1.

1 INTRODUCTION

Today one of the major goals of financial management is maximum utilization of

the capital employed. Since capital resources are scarce and costly, companies try to
employ these resources in a way that yield highest return. Of course this should be
accompanied by steps taken to minimize the cost of acquired resources. Otherwise, it will
not increase the shareholders wealth and firm’s value.

The manager of a firm (as an internal user of financial information) and the
investor and other parties (as the external users) are interested to use an appropriate
performance measure in order to assess how the managerial actions affect the value of the
firm. For this purpose the performance measure used, much consider at least three things,
which are: the amount of capital invested, the return earned on the capital, and the cost of
capital (Weighted Average Cost of Capital).

Economic Value Added has been put use for management performance evaluation
and much more than just a measure of performance, it is a framework for complete
financial management.

On the other hand, Market Value Added (MVA) is an indicator which measures
the stock return and shows the effect of different factors on share price, in a particular
market. While EVA is an accounting-based measure for the corporate performance of one
year, MVA is a market-generated number. MVA is cumulative measure of the value
created by the management in excess of the capital invested.

The EVA analysis has attracted much attention in both as a management

innovation as well as a stock market analysis. The recognition of such a technique in
India context, nevertheless, shows to some extent, diverse trend. Majority of companies
are still not prepared to put in the EVA technique for evaluating their financial
performance. But, in a country like India where capital is still costly, one would think,

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that corporate management will try to get a bigger return from every rupee invested in the
business. This will happen if the new performance measure, EVA is utilized.

This study empirically examines the relationship between MVA (which is the
indicator of stock return) and EVA (as an appraiser of firm value) of AMARA RAJA
BATTERIES Limited for the period 2003 to 2007.

Definition of EVA

The expansion of capital markets increased shareholders awareness; institutional

investors with large equity positions and high competition to acquire the capital
resources, have contributed to heighten the pressure on companies to constantly perform
better and try to maximize the shareholders’ wealth. In response, and regarding the short
coming of traditional performance measures, consultancies companies, such as Stern
Stewart, has developed a new and probably most popular periodic value-based
performance indicator, called Economic Value Added.

EVA is defined as an economic profit measure that includes a charge for the
opportunity cost of all capital invested in an organization, and it can be used for setting
managerial performance targets, paying bonus and a valuing capital projects or
companies. EVA is an estimate of “economic profit’ or the amount by which earnings
exceed or fall short of the required minimum rate of return that the shareholder and
lenders could get by investing capital in other securities having analogous risk.

If a company’s earnings after tax exceed the cost of capital employed, EVA is
positive and thus, value has been created. If the result is negative, the firm’s management
could not meet the expected returns target of the investors.

EVA Methodology

For the purpose of calculating EVA, information is required regarding the profits,
capital, cost of capital, etc., which are based on the mission and objectives of an
organization. The EVA, in turn, is linked with various plans formed for each particular

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action and defines the measures to be applied for achieving the value creation objective.
The measure are defined for each activity: profit, cost, capital and cost of capital

EVA Methodology

The study of the above mentioned EVA methodology helps in identifying the
drivers for value creation in an organization. The segregation of all the financial and non-
financial components helps in identifying the drivers of value creation and value
enhancement in a company.

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 Regular Vs. EVA Balance Sheet
Regular Balance Sheet The EVA Balance Sheet
Net Assets Sources of Finance

Non-Operating Short- term Debt

Cash
Working Capital Long-term Debt
Requirements

Cash Short-term Other Long-term

Debt Liabilities
Receivables + Short-term
Inventories + Interest Bearing Fixed Assets
Prepaid Liabilities
Expenses Shareholder’s Equity
Long-term Debt
Other Long-
term Liabilities
Fixed Assets Shareholder’s
Equity

Benefits of EVA

• It is primary used for evaluating the performance of management.

• It can be applied to capital budgeting like NPV.

Usage of EVA includes

• Setting organization goals;

• Measuring performance;
• Capital budgeting;
• Corporate valuation;
• Analyzing equities;
• Motivation of managers;

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Definition of MVA

Stewart (1991) defines MVA as the excess of market value of capital (both debt
and equity) over its book value. If MVA is positive, the company has created wealth for
its shareholders. To determine the market value, equity is taken at the market price on the
date the calculation is made, and debt is taken at book value. The total investment in the
company, since day one, is then calculated as interest-baring debt and equity including
the retained earnings. Present market value is then compared with total investment. If the
latter is greater than the former, the company has created wealth.

Main problems with EVA, which led to Emergence of Market Value Added:

• EVA is considered as a good measure for analyzing short-term company’s value.

• Only one performance measure cannot be useful for measuring the performance
of the company.
• It also suffers from wrong periodizing of returns and hence it may fall to depict
the true result to changes, like change in inflation rate.

Implications of MVA

MVA of a company is an indicator of its performance. It is generally considered

that higher MVA is favorable on part of the company’s performance.

Higher the MVA, better it is for the company

A high MVA is an indicator that a company has created ample amount of wealth
for its shareholders, where a low of negative MVA is an indicator of less investment
value as compared with the capital contributed by the investors. In other words, low or
negative MVA indicates that a company’s wealth is destroyed. It can be depicted as
below:

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 Implications of MVA

Implications of MVA

Positive or High
MVA Negative or Low MVA

Company has
Company has lost value
added value

Relation between MVA and EVA:

Basically, MVA is nothing but present value of future expected EVAs.

EVA and its Link to MVA

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Benefits of MVA
• The primary objective of a company should be to maximize shareholder’s wealth.
• A company should earn more than the cost of investment.

Limitations of MVA
• It does not take into account cash return to shareholders because it measure the
difference between market value and the capital invested for a specific time
period only.
• It cannot be calculated at strategic business unit level and in case of privately held
companies.

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 1.2 INDUSTRY PROFILE
Industrial Chargers are manufactured by Amara Raja Power Systems under the same
group, and works as an integral arm of Amara Raja Batteries by providing DC System
solutions along with our batteries to Telecom, Railways and Oil sectors. We have proved
our products as extremely co the future belongs to those who stake a claim for it here and
now. This axiom has been our guiding principle at Amara Raja, helping us
Ceaselessly innovate and explore the new and never-before.
Amara Raja has put its vision into practice by striding forward in the power
management industry and consolidating its position as one of the leading players in the
Asia-Pacific region. With Johnson Controls Inc., a world leader, as an equity alliance
partner (26%), Amara Raja pioneered the next generation battery technology in India.
This partnership facilitates sharing of knowledge and innovations to accelerate and
expand development efforts in the global battery Market. It also enables harnessing
technology that acclimatized batteries to operate in harsh tropical conditions. Competitive
in international market.
Working together with alliance partner Johnson Controls, Amara Raja set up
India’s finest battery plant, the first such facility for Johnson Controls in the last decade.
This facility is backed by one of the finest Research & Development centers on site. A
center that constantly and unceasingly thinks out-of-the-box and develops products and
services that match world-class standards, and sets industry benchmarks.
Amara Raja’s Battery Excellence Center is another first for the region. Here,
products are put through rigorous tests to ensure that they comply with international
standards and design requirements. With the latest testing equipment, the center evaluates
battery performance, design and longevity. Apart from this, there are facilities for
application engineering, vehicle system study, simulations and computer-aided design,
including a full calibration laboratory.
Amara Raja’s quality commitment has ensured that it conforms to International
quality Standards. Amara Raja today has the distinction of being a prime player in the
Johnson Controls led global alliance and is forging ahead in to new market - powered by
innovation.

