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JSS Dr. D Veerendra HeggadeInstitute of Management Studies and Research

Vidyagiri, Dharwad-4(Recognized by AICTE New Delhi & Affiliated to Karnatak University, Dharwad).

Report on Major Concurrent Project

A STUDY ON FINANCIAL STATEMENT AND ANALYSIS

At

SHRIRAM TRANSPORT FINANCE COMPANY LIMITED

HUBLI.

By

SHIVANAND D.MUDIYALLAPPANAVAR

Reg no: - MBA08010049MBA IV Semester

Submitted in partial fulfillment of the requirements for theaward of

Master of Business Administration.

Internal Guide External Guide

Dr.Anil Yargatti Mr. Zulfi BalegarAsst. Professor Sales Manager

JSS DVH-IMSR Shriram Transport Co LtdDharwad. Hubli.

April 2010


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DECLARATION

I hereby declare that this Report on Major Concurrent Project titled Financial Statement and Analysis, conducted at Shriram TransportFinance Company Limited.submitted by me to Karnatak University,Dharwad is a record of an original and independent study undertakenduring January-April 2010 under the guidance and supervision ofMr. Mallikarjun Totagi (Asst. Branch Manager)

I further declare that this project has not formed the basis for award ofany other degree/ diploma of other University/ Institution.

Date : Shivanand D. MPlace : Dharwad


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(Letter head of the company)

Certificate

This is to certify that Mr.Shivanand D.Mudiyallappanavar, a student of

MBA-IV Semester at JSS Dr. D Veerendra Heggade Institute of

Management Studies & Research, Dharwad has successfully completed

the Major Concurrent Project at our Shriram Transport

Finance Company Limited, Deshpande nagar,Hubli.on the subject titled Financial

Statement and Analysis, between 04-01-2010 and 15-04-2010.

External Guide(Name and Designation)


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Acknowledgement

At the outset, I would like to take this opportunity to acknowledge thesupport and cooperation of all those who enabled successful completion of this

Major Concurrent Project.

I have immense pleasure in expressing my deepest gratitude to ourhonorable Director Dr C S Rajagopal for his guidance, which goes a long wayto set my future career.

I would like to extend my sincere gratitude to Mr. Ramesh. Chalan(Branch Manager) and Mr. Mallikarjun. Totagi (ABM) of Shriram TransportFinance company and their team under whose guidance I undertook this projectand completed successfully.

I extend my thanks to Dr. Anil Yargatti and other faculty members of ourInstitute for extending valuable advice and support during the project period.

Finally, I thank all those who cooperated directly and indirectly forsuccessful completion of the project.

Shivanand D. Mudiyallappanavar


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Certificate

This is to certify that the Major Concurrent Project titled Financial Statement

and Analysis conducted at Shriram Transport Finance Company

Limited.Hubli. Submitted to Karnatak University, Dharwad is a record of an

original and independent work carried out by Mr.Shivanand

D.Mudiyallappanavar. (Reg.No.MBA08010049) under my supervision and

guidance.

_______________(Name of the guide)

Internal Guide

_________________

Dr C S RajagopalDirector


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CONTENTS

CHAPTER Page

Acknowledgement

List of Tables

List of Charts

List of Figures

List of Graphs

List of Abbreviations

EXECUTIVE SUMMARY

1 INTRODUCTION.

2 A. ORGANIZATIONAL STUDY.

B. THEORETICAL BACKGROUND.

3 RESEARCH DESIGN -OBJECTIVES OF THE STUDY.

4 ANALYSIS, INTERPRETATION AND FINDINGS.

5 RECOMMENDATIONS (DISCUSSION)

6 CONCLUSION

ANNEXURE

BIBLIOGRAPHY


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Components of Research Design

