverage 10 9 10

Questionnaires

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• Calculate Financial Ratios for the Year 2003?

• Evaluate Company’s Financial Position.

• The Management have to take some decision using relevant ratio :

• Company wants to buy material of 70,000 on a three months credit

from A.

• Company offer to sell 70,000 additional shares for Rs 112 per share to
a financial Institution.

• Company want to issue 16% debenture of Rs. 300,000 with a ten year
maturity.

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The Ratios for 2003 of Unique Industries Ltd are follows :

Ratio Year 2003

1-Current Ratio 910000/560000 = 1.63

2-Acid Test Ratio 420000/560000 = 0.75

3-Debtor Turnover Ratio 1120000/350000 = 3.20

4-Stock Turnover 840000/490000 = 1.71

5-Long Term debt to total Capital 840000/1400000 = 60%

6-Gross Profit Margin 560000/1400000 = 40%

7-Net Profit Margin 140000/1400000 = 10%

8-Return on equity 123200/280000 = 44%

9-Return on total assests (280000+42000)(1-0.5)/1960000 = 8.2%

10-Tangible assets turnover 1400000/1960000 = 0.71

11-Interest coverage 322000/42000 = 7.67

* Intangible asset of Rs. 140,000 is excluded.

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 Company’s Financial Position:

• The Liquidity position of the firm is falling, which is evident from the ratio 1 to 4.

• The Gross Profit Margin is constant and matches with the industry average, but
the net profit margin ratio is declining. The ratio together implies that the firm’s
selling and administrative expenses, depreciation and interest charges are arising.

• The decline in the net margin is partly due to rapid increase in debt (Ratio-5). This
increase also explains why the return on equity (Ratio-8) has been rising while the
return on assets is declining ( Ratio-9). The decline in the net margin and the
return on asset can also be attributed to the decline in assets turnover ( Ratio-10).
The Impact of the increase in debt and overall decline in profitability are also
shown by reduction in the interest coverage Ratio 11).

• The primary focus of the analyst here will be on the liquidity of current assets. He
would, therefore, concern himself with ratio 1 to 4. The credit may not be granted
to company. Because of its deteriorating liquidity and lengthy terms of payment.

• The analysis for the purpose of investing in shares generally concentrates on the
return on equity and leverage ratio. The return on equity of company is
increasing, therefore the shares may be purchased but company has a high degree
of leverage ( Ratio-5) and its profitability (Ratio 8,9 & 10) is declining. This will
go against the buying the shares. The decision will depend upon the financial
institution’s assessment about the company’s future profitability and long-term
financial conditions.

• The company may find difficulty in selling the debentures. Already, it has a high
leverage ratio. If the debentures are issued its leverage ratio will increase to
67%(11,40,000 + 17,00,000) and the coverage ratio at the same level of earning
will decline to 5.2. The liquidity and the profitability of the firm are also
declining.

Case Study No.-4

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 Case Study
On
Dream India Pvt Ltd.

Introduction

Dreams India Pvt. Ltd is a home furnishing Company. It Carries a range of nearly 1000
products
and is well known company. It achieves this by providing products with good quality,
price and design. In the Country it sells through 48 stores as well as online. It is
responding to the public’s rising concern for sustainability. Dreams India believes being
“Green” Is good business practice.

Vision

“To create a better everyday life for many People”

Company Policies
Dreams India governed by five major policies that affirm the environmental
responsibilities of The Coca-Cola Company and serve as guidelines for our business
partners around the world. Each of these policies is supported by specific requirements
and practices that govern our daily operations and are fundamental to achieving results
consistent with environmental leadership.

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Five Policies are

1. COMMITMENT

2. COMPLIANCE & BEYOND

3. MINIMIZING IMPACT, MAXIMIZING OPPURTUNITY

4. ACCOUNTABILITY

5. CITIZENSHIP

Management has a great challenge to sustain with its market share & compete its
competitor. Management want to compare analysis with its close Competitor named
Alpha Private Ltd. Both are same in the industry with identical earnings per share for the
last five years. The Dream Company has a policy of paying 40 per cent of earning as
dividends. While he Alpha Private Ltd. Pays a constant amount of dividend per share.
There is a disparity between the market prices of the share of both companies. The price
of Dream’s share is generally lower than that of Alpha private Ltd. Even though in some
years Dreams paid more dividends than Alpha. The data on earnings, dividends and
market price for the both companies are as under-

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For Dreams India Pvt Ltd.

Market
Year EPS DPS Price
Rs. Rs. Rs.
2000 4.00 1.60 12.00

2001 1.50 0.60 8.50

2002 5.00 2.00 13.50

2003 4.00 1.60 11.50

2004 8.00 3.20 14.50

For Alpha Pvt Ltd.