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PERFORMANCE EDGE:
1. Design Float life of 12+ years in accordance with Euro bat Classification of Long Life
battery.
2. Designed to perform in harsh tropical conditions.
3. Front Terminal Batteries with Truly Front Access Terminals.
4. Integral Dual handles for easy handling & installation.
5. Suitable for standard 23" rack.
6. Inbuilt facility for Central Degassing.
7. High Volumetric Energy Density for maximum power in minimal foot print area.
8. Short Recharge Time owing to Lower Internal resistance.
9. Patented Lead Oxide Paste Recipe offering excellent charge acceptance and low self-
discharge rate.
10. Innovative plate design offers low internal resistance and superior high rate discharge
performance.
11. Advanced AGM separator offering a longer service life and enhanced high rate
discharge performance.
12. Automated, state-of-the-art cast-on strap process ensures consistent, high-quality, low
electrical resistance welds.
13. Automated InterCell welding offering low internal resistance.
14. Threaded Post Copper Insert Terminals offering high conductivity and torque
retention.
15. Lip & Tongue type Heat Sealing to ensure a leak-proof seal.
16. 100% charged when shipped from factory.
TECHNICAL SPECIFICATIONS
Product:
1. Container & Cover - Thick Wall hexagonal in Fire Retardant Polypropylene Co-
polymer (UL 94 - V0)
2. Separator - High Weight Basis AGM
3. Positive Plate - Radial Grid Flat Pasted Type
4. Positive Plate Alloy - Hybrid Alloy with Long Life Characteristics

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5. Negative Plate - Radial Grid Flat Pasted Type
6. Negative Plate Alloy - Lead Calcium Alloy with Maintenance Free Characteristics
7. Threaded Post Copper Insert Terminals offering high conductivity and torque retention
8. Safety Valve -Self Resealing, Pressure Regulated, Explosion Proof with Integral Flame
A.

We, Amara Raja Batteries Ltd. (A Johnson Controls Company), are the pioneer of VRLA
-- Valve Regulated Lead Acid Batteries (known as SMF batteries) in India. We have
introduced the VRLA technology to Indian standby Battery market under technical
collaboration from GNB batteries, USA in early 1990s. We continue to have a major
market share of Indian VRLA battery market for a variety of applications. We are a
regular supplier to all telecom service providers (both Basic & Cellular). Of course, we
are the preferred supplier to all telecom equipment manufacturers.
Over the last few years. Besides this, we supply VRLA batteries to UPS (both OEMs and
replacement) segment, Power (generation & distribution), Solar energy and Oil& gas
(offshore platforms) etc.. In short, we have acquired a solid experience in design and
manufacture of VRLA batteries for tropical conditions like India.
Our export thrust has just been of 2 years old and within this short time, we have
already supplied our batteries to Telecommunication Sector across the world; namely
Taiwan, Afghanistan,Qatar, Oman Ghana, Benin and Liberia . Our 2V. Cells in different
capacities are also exported to Australia,Greece, UAE, Hong Kong, China,
Philippines,Cambodia,Srilanka,NepalandThailand.

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 We have tested our batteries (POWERSTACK brand - 2v cells with long life)
against various international specifications like IEC, BS,IEEE etc. Powerstack 2V.cells
are available in wide range from 100Ah to 6080Ah capacities with a float life expectancy
of 20years
A battery is an electro chemical device in which the free energy of chemical
reaction is converted in to the electrical energy. The chemical energy contained in the
active material is converted electrical by means of electro chemical oxidation reduction
reactions.

HOW BATTERY WORKS:

When your place the key in your car’s ignition and turn the ignition switch “ON”
a signal sent to the battery. Upon receiving the signal the battery takes energy that it has
been strong in chemicals form and releases it as electricity power is used to crank the
engine. The battery also releases energy to power the car’s light and other accessories.
It is the only device. Which can stored electrical energy in the form of chemical energy
and science it is called as a storage battery?
SALED MAINTAINANCE FREE (SMF) BATTERY:
Sealed maintenance free (SMF) batteries technologies are leading the battery
industry in the recent years in automobile and industry battery sector around the globe.
SMF batteries come under the rechargeable battery category so it can be used a
number of times the life of a battery. SMF batteries are more economical than cadmium
batteries. These batteries are more compact then the wet type batteries. It can be at any
position. These batteries are very popular for portable power requirements and space
constraint applications.
The replacement market on the other hand. Is much longer. The replacement market is
characterized by the presence of large unorganized sector. Which constitutes around 55-
60 c of the total replacement market. This is possible due to low capital entry barrier.
These players have the advantage of inapplicability of exercise duties and sales tax.

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INDUSTRIAL BATTERIES:
Industrial batteries can be basically classified into two main categories:

 AUTOMOTIVE BATTERIES
 STATIONARY BATTERIES

The automotive batteries are used in electric vehicles and fork lifts. The stationary
batteries used in telecom. Railway and power industries have registered a growth in
excess of 20% and this trend in likely to be continuing in the next 5 years.

The industrial segment is highly technology is an important factor land is vital for
brand reference. The total demand for the industrial battery segment is met by indigenous
production with a small saves of about 10% of by imports. The demand for industrial has
grown slowly and steadily.

RECYCLING OF BATTERIES:
Battery acid is recycled neutralizing it into water of converting it to sodium
soleplate for laundry manufacturing. Cleaning the battery cases. Melting the plastics and
reforming it into pellets recycle plastic. Lead which makes up 50% of every battery is
melted. Poured into labs and purified.

PROSPECTUS OF SMF VRLA BATTERIES IN INDIA:

The following factors are influencing demand of VRLA technology batteries.
 Entry of multinationals in telecom industry.
 DOTS policy decision to upgrade the over all technology base.
 Constrains in the use of conventional battery in radio paging and cellular
segments.

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TELECOM:
The government policy to increase the capacity from 10 million lines by 2000
increased the demand for storage batteries considerably. The value added services like
radio paging and cellular will increase the demand for storage batteries in future
considerably.
RAILWAY:
In railways the demand estimate is based on the annual post production which
comes to 2500 numbers by railways itself and 1000 numbers more by various other
segments plus replacements demand and annual requirements for railway electrification.
POWER SECTOR:
In power sector the estimated 90 private power projects which are expected to
produce 40000 MV with approximate capital outlay of Rs.1, 40,000 crores would keep
the industry figured brighter in the coming years.
The demand for VRLA batteries is increased due to its performance over the
conventional batteries. So it is more acceptable to the consumers.
VALUE REGULATED LEAD ACID BATTERIES:
In the recent years in automobiles and industry battery sector around the globe
VRLA batteries have become the preferred choice in various applications such as
interrupted power supply emergency lights. Security systems and weighting scales.
VRLA batteries are leak proof explosion resistant and having life duration of 15-20 years.
These batteries withstand the environment conditions due to high technology in built in
the batteries. Each cell is housed in a power coated steel tray making them convenient to
transport and installation. So transits damages are minimized in case these batteries.

CLASSIFICATION OF BATTERIES:
Batteries are broadly classified into two segments viz., automotive batteries and
industrial batteries.