Review of Literature

Need for the Study and Statement of the Problem

Objectives of the study

Scope of the study

Methodology and Resources of Data

Sampling Techniques and Sample details

Overview of the report and Chapter scheme

Limitations of the study

Operational definition of the concepts


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S.NO LIST OF TABLE PAGE

1 The showing area of operation in India

2 The table showing current ratio 54

3 The table showing of quick assets 56

4 The table showing inventory turnover ratio 57

5 The table showing debtors turnover ratio 58

6 The table showing working capital ratio 59

7 The table showing fixed assets turnover ratio 60

8 The table showing current assets turnover 61

9 The table showing gross profit margin 62

10 The table showing net profit margin 63

11 The table showing return on long term fund 64

12 The table showing operating expenses ratio 65

13 The table showing dividend payout ratio 67

14 The table showing earning per share 68

15 The tab l e show ing of Debt-E qui ty ra t i o 69

16 The t ab le showing o f Cap i t a l Gea r ing

ra t io

71

17 The t ab le showing Ba lance shee t o f STFC

18 The t ab le showing p ro f i t and lo ss accoun t

19 The table showing cash flow statement

S.NO LIST OF CHART PAGE

1 The chart showing organization chart 25


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S.NO LIST OF GRAPHS PAGE

1 The graph showing current ratio

2 The graph showing of quick assets

3 The graph showing inventory turnover ratio

4 The graph showing working capital ratio

5 The graph showing fixed assets turnover ratio

6 The graph showing current assets turnover

7 The graph showing of % of gross profit to net sales

8 The graph showing of % of net profit to net sales

9 The graph showing return on long term fund

10 The graph showing operating expenses ratio

11 The graph showing dividend payout ratio

12 The gr aph showing earning per share

13 The g raph showing o f Deb t -Equ i ty r a t io

14 The g raph showing o f Cap i t a l Gea r ing

ra t io

S.NO LIST OF ABBREVATION

1 STFC- Shriram Transport Finance Corporation

2 SPDCs-Security Post Dated Cheques3 ICAI-Institute of Chartered Accountants of India .

4 SSWT-Shriram Social Welfare Trust

5 STOs-small truck owners

6 IAS- International Accounting standard


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EXCUTIVE SUMMARY:-

Established in the year 1974, the Shriram Group, comprising 750 Branches and Service

Centres, in India's premier financial services chain. This company is the largest player in

Truck Financing and Chit funds in the Indian subcontinent.

The group, having an annual turnover of Rs. 6,000 crore (USD 1.3 billion), has a significant

presence in the Insurance Consultancy, Consumer Durable Finance and Stock Broking

businesses. It also has diversified investments in areas such as Information Technology,

Pharmaceuticals, Property Development, Project Engineering, Packaging and Auto

Components.

It employs over 11,000 employees across the countries that are committed to providing

excellent customer service. It also has over 75,000 agents nationwide who reach out to its

customers in even the most remote areas.

The Shriram Group's business ventures are built on providing the most efficient and

customer-focused services based on the simple principle of putting people first. This 'People

first' business philosophy has earned them unstinted customer loyalty through many

generations.

TOPIC OF THE STUDY:Financial Statement and Analysis.

NEED FOR THE STUDY:

Financial Analysis provides a frame work for business managers to break down the overall

performance of an organization, so that each individual element of the business can be

isolated and analyzed in turn.


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STATEMENT OF THE PROBLEM:

The study has been taken in the organization for the purpose to interpret the financial

statement so that the strength and weakness of a firm as well as its historical performance and

current financial condition of a firm can be determined.

LITERATURE REVIEW:

The project report on A study on financial statement and analysis. I through under took the

project by the help of Shriram Transport Finance Company Limited. ABM Mr.

mallikarjun.Totagi Company wants to know the current financial position and performance

level.

OBJECTIVE OF THE STUDY:-

a). Financial Statement and Analysis.

The Firm how collect the Short term fund and Long term fund.

How liquid is the firm

Are the owners receiving adequate returns on their investment?

b). To determine the progress of the company.

c). To identify the financial strength and weakness the firm might have.

d). To measure the operational efficiency of the concern.

SCOPE OF THE STUDY:-

The financial statements are mirror which reflects the financial position and operating

strength or weakness of the concern. These statements are useful to management, creditors,

bankers, workers, governments and public at large. George O. may points out The

following major users of financial statements.

George O. :- Financial Accounting : Distillation of Experience.

As a report of Stewardship:

As a report of Fiscal policy:


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To determine the legality of dividends

As guide to wise dividend action

As a basis for the granting of credit

As informative for prospective investors in an enterprise

As a guide to the value of investment already made

As an aid to government supervision

As a basis for price or rate regulation

As a basis for taxation

LIMITATION OF THE STUDY:-

It is only a study of interim reports.

Financial analysis is based upon only monetary information and non-monetary factors

are ignored.

It does not consider changes in price levels.

Changes in accounting procedure by a firm may often make financial analysis

misleading.

The company is very rigid in providing financial information

All the aspects of accounts are secret so they are not disclosed to anybody

FINDINGS:

The current ratio of STFC is higher than the standard i.e.(2:1) because of low current

liabilities, and higher current ratio shows that the company has good liquidity.

