Introduction & problems of Ashraf Textile Mills Ltd

ACKNOWLEDGEMENTS

At first I would like thank our course teacher Dr. A. J. M. Humayun Morshed for giving me such
an important job like problem identification and strategy formulation. During the preparation of
the report I have some problem that has been erased out with your propound lecture. Without
your cooperation and guideline this report would have been an incomplete one.

Finally thank you for your supportive thought and kind consideration for formulating an idea.

Table of Contents

1. Executive Summary………………………………………
2. Problems…………………………………. ………………
3. Justification of Problem Definition……………………...
4. Strategic Action…………………………..........................
5. Follow-up and Evaluation………………………………..
6. References……….………………………………………...

EXECUTIVE SUMMARY

This report “Problem Identification and Strategy Formulation of Ashraf Textile Mills Ltd." is
prepared to fulfill the partial requirement of Corporate Strategy, Ethics, and Business Policy
course (F-511) of MBA Program of UNIVERSITY OF DHAKA.

The main aim of this report is to find out the problems faced by the company and formulate
strategy in order to make solutions of these problems. In this report I identify several problems
that faced by Ashraf Textile Mills Ltd and combine of these problem could make this mills close
in near future.

I formulate appropriate strategy that should be needed to adopt in order to remedy from those
problems. Follow-up and evaluation of the strategy that will adopt by Ashraf Textile Mills Ltd
also mention in this report.

Introduction:

Ashraf Textile Mills was established in 1985 at Paiksha village under this industrial zone. The
14000 spindle based textile mills came under production in 1988 where about 500 workers were
engaged. The mills has been now been facing closure due to its heavy financial loss for about 7
years.

Problems:

Main Problem: Ashraf Textile Mills Ltd. has been now been facing closure due to its heavy
financial loss for about 7 years.

Supplementary Problems:
1. Lack of Investors confidence on Ashraf Textile Mills.
2. Non-compliance of Securities & Exchange Commission’s laws.
3. The threat of infiltration of yarn from neighboring countries.
4. Not able keep pace with technological changes.
5. Not concern about increase in competition.
6. High operating expenses.
7. Lack of short term debt paying ability.

Justification for Problem Definition:

The main problem of Ashraf Textile Mills Ltd. automatically solve if it is possible to
solve the other problems that caused the main problems.

One of the major problems that Ashraf Textile Mills Ltd. faces is the lack of investors
confidence on them. There are several reasons behinds the lack of investors
confidence.

i. Negative earning per share (EPS) which is -7.14 that indicates net income is
negative.

ii. Ashraf Textile Mills shares are categorized as B means that it does not held
regular AGM.

iii. Its share’s market price (Tk. 5.1 on 22/09/ 2005) is less than book value (Tk.
10) and within one year from August 2004 to August 2005 share price not raised
much and was lower than book value (52 week’s range Tk. 5.8 – Tk. 7.5).

iv. Ashraf Textile Mills reluctant to issue bonus shares. 1995 was the year since it
do not issue bonus share.

The management of Ashraf Textile Mills Ltd. is not serious about legal issue. It do
not submit SEC the information when it was asked. They sell shares without prior
notification. As a result 15 sponsors/directors receive warning latter to comply with
all securities laws in future which was issued on 23/07/2003.

The company offensively facing infiltration of yarn from neighboring countries; it

causes reduction of sales price as well as market share.

As the company’s reserve and surplus is negative which is Tk. -135.06 million, the
company not able to modernize it’s machineries.
Ashraf Textile Mills Ltd. is not concern about the changing nature of environment.
They are not aware about the competitions, globalizations, substitute products,
bargaining power of buyers & sellers.

Ashraf Textile Mills Ltd has a terrible current ratio. Current ratio indicates in which
extent, current liabilities are covered by those assets expected to be converted to
cash in the near future. The company carry forward Tk. 346,635,654 as current
liabilities; in which Tk. 103,772,147 is in form of cash credit and overdraft; it is
almost 30% of current liabilities.