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AUTOMOTIVE BATTERIES:
A part from mopeds all other automobiles sector need storage battery. So
automotive batteries area playing spre-dominants role in the automobile market. Original
equipment in market is as low at 5-6%O.E.segment has the advantage of securing
continuous orders and enquires. This manufactures so stream line production facilities
plan production schedules and attain certain level of operational efficiency.
At the beginning plans were made for large electricity stores in the electric power supply.
For instance W. Thompson drew up a plan to supply the city of buffalo with electricity
from the Niagara Falls. It was to be generated as 80000 volts and supplies to buffalo via a
battery with 40000 cells. Tapping of groups of 50 cells was to provide house hold with
100 volts power supply.
In 1881 salon for a patent for a procedure in which the paste was applied to perforated
plate rather then smooth plate. He thus achieved significantly better bonding fanfares.
Sell on used anti monodies as the materials. At the same time volkmar developed a
similar procedure in which he used a lead grid. Thus the grid plate was invented, which
was soon to be tested and applied in a ranged of variants. Also in 1881 c. Bush applied
for a patent for a large surface lead electrode with a ribbed surface. This was the large
surface plates steels common today.
Around 1890 Thomas alwa Edison began perfecting batteries as a way or
powering his new invention the phonograph. It took him nearly twenty years of perfect
the alkaline storage battery. But by 1909 he was selling to power sub marines and
electrical vehicles too. The nickel icon cell was used for heavy industrial applications his
batteries even powered the first self starting model fords in 1912.

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 1.3 Company Profile:

Amara Raja Batteries Ltd, (ARBL) is the largest manufacturer of Standby Valve
Regulated Lead Acid (VRLA) batteries in the Indian Ocean Rim comprising the area
ranging from Africa and the Middle East to South East Asia. Based in Chennai, with a
fully integrated manufacturing unit for its industrial batteries at Tirupati, Amara Raja has
reachedapositionofleadershipinashortspanof7years.
Amara Raja is in a strategic partnership with Johnson Controls Inc., USA. With this,
ARBL is in Global Supply Alliance with Varta AG of Europe and Enertec, who are joint
venture partners of JCI in South America and Mexico. The Business Group of Amara
Raja is categorized as Industrial Battery Division, Automobile Battery Division and
PowerSystemDivision.
ARBL is the largest suppliers of stand-by power systems, catering to Indian utilities such
as, Departments of Telecommunication, Indian Railways, Power Generation Stations,
MTNL, VSNL, ITI and HTL. The company has preferential status with most MNC-
OEMs such as ABB, Alcatel, Ericsson, Fujitsu, Lucent, Motorola, Nokia, Tata Liebert
and Siemens.

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ARBL has prestigious Automotive OE clients including Ford, GM, Daimler Chrysler,
Ashok Leyland, TELCO, and Mahindra & Mahindra. Amara Raja has a replacement
Battery Brand Amaron hi-life. ARBL has a capacity for manufacture of around 1,000,000
units at its facility at Tirupati with an investment of US $ 10.00 million.

A Greenfield project is planned at the same site with an additional investment of US

$6 million to augment capacity to 2 million batteries. The Amaron hi-life battery is a
product of the collaborative efforts of engineers at Johnson Controls Inc. and Amara
Raja.
This Zero maintenance product incorporates the latest technological advances in the field
and is on par with batteries manufactured and marketed in developed countries. A fully
charged, factory-activated battery provides extra high starting performance and power at
any temperature.
The key customers being the Telecom switching Equipment Manufacturers. As the
company saw a growing business proposition in the integrated power supply, the
production capacities of the same have been augmented. IPS using SMPS technology, for
usage in Railways has been added into the product basket.
We also design custom-built power electronics products like Industrial Battery Chargers,
Charge Discharge Circuits, Formation Chargers, AC/DC distribution boards etc.
Progressive conformance of Amara Raja to changing global standards and processes
made it achieve ISO 9001 and the QS 9000 Certification.

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Products/ Services:
Manufacturers and exporters of Power stock battery. We Manufacture industrial and
automotives Batteries. Our product range includes industrial Batteries –Brute, Power
stock, quanta, Genstart and automotive Batteries- Amaron Hi- life, Amaron harvest,
Amaron Hi- way , Amaron shield, ARBS test , Amaron pitstops
Products:
Manufacturers and Exporters of Power Stack Battery. We manufacture Industrial and
Automotive Batteries. Our product range includes Industrial Batteries - Brute, Power
Stack, Quanta, Genstart and Automotive Batteries - Amaron Hi-Life, Amaron Harvest,
Amaron Hi-Way, Amaron Shield, ARBS Test, Amaron Pitstops.

Black Batteries:

Amaron Black, brought to you by Amara Raja Batteries Limited (ARBL),

the largest manufacturers of Stand-by VRLA Industrial Batteries in the Indian Ocean Rim
and Johnson Controls Inc, USA; the global leader in Interior experience, building
efficiency and power solutions. Maintenance Free - High heat technology, premium
silver alloys (SILVEN X) for a low-corrosion and no top-ups experience.
FLO Batteries:

Amaron FLO, brought to you by Amara Raja Batteries Limited (ARBL),

the largest manufacturers of Stand-by VRLA Industrial Batteries in the Indian Ocean Rim
and Johnson Controls Inc, USA; the global leader in Interior experience, building
efficiency and power solutions.

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Hi-way Truck Batteries:

Amaron R Hi-way truck batteries, brought to you by Amara Raja

Batteries Limited (ARBL), the largest manufacturers of Stand-by VRLA Industrial
Batteries in the Indian Ocean Rim and Johnson Controls Inc, USA; the global leader in
Interior experience, building efficiency and power solutions. Long life - A robust plate
design and a ribbed container make this the ideal long life battery for applicat

Harvest Batteries:

Amaron Harvest, brought to you by Amara Raja Batteries Limited

(ARBL), the largest manufacturers of Stand-by VRLA Industrial Batteries in the Indian
Ocean Rim and Johnson Controls Inc, USA; the global leader in Interior experience,
building efficiency and power solutions.
Optima Batteries:

The Optima range of batteries comes in three kinds: yellow top, blue top
and red top. Each kind has a specific application it is ideal for. The key feature of the
Optima range is its endurance and ability to withstand the rigors of the most extreme of
applications. Optima Yellow Top: Deep cycle batteries for extreme applications Optima
Blue Top: For twice the life of traditional marine and RV.

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PRO Hi-life Batteries:

Longest life - Thanks to the reformulated Advantage paste recipe. Zero

Maintenance - High heat technology, premium silver alloys (SILVEN X) for a low-
corrosion and no top-ups experience. Highest Cranking Power - Largest Inter Cell Welds,
19mm Lugs.