The quick ratio of STFC has been increase over the years. i.e. above the standard.

Though the quick ratio has declined in the year 2008-09 the company is improving to

reach the standard.

As the Debtors Turnover has increased in the year 2008-09 as compared previous years

And also the number of days in which the debt due is collected has increased over the

year. Year on year debtors turnover ratio has been increased this because the firm has

Good credit management.


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RECOMMENDATIONS:

Though the company has good liquidity its current ratio is higher than the standard

i.e.(2:1) because of low current liabilities, and higher current ratio, therefore the

company must work to reach the standard.

Though quick ratio of STFC has been decreased over the years. i.e. below the

standard. Therefore the company should work to reach its standard

Since the inventories are not selling fast and they remain in the ware house for long

time and the company is not managing its inventory efficiently. The company should

sell its inventory fast and manage its inventory efficiently.

The firm should have control over its operating expenses so that it can increase its NPmargin.


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INTRODUCTION:

Industry profi le:

Like any other financial product, sales of giving finance is largely dependent on how well

company plans out their marketing strategies which helps to increase visibility and build a

distinct brand image. Looking at the intense competition it has become very necessary to

make a name for themselves in customers mind. So the opinion of the customer plays an

important role in making marketing strategies. Hence this study will provide the company to

what the customers perceive about STFC. It will also help to find out the brand image of

STFC in the minds of customers.

India is emerging as a global automobile giant. In recent years this industry has pioneering

efforts in adopting modern technology and allowing the entry of foreign players. This is well

supported by economic conditions particularly in financial sector and in foreign direct

investment. During the last decade, conscious efforts have been made to fine-tune state policy

to enable the Indian automobile industries realize its potentials to the fullest. The freeing of

the industry this restrictive environment has helped itself to global development.

Increasing competition as a result of liberalization has led to customers modernization as

well as international standards. Moreover, auto finance with aggressive marketing strategieshas played a bid role in boosting the automobile demand. Commercial Vehicles, widely

considered being the economys barometer, have had a good start for the year.

The auto finance industry is expected to grow at 18.6% till 2010. Of that used vehicles is

expected to grow at 27%p.a while new car and UV would grow at 18.9% and 13.8%.

PRODUCT:

We, at Shriram Transport have financed commercial vehicles for more than three decades.

These also included financing of tippers, tractors and passenger vehicle. With shortage of

labour the transportation is becoming more mechanized with forklifts, cranes, loaders etc.

With increased economic activity many of our customers have ventured into newer business

opportunities like sub contracting construction activity, buying tractors which are again used


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for lots of commercial activities along with agricultural activities. Similarly many of our

customers also ventured in to passenger vehicle operation as road infrastructure has

improved.

With the clear bifurcation of products, the process of learning about the products and

the specialist approach in marketing them has enabled us to clearly identify and segregate the

potential growth from each product vertical. The new products would explore higher business

from the same set of customers. The verticals are designed in a way to ensure tapping of a

similar customer base of FTUs in the other segments such as passenger commercial vehicles,

tractors, farm equipment, construction equipment, etc.

PEOPLE:

We have traditionally believed in a home-grown race of professionals. However, in order to

strengthen our product knowledge, we have been recruiting senior personnel from the

industry across levels. Since the personnel, having worked in the industry would have

requisite knowledge on the products; their expertise would come in handy for the

development of new products along with the refining of existing ones. In addition, we have

also developed training programmers that train these employees in understanding the norms,

processes and system in Shriram.

CUSTOMER PERCEPTION AUDITS:

Every time you lose a customer, theres why. Do you really know what your customers think

about your business, your offering, or your services? Are they having good or bad

experiences? Are you equipped with the insight you need to improve customer satisfaction

and loyalty? And make the changes that matter. Entrepreneurs are often too busy to really

take the time to tap into what customers are really thinking. But customers hold the key. They

know what you need to do to dramatically increase the value you deliver to them. Why keep

this data a secret? Uncovering and understanding it will give you what you need to be the

best, generate higher sales and referrals and earn repeat business.

Customer Perception Audits by Coach Kevin captures information on the experience your

customers are having analyzing the data. And provides meaningful, actionable


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recommendations on short-term and long-term improvements, with the goal of closing the

gap between the service that is delivered and the services that customers expect.