Market
Year EPS DPS Price
Rs. Rs. Rs.
2000 4.00 1.80 13.50

2001 1.50 1.80 12.50

2002 5.00 1.80 12.50

2003 4.00 1.80 12.50

2004 8.00 1.80 15.00

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Questionnaire

1. SWOT Analysis of Organisation?

2. Calculate Payout Ratio for both companies

3. Dividend Yield & Earning Yield for both companies.

4. Find the reason for the differences in the market prices of the both
companies share.

5. What can be done by Dreams India Pvt Ltd. To increase the market prices
of its shares?

1. SWOT Analysis

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SWOT Analysis is a planning tools that helps firms focus on key issues. Dream India uses
SWOT analysis to look at Strengths Weakness, Opportunities and Threats inside and outside
the business.

Strength and weakness are internal aspects, such as marketing or production. These can be used
or changed by the business. Opportunity and Threats are external factors that the business needs
to take account of. For examples, the business has less control over environmental or social
changes. Businesses create opportunities by using their strength and counter threats by dealing
with any weakness.

Strengths

Strength are aspects of a business that add value to its products or services. Company’s strength
includes:

• A strong global brand

• A Clear Vision

• Strong Concept

• Democratic design (The equal balance of function, quality, design and price).

Dreams India measures its strengths using key Performance Indicators (KPI).
KPI help it to set targets and see how it is achieving its vision. It also has strengths through its
production processes, such as in:

• Increased use of renewable materials.

• “Smarter” use of raw materials.

• Long- Term partnerships with suppliers.

• Economies of scale.

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Opportunities

A business uses strengths to gain from opportunities. Dreams India’s Opportunities come from
linking its sustainability plans to growing demand from customers for :

• Greener Products

• Low Prices

• Lower Water usage and carbon footprint.

Dreams India works towards these in many ways, such as by:

• Providing tips and ideas for a sustainable home life on its website

• Aiming for zero landfill waste, reduced wastewater treatment and less water use.

• Cutting Carbon footprint through less transport and packaging.

• Showing social responsibility, for examples, through its works to support charities.

Weakness & Threats

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A Business must know its weakness in order to improve and manage them. Dream India Need to
consider:

• The size and scale of its business. Dreams India Activities may make it difficult to
control standards.

• The demand for low-cost products. The cost needs to be balanced against quality.

• The need to keep the public and Dream India stakeholders well informed about its
environmental activities.

Threats can be managed if the business is aware of them Dream India has put in place a number
of practical solutions to turn a threat into an opportunity. These include :

• Social trends – it gives tips and ideas to customers and employees on reducing their
impact on the environment.

• Market Forces – it makes better use of technology and materials. This reduce costs and
benefits the customer and the environment.

• Economic Factors – Low prices appeal to Dream India’s customers especially in tough
financial times.

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2. The following table shows payout, dividend yield and earning yield for Dream India &
Alpha Private Ltd.:

Payout Dividend Yield Earning Yield

Year Dream Alpha Pvt Dream Alpha Pvt Dream Alpha Pvt
India Ltd India Ltd India Ltd
2000 0.4 0.45 0.13 0.13 0.33 0.3

2001 0.4 1.2 0.07 0.14 0.18 0.12

2002 0.4 0.36 0.15 0.14 0.37 0.4

2003 0.4 0.45 0.14 0.44 0.35 0.32

2004 0.4 0.23 0.22 0.12 0.55 0.53

3. It seems that investors evaluate the share of these two companies in terms of dividend
payments. The

average dividend per share over a period of five years for both firms is Rs. 1.80. But the average
market

price for Alpha Ltd. (Rs. 13.20) has been 10 percent higher than the average market market price
for

Dream India ( Rs. 12). The market has used a higher capitalisation rate to discount the
fluctuating

dividend per share of Dream India Pvt Ltd.,thus valuing the shares of Dream India at a lower
price than

that of the Alpha Ltd.

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4. It is obvious that the market evaluates these firms in terms of dividends. A higher market price
might be

obtained for the shares of Dream India Pvt Ltd., if it is increases its dividend payout ratio. The
company

should evaluate this option in light of funds requirement.

Conclusion:

Dream India is a well known brand. To keep doing well it must assess internal and external
factors that

may affect the business performance. It takes advantage of opportunities and manages any
threats in a

Positive way. Dream India unites design, low prices & good use of resources. Its products,
processes and

System all show a responsible approach to people and the environment. Dream India knows that
behaving

Sustainably is good for customers, the planet and its business.

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