Achievements:
Introduce these products into relevant markets Provide world-class customer support
Since the proof of the pudding is in the eating, take a quick look at some of the laurels
we've garnered in the short time that we've been around with. Amaron is the preferred
supplier to Daimler Chrysler, Ford and General Motors Automotive Product of the year
2000 by Overdrive Excellence in Environmental Management in 2002 by AP Pollution
Control Board Creative Advertiser of the year '02 by ABBY Ford "World Excellence
Award" Ford Q1 Award ISO-9001 in 1997RWTUV QS 9000 in 1999RWTUV ISO/TS
16949 in 2004RWTUV Quality benchmarks Best Business Practices as per JCI ISO
14001 in 2002RWTUV Part of the world's largest battery manufacturing alliance -
Johnson Controls Inc., USA Largest manufacturer of standby VRLA batteries in South
Asia Pioneered the widely used VRLA batteries for industrial application in India Largest
& dominant market leader of standby batteries in Railways, Telecom, Power Generating
stations in India One of the largest (designed for producing 3.64million batteries p.a.) and
most modern automotive battery plants in Asia Highly automated (oxide preparation to
finishing; all processes and operations are automated) Part of Amara Raja's highly
integrated battery complex (most components are built in-house) Industrial Economist
Business Excellence Award - 1991 by the Industrial Economist, Chennai. Best
Entrepreneur of the year 1998 - by Hyderabad Management Association. Excellence
award by institution of Economic Studies (ES), New Delhi. Udyog Rattan -1999 by
Institution of Economic Studies (ES), New Delhi. Q1 Vendor Status by Ford India
Limited - 2003. World Excellence Silver Award by Ford USA The spirit of Excellence
by Academy of fine arts, Tirupati

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Infrastructure:
Apart from the investments we make in getting the best people, we also make it a point to
provide them with the best Manufacturing, Engineering and Service facilities that are
outlined below: World-class integrated facility Oxide manufacture to finished battery
dispatch in one complex Automation at every possible process and in all critical areas
Fully furnished in-house plastic injection molding Ultra modern Sheet metal fabrication
facility with CNC machines robotic welding equipment Govt. approved R&D Center for
battery Test facilities to check the raw material to Parts Per Billion Level Full fledged
calibration & chemical labs to correct instruments & check material purity SPC & SQC
techniques for every process PPAP & APQP procedures for product development Only
Industrial Battery Plant to get certified for QS-9000 Catia Software for Modeling Solid
works for Sheet Metal Design Autocad FOR Sheet Metal Design Protel for PCB artwork
and Electrical Schematic diagrams Compilers and programmers for Intel, Microchip and
Atmel micro controllers HP/Fluke make Power Analyzers, Digital Storage Oscilloscopes
for prototype modeling Vibration Test facility up to 3G Environment chambers to test the
systems at sub zero and elevated temperatures Futuristic ambience State-of-the-art
technology Value added ARBS Diagnostic service Collection centre for used batteries

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About the Owner :
Dr. Ramachandra N. Galla is the Patriarch of an illustrious business family of Andhra
Pradesh, Gallas, who have established a name for themselves by successfully setting up
Amara Raja Batteries. Born in 1938, Dr. Ramachandra Galla is an Electrical Engineer
from S.V. University, Tirupati and has to his credit Masters degrees in Applied
Electronics, Roorkee, India and Systems Sciences, Michigan State University, USA. Dr.
Galla started his career as an Electrical Engineer in US Steel Corporation, USA moved
on to Sargent & Lundy, USA as a Consulting Engineer for the Designing of Nuclear &
Coal Fired Power Plant. He initiated various projects in these corporations & mastered
the ropes of this competitive business in a very short time. However, he soon discovered
that his natural inclination was serving his country and as a logical sequel he gravitated
towards Chittoor his native place in India. Dr. Galla laid the foundation of Amara Raja
batteries in 1985 in Chittoor. With his intense zeal and highly focused approach, he
propelled Amara Raja Batteries in the top league of battery companies in India. In his
capacity as the Chairman, Dr. Ramachandra Galla has promoted and established the
following companies from the conceptual stage which are now well established and profit
making: Amara Raja Batteries Ltd

Aim / Vision / Mission :

Mission, mantra, way of thinking, philosophy, what we live for call it what you want,
you'll find it below. Introduce yourself to the way we think. "To transform our spheres of
influence and to improve the quality of life by building institutions that provide better
access to better opportunities, goods and services to more people all the time." Introduce
latest generation technologies Adapt these technologies to suit the operating environment
Develop and manufacture globally competitive, customer-focused products of world-
class quality Responsibly

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Company's Slogan : The Big Leap Forward
Company's Vision:
"To transform our spheres of influence and to improve the quality of life by building
institutions that provide better access to better opportunities, goods and services to more
people…all the time."
Company's Mission:
To achieve product leadership by delivering the best products and services to the market
ahead of our competition on a consistent basis.
To extend our market opportunities through broader product offerings, increasing our
client retention rates, and continuing our international expansion.
To attract and retain an exceptionally knowledgeable and committed workforce with an
undying zeal for success. To develop and manufacture globally competitive, customer
focused products of world-cl
Company Type: Private Sector .
Industry Sector: Electricals.

Products / Services: 1. Storage Batteries - Maintenance Free Valve Regulator

2. Lead Acid Batteries used for Starting Piston Engi
No. of employees: 2111.
Other locations of factories / offices: Corporate Office: Hyderabad.
CSR Areas:
1. Children
2. Community Welfare
3. Education
4. Environment
5. Healthcare
6. Rural Development
7. Vocational Training

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Three main CSR activities: 1. Rural development
2. Community welfare
3. Education

Donations made by the Company for CSR activity

Sl.No Financial year Total in Rupees
01 2004-05 21,90,000
02` 2005-06 36,25,476
03 2006-07 59,48,000
04 2007-08 1,08,73,000
05 2008-09 1,36,69,200
Total : 3,63,05,676
MPPL:
Mangal precision products limited (MPPL) is a part of Amara Raja group of
companies and it was incorporated under companies act 1936. As certificate of
incorporation No.01-23380.

Mangal precision products limited (MPPL) is having two units

MPPL-1
Address : karakambadi
Tirupathi – 517501
A.P. India
Ph. No.0877-2285561 to 65
Fax No.0877-2285600

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MPPL-2
Address : Petamitta (village)
Thalaputa palli (post)
Puthalapattu (mandal)
Chittoor (Dt)
A.P. India
Ph.No:08572-271161 to 65
Fax No: 08572-271167

MANGAL PRECISION PRODUCTS LIMITED – 1

MPPL – 1 is a fabrication division. It commenced its business in the year 1992.
MPPL – 1
Manufactures :

• Metal sheets
• Battery trays
• Racks
• Charger cabinets
• Accessories

Customers :

• ARBL
• ARPSL
• AREL
• Others

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The product range includes trays and racks for batteries. Cabinets for chargers ranging
size from 125-100-235 mm to 2400-1400-1600 mm as per customers’ requirements.
Products are manufactured as per specifications given by customers.
The company also provides after sales services to meet the customers need MPPL – 1
factory around 400 personnel. The factory is spread over 0.75 acres with a current built-
up area of 5000 square maters.
MANGAL PRECISION PRODUCTS LIMITED – 2
MPPL – 2 is a fastener’s division. It commenced its business in the year 1996. But
actual production started in 1997.

MPPL – 2
Manufactures:

• Mild steel fasteners

• Stainless steel fasteners
• Stainless steel fasteners
• High tensile fasteners
• Copper and bras fasteners
• Ms bolts
• Ms sheets

Customers:

 ARBL
 ARPSL
 AREL
 TATA MOTORS
 Ashok Leyland
 Others

- 25 -
 MPPL- 2 factory around 300 personnel and trained them. The factory is spread over an
area of 5000 squares meters with a current built up area of 3600 square meters factory
spread over 2.35 areas. Even MPPL-2 manufactures its products as per customer
specifications.