Opening of economic and liberalization in trade in the country brought a sea of change in

customers perception of buyers and sellers relationship. The customer today is not only very

demanding but also likes to know the relationship between the suppliers of goods and also

likes its relationship with manufacturer or principal and its antecedents. It is on this

relationship depends the guarantee and warranty terms to which the customers is entitled. A

customer expects trouble free service during the guaranty period. Thereafter it is expected

that a product will last to its full productive life with minimum down time and the vendor will

provide the required support service to ensure that the customer is not put to trouble.

For adopting Japanese management or for customer oriented management we should first

have the willingness and a determination much above the party personal gains. It needs an

attitudinal change. Looking towards present socio-economic and political conditions such

change is not foreseen in immediate future. Market forces will have to play the game with

only customer in mind if India has to make global presence. There is little time in hand as we

are having challenges from all sides of small nations like Korea, Taiwan, Singapore etc, have

already surpassed us. These nations are working on a vision and resultant plans. It is the right

time for the market players to pamper the customer. As the saying goes, the four deadly sins

of corporate management =-complacency, blondness, megalomania and greed. Fit everything

else is overhead.

Remember that a customer always buys a product or services with a lot of expectations

which he has derived from the promotional inputs of the company or other sources including

word of mouth. So a customer would be satisfied when performance is equal to expectation

while, would not be satisfied when performance does not match with expectations. Now this

expectation is what has been derived from perception. Perception is not good or bad, right or

wrong, it is just the way someone judges an experience based on their value system of what

they believe should happen. Since our people are unique, each of their perceptions is unique.

On the other hand each situation is a point contact with an employee that will tell the

customer a truth about the companys idea of customer service. Each situation will create

expectations of what companys idea of customer service. Each situation will create

expectations of what the next experience will probably be like.


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HISTORY AND MILESTONE:

APRIL 2007 :

Shriram group attracts largest venture capital investment in Indian non-banking

Financial sector, from overseas.

APRIL 2005:

Shriram Group attracts largest Venture Capital Investment in the Indian non-banking

financial sector, from Overseas.

JULY 2004:

UTI Bank picks up equity stake in two Shriram Group companies

17MARCH 2003:

Shriram Investment Limited received the Mother Teresa Award for Corporate

Citizenship.

DECEMBER2002

Shriram Group enters into strategic alliance with Citicorp Finance and

Cummins Auto Services

31AUGUST2002

Shriram Group ties up with UTI Bank for Retail Truck Financing

Scheme to offer low cost loans for purchase of new or used trucks to transport

operators.

7MAY2002

Ms. Akhila Srinivasan awarded as the "Outstanding Woman Professional" for the year

2002


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4FEBRUARY2000

Shriram Recon Trucks incorporated as India's first corporate network for selling

reconditioned used trucks.

15DECEMBER1999

Medicorp, the flagship company of Shriram groups pharmacy division became the

first Indian company to win the Indian Drug Manufacturers Association

27 MARCH1986

Shriram City Union Finance Ltd. Incorporated for cars and two-Wheelers.

12MARCH198

Shriram Investments Ltd. Incorporated

13JUNE1979

Shriram Transport Finance Company Ltd. Incorporated


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A). ORGANIZATION STUDY

COMPANY PROFILE:

VISION, MISSION AND VALUES:

Helping create wealth, empowering people through prosperity, putting people first.

The Shriram Group set out with the objective of reaching out to the common man with a host

of products and services that would be helpful to him in his path to prosperity. Over the

decades, the Group has achieved significant success in executing this objective and has

created a tremendous sense of loyalty amongst its customers.

Efficiency in operations, integrity and a strong focus on catering to the needs of the common

man, by offering him high quality and cost-effective products & services, are the values

driving the organization. These core values are deep-rooted within the organization and have

been strongly adhered to over the decades.

The group prides itself on its perfect understanding of the customer. Each product or service

is tailor-made to perfectly suit the needs of the customer. It is this guiding philosophy of

putting people first that has brought the Group closer to the grassroots and has made it the

preferred choice for all financing requirements amongst the customers.

NON-BANKING FINANCIAL COMPANY (NBFC) A GENERAL SCENARIO

Non-Banking Financial Company (NBFC) is a company registered under the Companies Act,

1956 and is engaged in the business of loans and advances, acquisition of

shares/stock/bonds/debentures/securities issued by Government or local authority or other

securities of marketable nature, leasing, hire-purchase, insurance business, chit business but

does not include any institution whose principal business is that of agriculture activity,


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industrial activity, sale/purchase/construction of immovable property. A non-banking

institution which is a company and which has its principal business of receiving deposits

under any scheme or arrangement or any other manner, or lending in any manner is also a

non-banking financial company (Residuary non-banking company).