Current Assets = Tk.228, 489,935

Current liabilities = Tk.346, 635,654

Current Ratio = Current Assets / Current liabilities

= Tk.228, 489,935/ Tk.346, 635,654
= 0.65916455 times

The company has also face problem with its operating cost. The company consists
with over manpower, and overpaid employees.

Strategic Action should be Taken:

As it is said that lack of investors confidence is one of the major problem faced by the company,
action should be taken to back this confidence. Company should take one of the following two
strategies-

i. Low cost producer strategy.

ii. Differentiation strategy.

If Ashraf Textile Mills Ltd. takes low cost producer strategy then it should try hard to become a
cost leader in its industry. Company should concentrate on its engineering skills, supervision of
labor, low cost distribution system, tight cost control, frequent and detailed corporate report,
structured organization and responsibilities.

But if Ashraf Textile Mills Ltd. takes differentiation strategy then it should seek to identify itself
as unique in its industry in an area that is important to buyers. It should concentrate on strong
marketing ability, product engineering, creative flair, strong capability in basic research, highly
skilled labor, scientists or creative people,

As the company is now out of track, investors get confidence if the company choose right
strategy. Management should find out its strengths, weaknesses, opportunities and threats and
take appropriate actions. If the company choose right strategy then its sales per share expected to
increase and cost of production expected to decrease and ultimately its leads an increase of EPS
and marker price of share. Ashraf Textile Mills Ltd. also try to hold regular AGM and issue
bonus shares and right shares to attract investors.

As non-compliance of SEC laws hamper the reputation of the Ashraf Textile Mills Ltd, in future
company should comply with all legal and regulatory facts. Company can employ a legal adviser
to handle this matter properly.

Ashraf Textile Mills Ltd. might try to create social awareness about infiltration problem. The
textile association may try to consult with proper government authorities regarding this problem.
Through the success of social awareness program, the company can able to increase its’ market
share. If infiltration reduces, the company will not need to reduce the price. But the pitfall is if
the company can not get success in this program, it might face huge loss.

As the company currently facing capital problem it can issue more shares or debt to generate
capital in order to modernize its equipment/machineries. Production process should also need to
be modernize.

Ashraf Textile Mills Ltd. should keep eyes open on what its competitors done, doing and will do.
Rather follow what competitors are doing Ashraf Textile Mills Ltd. should formulate its strategy
in such that makes doing the business difficult for its competitors. But management must keep in
mind about business ethics when formulate strategy.

Ashraf Textile Mills Ltd. should try to reduce the amount of cash credit and overdrafts. Through
reducing credit amount, the company might able to increase its’

Current ratio; which attracts the investors to invest more in this company. Beside this, creditors
also feel safe to lend money to this company. But the pitfall is they might have to hold the salary
of employees for certain period, which tempt a labor strike.

Ashraf Textile Mills Ltd should try to reduce its’ over manpower through fire/golden handshake
maintaining company’s hiring and firing policy. But the pitfall is it may face huge protection
from the labors inform of strike, chaos, and damage of company’s equipments.

Follow up and Evaluation:

Future is uncertain. It is only possible to predict what might happen in near future.
Uncertain environment makes forecasting more difficult, increasing the need for
flexibility. As technology, globalization, competition, deregulation will change,
Ashraf Textile Mills also change its strategy. It should focus more on learning,
anticipation and quick response. It should change its boundary if necessary. Top
level managers, from different departments get together and decide based on their
pooled opinions. They will examine the internal & external environment and
evaluate the progress of the program each month.

REFERENCES
Monthly review report Dhaka stock exchange (2004 – 2005)
Annual report of Ashraf Textile Mills Ltd.
SEC Annual report

Websites:
www.secbd.org
www.financialexpress-bd.com
www.dse-bd.org