MPPL AS WHOLE:

Name of organization : Mangal precision products limited

Bankers : Andhra bank (main branch)
Beri Street.
Tirupathi - 517501.
Technical support : Nedschroef Belgium
Man power : Technical staff – 150
Chief executives : Smt. Aruna kumari galla – M.D :
Sri. Rama Chandra. N. galla -
Chairman
Electrical power : 1480 H.P
Raw material supplier : M/s Mukund Chennai
M/s Usha martin Chennai
Area of the factory : Total area = 3, 50,000 sqt
Covered area = 1, 00,000 sqt
Free area = 2, 50,000 sqt
Expansion : 3 wire drawing machines
3 Annealing furnaces
2 imported forging machines
1 imported heat treatment
Automation of platting equipment lines

- 26 -
Line of activity : Ms bolts
Ss bolts

Copper connectors
Customers : ARBL
ARPSL
AREL
Ashok Leyland
TATA MOTORS, Others.

HEALTH & SAFETY:

The policy of MPPL is to create safety environment at its Work place and ensure
the health of employees to a larger period. Environment & safety regulations are adhered
and concerns on potential pollution hazards received hazards received and addressed.
MPPL has implemented a comprehensive environment Management system confirming
to ISO – 1400 standard and was specified by Tuv in the year 2002.
MPPL follows a quality management system which covers Manufacturing and marketing
reliable fabricated components. Fasteners plastic compounds to meet all the requirements
of ISO 9001 2000.

STRENGTHS:
 Proven technology.
 Strong and well organized customer base.
 Full Infrastructure in place.
 Manufacturing facilities are good.
SOCIAL PROGRAMS
 Housing colony for employees.
 Plan to provide community hall, open auditorium, parks and play grounds.
 Food, water supply, streetlights, granary education village.

- 27 -
  Modularization of public parks for children.

 Public awareness program (Mumbai) on environmental protection.

 Total pan for 500 families over 5 years 108 already commissioned.
MISSION VALUES & BELIEFS

 We believe in treating each other with honesty, fairness, dignity and respect.

 We help each other work in terms and hold each other accountable to ensure

contribution towards goals.

 We believe in innovative and optimum use of our resources to ensure better

productivity.

 We believe and try for preservation of our environment.

 We try for preservation of our environment.

 We strive to exceed our customer’s expectation through increase in quality,

support and service.

Awards and rewards to the younger generation for improvement of education.

- 28 -
 AMARARAJA GROUP OF COMPANIES:

• AMARARAJA BATTERIES LIMITED (ARBL) karakambadi, TIRUPATHI

• AMARARAJA POWER SYSTEMS LIMITED (ARPSPL) karakambadi,

TIRUPATHI

• MANGAL PRECISION PRODUCTS LIMITED (MPPL) karakambadi,

TIRUPATHI.

• MANGAL PRECISION PRODUCTS LIMITED (MPPL) petamitta, CHITTOOR.

• AMARARAJA ELECTRONICS LIMITED (AREPL) Dighavamagham,

CHITTOOR.

• GALLA FOODS LIMITED.

• AMARARAJA INFRA PVT. LIMITED.

• AMARON BATTERIES PVT. LIMITED.

• AMARARAJA INDUSTRIAL SERVICES PVT. LIMITED.

- 29 -
ENVIRONMENTAL PROGRAMS:
 Advancement for ISO-14001 certification.
 Health monitoring and industrial safety program.
 Both personnel and industrial programs.
 Start-up of Environment management systems (EMS) implementation
programs.
 Nil discharges and lowest emission awareness and implementation program.
 Waste reduction program.
 Energy conservation program.
 Continuous and massive greenbelt development program ground water level
improvement program.
 Central waste collection treatment. Storage on safe disposal personal health
safe guarding programs.

- 30 -
AWARDS:

 “THE SPIRIT OF EXCELLENCE”

-awarded by academy of fine arts, Tirupathi.
 “BEST ENTREPRENEUR OF THE YEAR 1998”
-awarded by Hyderabad management association.
 “INDUSTRIAL ECONOMIST BUSINESS EXCELLENCE AWARDS-
1991”
-awarded by the industrial economist, Chennai.
 “EXCELLENCE AWARD”
-Institution of economic studies (New Delhi)
 “UDYOG RATTAN AWARD”
-Institution of economic studies (New Delhi).

- 31 -
Company Contact Information:

Company Name: Amara Raja Batteries Ltd.

RegisteredAddress:Renigunta–CuddapahRoad,Karakambadi
Andhra Pradesh, Tirupati - 517 520

Phone: 08772265000

Fax: 08772285600

Email id: amararaja@amararaja.co.in mktg@amararaja.co.in

Website: http://www.amararaja.co.in

Year of Establishment: 1985

- 32 -
 2.RESEARCH METHODOLOGY

The traditional measures such as Earnings per share (E.P.S), P/E ratio, ROCE(Return on

Capital Employed) are increasingly becoming irrelevant and investors are more interested

in knowing whether the company records positive cash flows and creates values to it

owners. traditional measurements took into account only loan interest as cost or capital

even though a company had reasonable mix of debt and equity in the capital structure.

The modern approach which is called as Economic Value Added (EVA) overcomes the

limitation of accounting based measures of financial performance. This concept was

developed by M/S. Stern Stewart and Co. in the year1990. EVA is an attempt to measure

the true Economic profit it measures whether the operating profit are sufficient enough to

cover the cost of capital.

2.2 Objectives:
• To calculate the components of Economic Value Added and Market Value
Added
• To compute Economic value added , Market value added and Dividend paid of
Amara Raja Batteries Ltd;
• To study the relationship between Economic Value added , Market value added
and Dividend paid of Amara Raja Batteries Ltd;

- 33 -
2.3 Research Design:
Descriptive research:
Descriptive research design has been adopted in the present study; descriptive
research design largely interprets the already available information.

2.4 Source of data

The data relating to the study have been from the published annual reports of
AMARA RAJA BATTERIES LIMITED. The secondary data has been collected from
other publications.
2.5 Limitations:
The study is confined to find out Economic value Added (EVA) and Market Value
Added (MVA) of the company only.

- 34 -
 3. DATA ANALYSIS AND INTERPRETATION

3.1 Introduction
The data collected from the annual reports are analysed through the following
tools.

3.2 Tools for analysis

Financial Tools

Return on Equity: (ROE)

Common or ordinary share holders are entitled to the residual profits. The rate of
dividend is not fixed; the earnings may be distributed to share holders or retained in the
business. Nevertheless, the net profit after tax represent there return. A Return share
holder’s equity is calculated to see the probability of owner’s investment. The
shareholders equity or net worth will include paid-up share capital, share premium and
reserves and surplus less accumulated losses. Net worth can also be found by subtracting
total liabilities from total assets.

Profit After Tax

Return on Equity =
Net Worth

Retention Ratio: (b)

Retention ratio is a fraction of retained earnings 100% - Payout percentage of

earnings is called retention ratio. It is the percentage of earnings retained by the firm.

- 35 -
 Earnings Per Share - Dividend Per Share
Retention Ratio (b) =
Earnings Per Share

Growth in share: (g)

Growth depends on the firm’s retention ratio (b) and the return on equity, (ROE).
Given the firm’s ROE higher the retention ratio, higher will be the growth rate. However,
a higher growth rate does not necessarily increase the shareholders value.
Growth in Share (g) = Return on equity X Retention Ratio
Cost of Equity: (Ke)

Firms may increase capital internally by retaining earnings. Alternatively, they

could distribute the entire earnings to equity shareholders and raise equity externally by
issuing new shares. The cost of equity is, thus, equal to the expected dividend yield
(DIV1/ Po) plus capital gain rate as reflected by expected growth in dividends (g).