DIFFERENCE BETWEEN BANKS & NBFC ?

NBFCs are doing functions akin to that of banks; however there are a few differences:

i. A NBFC cannot accept demand deposits;

ii. It is not a part of the payment and settlement system and as such cannot issue cheques toits customers; and

iii. Deposit insurance facility of DICGC is not available for NBFC depositors unlike in case

of banks.

COMMERCIAL VEHICLE:

It is the funding of products include, trucks, buses, tippers, light commercial vehicles,

pickups, 3 wheelers, etc.

Range of services: funding of new vehicles, refinance on used vehicles, balance transfer on

high cost loans, top up on existing loans, Extend product, working capital loans & other

banking products.

Who are eligible?

Any individual / Partnership firm / company with more than 2 years business experience.

Ownership of a vehicle is not mandatory. Funding extended to First Time User, Transporters

and Captive Consumers.


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How much?

Loan amount can vary from a few thousands to crore depending upon the specific

requirement.

Funding can be up to the extent of 100 % of the chassis, body funding can be extended on

special requirement & on the past experience.

Generally undertaken is Hypothecation funding. They are also taking over an old

high-interest loan and converting it into low interest loan.

Repayment:

In general repayment period is of 3 -4 years, however depending on the nature of the deal the

tenure can vary from 6 - 60 months. The repayment schedule & the amortization schedule is

sent on disbursement of the loan.

Interest:

Interest is charged on a flat rate based on the scheme applicable for the particular product.

FARM EQUIPMENT LOANS:

Farm equipment loan has also a big chunk in the vehicle finance.

Eligibility:-

Agricultural Users

Any individual aged above 21 years at the beginning of the tenure and below 65 years

by the end of the tenure; involved in agriculture for the last 5 years.

Having minimum 2 acres of land with its value at least twice the loan amount.

Staying in the same place for at least 3 years.

Having an annual income equal to the yearly instalment

Mortgage of land of 2 to 3 times of the loan amount

Commercial Users:

Any individual aged above 21 years at the beginning of the tenure and below 65 years

by the end of the tenure; involved in business for the last 3 years.

Owns at least one tractor or commercial vehicle.


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Owns either a house or an office or at least 2 acres of land.

Has a permanent phone connection either at office or at home.

Loan Amount:

The loan amount varies from customer to customer depending on the valuation of the land

being mortgaged, income of the customer and tenure desired. A maximum of 100% of the

cost of the tractor, 75% of the cost of the trailer and 50% of the cost of the implements is

funded.

Documentation:

Agricultural use

Application form with photograph of the customer and all co applicants and/or

guarantor.

Performa Invoice of the asset to be funded from an authorized dealer.

Land records of the borrower/s.

Land valuation and title search report of the land.

Residence proof of the borrower/s.

Identity proof of the borrower/s.

Signature verification of the borrower/s.

Loan agreement, duly signed by the applicants and guarantor.

2 SPDCs(Security Post Dated Cheques) for entire tenure.

Commercial Use :

Application form with photograph of the customer and all co applicants and/or

guarantor.

Performa Invoice of the asset to be funded from an authorized dealer.

Proof of Income (any of the following) :

Billing statement for the past one year

Latest Income tax Return

Last 6 months bank statement

Residence proof of the borrower/s.

Identity proof of the borrower/s.

Signature verification of the borrower/s.

Loan agreement, duly signed by the applicants and guarantor.


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2 SPDCs(Security Post Dated Cheques) for entire tenure.

Rates & Fees:

The rate of interest varies from customer to customer and depends on various factors like

land holding, loan amount, viability of the proposition and the underlying collaterals

provided.

Interest:

Interest is charged on a monthly/quarterly/half-yearly reducing balance basis as the case may

be. Every instalment that is paid has a component of principal as well as interest. Interest is

charged on the principal outstanding after every instalment payment.

TWO WHEELERS:

Two wheeler finance is comparably Simple, Friendly and Quick.

Loan Schemes are available from Rs.7500/- onwards to Rs.150000/- in easy instalments over

a period of 6 to 36 months.

Eligibility Criteria:

1. Salaried Individuals

2. Self Employed Individuals

3. Pensioners, Housewives & Students

4. Partnership Entities

5. Private Limited Companies

6. Public Limited Companies

Interest rates:

Interest rate is charged on a monthly reducing balance.