Dividend
Cost of Equity ( Ke) = +g
Po
where Po = Market share price of security for current year.
-Cost of debt: (Kd):
Cost of debt (Kd) = I (1-T)

Weighted Average Cost of Capital: (WACC)

Once the component costs have been calculated, they are multiplied by the
weights of the various sources of capital to obtain a weighted average cost of capital
(WACC). The composite or overall cost of capital is the weighted average of the costs of
various sources of funds, weights being the proportion of each sources of funds in the
capital structure.

- 36 -
 D E
WACC = K d + Ke
D+E D+E

Cost of Invested Capital:

Cost of capital employed is the minimum required rate of return on funds
committed to the project which depends on the risky ness of its cash flows. The firms
cost of capital employed will be the over all or average required rate of return on the
aggregate of investment projects.
Invested capital = Net Fixed Assets+ Investments+ Net Current Assets

Net Operating Profit after Tax: (NOPAT)

Net Operating Profit after Tax is an alternative indicator of measuring operating

efficiency of leveraged companies. It is an estimated of what a company earn if it didn’t
have any debt, which is equal to operating income times (I – tax rate). NOPAT is
frequently used for calculating EVA.

NOPAT = PBT (1 – T)

Tax amount
Where Tax =
PBT

Economic value added: (EVA)

EVA attempts to measure how much ‘value’ was created by an organization for
its shareholders, during an accounting period. It is defined as the excess of a company’s
after tax net operating profit over the required minimum rate of return that the investor
and lenders could get by investing in other securities of comparable risk.

- 37 -
 EVA = NOPAT – (WACC X Invested Capital)

Market Value Added: (MVA)

Market value of the firm’s share is a measurement of the shareholder wealth. It is the
shareholders appraisal of the firm’s efficiency in employing their capital. The capital
contributed by shareholders is reflected by the book value of the firm’s share.
Market value is also referred to as the “enterprise value”. It is the total of the firm’s
market value (MV) of debt and market value of equity.

MVA = Market Capitalization – Net Worth

Statistical Tools

Coefficient of correlation

The coefficient of correlation measure the degree of relationship between two sets
of figures. As the reliability of estimates depends up on the closeness of the relationship it
is imperative that utmost care be taken while interpreting the value of coefficient of
correlation, otherwise fallacious conclusions can be drawn.

When r = +1 there is a perfectly positive relationship between the variables.

When r = -1 there is a perfectly negative relationship between the variables.
When r = 0 it means there is no relationship between the variables.

Trend Analysis

- 38 -
 Trend analysis is used to estimate the future values of company performance. The
following formula can be used for estimating cycle to future years.

Yc = a+bX

Where a is constant of the function.

X is independent variable.
Y is dependent variable.
To find out a & b values the following least squares equation are used:

∑Y = Na + b∑x

∑XY = a∑x + b∑x2

To find out the relationship between EVA and TOTAL DIVIDEND

a=
∑ y − b∑ x 1

n n

n∑ x1 y1 − ∑ x1 ∑ y1
b=
n∑ x 21 − (∑ x1 ) 2

To find out the Standard Error of estimate

σ ∑( y − yˆ ) 2

n −2

b
1
To Calculate ‘t’ value = σ
∑( x − x ) 2

- 39 -
 RETURN ON EQUITY FROM THE YEARS 2003-2008
Table:1
(Rs in millions)
Year Profit after tax Net worth Return on equity(%)

2003 13.90 1745.92 0.7

2004 86.90 1806.85 4.8
2005 238.47 2012.85 11.8
2006 470.43 2436.66 19.3
2007 943.63 3331.02 28.3
2008 804.79 4055.86 19.8

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED
Graph no: 1

RETURN ON EQUITY

30 28.3

25
19.3 19.8
20
ROE(%)

15 11.8
10
4.8
5
0.7
0
2003 2004 2005 2006 2007 2008
YEARS
Interpretation;
The above table reveals that the net worth increase year after year with that Profit after
tax was also increased (Except in the year 2008).The Return on equity of the company
was also increased from the year 2003 to 2007and in the year 2008 it was decreased
because net worth was increased and profit after tax was decreased .

- 40 -
DIVIDEND PER SHARE FROM THE YEARS 2003-2008
Table:2
(Rs in millions)
Year Proposed No. of Shares Dividend Per Share
Dividend
2003 17081250 11387500 1.5

2004 22775000 11387500 2.0

2005 28468750 11387500 2.5

2006 39856250 11387500 3.5

2007 39856250 56937500 0.7

2008 68325000 85406250 0.8

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 2

DIVIDEND PER SHARE

4
3.5
3.5
3
2.5
2.5
DPS(%)

2
2
1.5
1.5
1 0.7 0.8

0.5
0
2003 2004 2005 2006 2007 2008
YEAR

Interpretation;
The above table reveals that the dividend per share of the company was decreased
because the rate of increase of number of shares was more than increase of proposed
dividend.

- 41 -
 RETENTION RATIO FROM THE YEARS 2003-2008
Table:3
(Amount in Rs)
YEAR EPS(Rs) DPS(Rs) Retention Ratio(%)

2003 1.22 1.5 -0.22

2004 7.63 2 0.73

2005 20.94 2.5 0.88

2006 8.26 3.5 0.58

2007 16.57 0.7 0.96

2008 9.42 0.8 0.91

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 3

RETENTION RATIO

1.2
0.96 0.91
1 0.88
0.8 0.73
0.58
0.6
ROR(%)

0.4
0.2
0
-0.2 2003 2004 2005 2006 2007 2008
-0.22
-0.4
YEARS
Interpretation:
From the above table it is observed that the company retention was negative in the year
2003.this is more dividend per share than of earning per share in the year 2006 and
2008.It was decreased the year 2006 because earning per share was decreased in that year

- 42 -
 GROWTH FROM THE YEARS OF 2003-2008
Table:4
(Amount in Rs )
YEAR ROE Retention Ratio (b) GROWTH

2003 0.007 -0.22 -0.002

2004 0.048 0.73 0.035

2005 0.118 0.88 0.103

2006 0.193 0.58 0.112

2007 0.283 0.96 0.27

2008 0.198 0.91 0.180

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 4

GROWTH

0.3 0.27
0.25

0.2 0.18
GROWTH(%)

0.15
0.103 0.112
0.1

0.05 0.035
-0.002
0
2003 2004 2005 2006 2007 2008
-0.05
YEARS
Interpretation:
The above table reveals that the growth of the shares of the company was increased from
the year 2003 to 2007.In the year 2008 it was decreased because both return on equity
and retention ratio was decreased.

- 43 -
 COST OF EQUITY FROM THE YEARS 2003-2008
Table:5
(Amount in Rs)
YEAR P0 D0 Growth(g) (Ke)

2003 56.90 1.5 -0.002 0.024

2004 68.0 2.0 0.035 0.064

2005 117.40 2.5 0.103 0.124

2006 309.40 3.5 0.112 0.123

2007 396.50 0.7 0.27 0.272

2008 208.80 0.8 0.180 0.184

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no: 5

COST OF EQUITY

0.3 0.272

0.25

0.2 0.184
COE

0.15 0.124 0.123

0.1
0.064
0.05 0.024

0
2003 2004 2005 2006 2007 2008
YEARS

Interpretation:
From the above table observed that the cost of equity was increased into2007 and in the
year 2008 it was decreased because both PO, DO and Growth of the shares was decreases.

COST OF DEBT FROM THE YEARS 2003-2008

- 44 -
 Table:6 (Amount in Rs)
YEAR Tax (t) Interest(i) Cost of debt (Kd)

2003 -0.206 0.012 0.014

2004 0.359 0.005 0.003

2005 0.361 0.025 0.015

2006 0.339 0.034 0.022

2007 0.353 0.071 0.045

2008 0.343 0.104 0.068

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no: 6

COST OF DEBT

0.08
0.068
0.07
0.06
0.05 0.045
COD

0.04
0.03 0.022
0.02 0.014 0.015
0.01 0.003
0
2003 2004 2005 2006 2007 2008
YEARS

Interpretation:
From the above table reveals that the interest component was increased during the study
period and the tax rate was around on an average 34% and the cost of debt was low
during the study period.

COST OF RETAIN EARNINGS FROM THE YEARS 2003-2008

- 45 -
Table:7

YEAR Cost of equity( Ke) Brokerage cost(b) Cost of retained

earnings(Kr)

2003 0.024 0.28 0.017

2004 0.064 0.28 0.046

2005 0.124 0.28 0.089

2006 0.123 0.28 0.088

2007 0.272 0.28 0.195

2008 0.184 0.28 0.132

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 7

COST OF RETAINED EARNINGS

0.25
0.195
0.2
CORE(%)

0.15 0.132

0.1 0.089 0.088

0.046
0.05
0.017

0
2003 2004 2005 2006 2007 2008
YEARS
Interpretation:
From the above table it was observed that the brokerage cost was constant during the
study period. The cost of equity was decreased in the year 2008 with that cost of retained
earnings was also decreased.

- 46 -
WEIGHTED AVERAGECOST OFCAPITAL FROM THE YEARS 2003-08
Table :8
(Amount in Rs)
YEAR (Kd) (Ke) (Kr) WACC (%)

2003 0.0011 0.0014 0.0121 0.0146

2004 0.0003 0.0036 0.0025 0.0064

2005 0.0024 0.005 0.070 0.0774

2006 0.008 0.0003 0.053 0.0613

2007 0.021 0.004 0.096 0.121

2008 0.028 0.004 0.074 0.106

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 8

WEIGHTED AVERAGE COST OF CAPITAL

0.14
0.121
0.12 0.106
0.1
WACC(%)

0.0774
0.08
0.0613
0.06
0.04
0.0146
0.02 0.0064
0
2003 2004 2005 2006 2007 2008
YEARS
Interpretation:
The above table reveals that the cost of debt was increased the cost of equity was
decreased so the Kr was also fluctuated hence the weighted average cost of capital was
fluctuated during the study period.

COST OF CAPITAL EMPLOYED FROM THE YEARS 2003-2008

- 47 -
Table :9
(Rs in millions)
YEAR Capital Employed WACC COCE(%)

2003 1894.71 0.0146 27.66

2004 2039.90 0.0064 13.05

2005 2391.52 0.077 184.14

2006 3843.74 0.061 234.46

2007 6493.63 0.121 785.72

2008 732.94 0.106 77.69

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED
Graph no : 9

COST OF CAPITAL EMPLOYED

900
785.72
800
700
COCE(%)

600
500
400
300 234.46
184.14
200
77.69
100 27.66 1 13.05
0
2003 2004 2005 2006 2007 2008
YEARS

Interpretation:
The above table explains that the capital employed was increased from the year 2003-
2007 there after it was decreased because of that the cost of capital employed was also
decreased in the year 2008.

NET OPERATING PROFIT AFTER TAX FROM THE YEARS 2003-08

Table:10

- 48 -
 (Rs in millions)
YEAR Profit before tax Tax Net operating
profit after tax
2003 11.52 -0.206 13.89

2004 135.81 0.36 86.91

2005 373.46 0.361 238.6

2006 711.98 0.339 470.6

2007 1459.38 0.353 944.2

2008 1226.59 0.343 805.8

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED
Graph no : 10

NET OPERATING PROFIT AFTER TAX

1000 944.2
900 805.8
800
700
NOPAT(%)

600
470.6
500
400
300 238.6
200 86.91
100 13.89
0
2003 2004 2005 2006 2007 2008
YEARS
Interpretation:
From the above table it is observed that the NOPAT of the company during the year
2003-07 was increased. In the year 2003 it is Rs 13.89 millions and coming to 2007 it is
Rs 944.2 million which shows company is making good profits every year, but in the
year 2008 NOPAT decreases because the tax rate increases.
ECONOMIC VALUE ADDED FROM THE YEARS 2003 - 2008
Table:11

- 49 -
 (Rs in millions)
Particulars 2003 2004 2005 2006 2007 2008

Equity 113.88 113.88 113.88 113.88 113.88 170.81

Reserves & 1632.04 1692.97 1898.98 2322.78 3217.14 3885.05

surplus
Cost of 0.014 0.003 0.015 0.022 0.045 0.068
debt(%)
Capital 1745.93 1806.85 2012.85 2436.68 3331.06 4055.86
employed
(1+2+3)
Cost of 0.184 0.272 0.123 0.124 0.064 0.024
equity(%)
Cost of 0.017 0.046 0.089 0.088 0.195 0.132
retained
earnings(%
)
WACC(%) 0.014 0.006 0.003 0.061 0.121 0.106

COCE 27.66 13.05 184.14 234.46 785.72 77.69

NOPAT 13.89 86.91 238.6 470.6 944.2 805.8

EVA -13.77 73.86 54.46 236.14 158.48 728.11

(9) – (8)
Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Interpretation:
From the above table observed that the Economic value added of the company was
negative in the year 2003 because the cost of capital employed was more than Net
operating profit after tax from the year 2004 onwards the rate of increase of Net
operating profit after tax was more than the rate of increase of cost of capital
employed .Hence, Economic value added was more and positive from the years 2004-
2008.In the year 2008,EVA was high 728.11because of cost of capital employed was
more Decreased

- 50 -
TOTAL COMMON EQUITY FROM THE YEARS 2003 - 2008
Table:12
(Rs in millions)
Year Share capital Reserves and Surplus Total common equity

2003 113.87 1632.04 1745.91

2004 113.87 1692.97 1806.84

2005 113.87 1898.97 2012.84

2006 113.87 2322.78 2436.65

2007 113.87 3217.13 3331.00

2008 170.81 3885.05 4055.86

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED
Graph no : 12

TOTAL COMMON EQUITY

4500 4055.86
4000
3331
3500
3000
2436.65
TCE(%)

2500 2012.84
2000 1745.91 1806.84

1500
1000
500
0
2003 2004 2005 2006 2007 2008
YEARS
Interpretation:
The above table represents the number of shares the company is having and the amount
of reserves and surplus the company is increasing during the period 2003-08. During last
two years the company has retained maximum portion of profits as reserves.

- 51 -
 MARKET VALUE ADDED FROM THE YEARS 2003 - 2008
Table:13
(Rs in Millions)
YEAR No of shares Share price Total common MVA
outstanding equity
2003 11387500 62.95 1745.91 716.8414

2004 11387500 130 1806.84 1480.373

2005 11387500 259.65 2012.84 2956.762

2006 11387500 374.5 2436.65 4264.616

2007 56937500 215.00 3331.00 12241.56

2008 85406250 39.90 4055.86 3407.705

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

Graph no : 13

MARKET VALUE ADDED

14000
12241.55917
12000
10000
8000
MVA

6000
4264.616313
2956.762362 3407.705319
4000
1480.373193
2000 716.8413791
0
2003 2004 2005 2006 2007 2008
YEARS

Interpretation:
The above table reveals that the market valve added of the was d from the year 2003 to
2007. In the year 2008, the share price was fall down because of that the market value
added was decreased to Rs 3407.705 millions.

- 52 -
RELATIONSHIP BETWEEN EVA AND TOTAL DIVIDEND PAID
Table: 14

Year EVA(x) Dividend X² XY ŷ

(y)
2003 -13.77 1.5 189.61 -20.65 2

2004 73.86 2.0 5455.29 147.72 2

2005 54.46 2.5 2965.89 136.15 2

2006 236.14 3.5 55762.09 826.49 2

2007 158.48 0.7 25115.91 110.93 1.9

2008 728.11 0.8 530144.17 582.48 1.9

Source :Data collected from annual reports of AMARA RAJA BATTERIES LIMITED

- 53 -
 STANDARD ERROR OF ESTIMATE
Table:15
Year (y) Ŷ (y- ŷ) (y- ŷ)² (x- )²

2003 1.5 2 -0.5 0.25 48391.2

2004 2.0 2 0 0 17516.52

2005 2.5 2 0.5 0.25 23028.0

2006 3.5 2 1.5 2.25 895.80

2007 0.7 1.9 -1.2 1.44 2278.15

2008 0.8 1.9 -1.1 1.21 272379.6

Source : Data collected from annual reports of AMARA RAJA BATTERIES

LIMITED

b
1
To calculate‘t’ value = σ
∑( x − x ) 2
-0.003
= --------------------
0.0019

t = -1.578

Interpretation:
Table value of ‘t’ value at 5% level of significance is 1.812 and calculated value is less
than table value, hence hypothesis is accepted.

- 54 -
 RELATIONSHIP BETWEEN EVA, MVA, AND DIVIDEND PAID
Table: 16
YEAR Economic value Market value Dividend paid
added added
2003 -13.77 716.84 1.5
2004 73.86 1480.37 2.0
2005 54.46 2956.76 2.5

2006 236.14 4264.61 3.5

2007 158.48 12241.56 0.7
2008 728.11 3407.7 0.8

Correlations

EVA MVA Dividend Paid

EVA Pearson Correlation 1 .093 -.336

Sig. (2-tailed) .862 .515

N 6 6 6

MVA Pearson Correlation .093 1 -.374

Sig. (2-tailed) .862 .465

N 6 6 6

Dividend Paid Pearson Correlation -.336 -.374 1

Sig. (2-tailed) .515 .465

N 6 6 6

Interpretation
The coefficient of correlation between Economic value added and Market value added is
0.093 and p value is 0.862. Hence the relationship is very low and insignificant.
The Cost of capital between Economic value added and dividend paid is -0.336 and p
value is 0.515. Hence the relationship is negative and insignificant.
The Cost of capital between Market value added and dividend paid is -0.374 p value is
0.465. Hence the relationship is negative and insignificant.

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 4.1 FINDINGS

• Return on equity of the company increased in the year 2003 – 2007 because of
profit after tax was increased continuously except in the year 2008
• Dividend per share of the company was increased year by year except in 2007
• Retention ratio of the company was fluctuating during the study period because of
fluctuating the dividend declaration of the company
• Growth of the shares of the company was increased upto 2006 because of increase
of increase of companies dividend per share
• Cost of equity was increased upto 2007 and in 2008 it was decreased of P 0,D0 and
Growth of the shares .
• Cost of debt of the company was increased in the year 2003 – 2008 except in
2004.
• Cost of retain earnings was increased in the year 2003 – 2007 and in 2008 it was
decreased because of Cost of equity was decreased.
• Weighted average cost of capital of the company was fluctuated during the year
2003 – 2008 because the Cost of debt was increased and the Cost of equity was
decreased so Retained earnings was fluctuated.
• Cost of capital employed of the company was increased from year 2003 – 2007
and it was decreased in 2008 because the capital employed was decreased in that
year.
• Net operating profit after tax of the company was increased continuously from the
year 2003 – 2007 and in the year 2008 it was decreased because the tax rate
increases in that year.
• Economic value added explains the relationship between Net operating profit after
tax and Weighted average cost of capital. In the year 2003 – 2008 the Economic
value added is positive because of Net operating profit tax was high.

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• Total common equity of the company was increased in the year 2003 – 2008
because it has retained maximum portion of profits as reserves.

• Market value added of the company explains the relationship between the market
value of the company and total common equity. In 2008 it was high because of
market price of share of the company is high when compare to Total common
equity.
• There is a positive relationship between total dividend paid and Economic value
added.

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 4.2 SUGGESTIONS

 The dividend per share of the company was decreased and it is low during
the study period. Hence, it is suggesting that try to increase the Profit after
tax for paying more dividends to the shareholders, which will helpful to
attract the attention of investors towards company market shares
 The retention ratio was showing high values during the study period it
explains that company concentrating more on future expansions. So, at the
same time try to concentrate on increase of Earnings per share also, which
may satisfies the expectations of investors.
 During the study period only in the year 2008 the Cost of capital
employed was decreased. So, try to follow the same policy for reducing
the Cost of capital employed which helps to increase the value of
Economic value added.
 The values of Economic value added was increasing year after year during
the study period which shows a positive sign on part of management,
helps to add the value of investors so the management has to follow the
same policies for adding value to the shareholders.
 The Market value added was decreased in the year 2008, this is because of
drastically decrease of value of share price of the company. Hence by
increasing Earnings per share and Dividend per share by retention ratio or
by increasing profits the company may increase their value in the market.

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 4.3 CONCLUSION

From the analysis it is found that the Net Operating Profit After Tax was more than the
Cost Of Capital Employed, with that the Economic Value Added of the company is
increasing year after year (Except in the year 2003). Hence it is concluded that the
company was adding value to the Shareholders.

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 5. BIBLIOGRAGHY
1. Chandra Prasanna, Investment analysis and portfolio management, ed. 5, Tata
McGrawHill, New delhi, 2004.
2. Venhorne, James, ‘Financial Management and Policy’, ed12, Pearson Education Asia.
3. Fundamental Analysis, BSE Training Institute, Mumbai, PP.40-45.

JOURNALS

1. Lal, Jawahar and Malik, Madhu, ‘Economic Value Added and Corporate
Performance’. ‘The Management Accountant’, Vol 36, No.7, July, 2001, PP.532-
534.
2. Rej, Debashish and Sur, Debashish, Profitability Analysis of Indian Food Product
Industry: A study of Cadbury India ltd; ‘The Management Accountant’, Vol.36
no. 11, November, 2001, PP.845-847.
3. Dr.V.Balachandran and M.Sriram,Economic Value Added (EVA), A Case Study
of M/S LAKSHMI MACHINE WORKS LTD. COIMBATORE

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