Documents:

Identity Proofs

Residence Proof

Income Proof

Post Dated Cheques

Copy of Credit Card


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CC billing statement

Bank passbook/Statement

No objection Certificate

AWARDS AND RECOGNITION

Recipient of the social responsiveness awards instituted by Business world Compaq at

national level under the auspices of FICCI, Delhi.

Adjudged as the third prize winner for having render commendable service in the areas of

social welfare and rural development.

Ms. Akhila Srinivasan receiving the social responsiveness Award instituted by Business

World Company from the Honble Vice President of India Krishna Kant in the year 1999.

Recipient of outstanding woman professional for 2000 01 by FICCI FICCI Ladies

organisation (FLO). The award was given by Ms. Sheila dixit Chief Minister Delhi. Mother

Teresa award for corporate citizenship instituted by Loyola institute of Business

Administration (LIBA) Chennai, 2002.During the year, Shriram Transport was a recipient of

two prestigious awards Silver

Silver Shield from ICAI:

The company was awarded Silver Shield for Excellence in Financial Reporting by the

Institute of Chartered Accountants of India (ICAI). The Annual Report and Accounts for the

year ended March 31st, 2008 have been adjudged as the second best amongst the entries

received under the Banking and Financial Institutions category.

Best PE-Backed Company Award for 2008

The company also received Best PE-Backed Company Award for 2008. This award was

given on the basis of research-cum survey conducted by Venture Intelligence among

members of the Private Equity/Venture.

SOCIAL WELFARE INITATIVES

They have always believed in delivering financial value with a human face. As a company

firmly grounded up a middle class ethos, we take our social responsibilities very seriously.


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Their corporate Social Responsibility (CSR) initiative started with the Shriram Social

Welfare Trust (SSWT) that was set up in the year 1993. SSWT is today active in the

following areas.

Orphan and destitute care

Primary education for the rural poor

Micro credit financing through self- help groups for the marginalized

Empowerment and enlistment of women in villages.

OPRHAN AND DESTITUTE CHILDREN:

To swiftly help the poor and the needy to be self reliant and live with dignity, not charity. The

primary focus and beneficiaries of the Trusts activities are.

a. Abandoned neglected and destitute children.

b. Juvenile delinquents in need of care and protection.

c. Children of poor and illiterate parents.

d. Disadvantaged and marginalized section of women, particularly rural women

MICRO CREDIT FINANCING THROUGH SELF-HELP GROUPS FOR THE

MARGINALIZED WOMEN IN VILLAGES.

a. Launch of Shriram Social Welfare Trust (SRDP) to create and develop

b. Social and human capital among the poor.

c. Micro credit financing through self help groups in 156 villages in Tamil Nadu, Andhra

Pradesh and Karnataka.

PRIMARY EDUCATION FOR THE RURAL POOR:

The trust runs four schools in rural areas at Thiruneermalai, Pallikaranai, Moovarasampet in

Tamil Nadu and inn Prakash Nagar, Guntur Dist. In Andhra Pradesh. Over 2000 children

receive free education. Schools offer education up to class VII and student will progressively

move up to higher secondary level.

FUTURE PLANS:

a. To start six primary schools for the rural poor in the villages of Andhra Pradesh.

b. Government of Andhra Pradesh to hand over 3.5 acres of land to SSET in six districts.

c. Immediate Plans: to start two schools in Cudapah and Guntur districts in June 2005.


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LONG TERM BENEFITS OF THE PROGRAM:

a. Reduction in rural indebtedness

b. Bank/institutional credit for investment in income generation activities.

c. Improved household food security round the year, better nutrition.

d. Improved household income.

e. Empowerment of Women.

f. Greater leverage and status of SHG members in local communities and with the state

THE FUTURE ACCORDING TO SHRIRAM

1. To enlarge the scope of micro credit financing activity through NBFC Shriram

Investment Limited.

2. To extend activities to Bihar, Kharkand, and Eastern Uttar Pradesh.

3. To lend credit at low interest rates to 3 lakh women below poverty line in the next 3

years.

NATIONAL AWARDS WON

Business World Compaq award fota Social Responsiveness instituted by FICCI from

the Honble Vice President of India Mr. Krishna Kant on 1999.

Mother Teresa award for Corporate Citizenship instituted by Loyola Institute of

Business Administration (LIBA), Chennai in 2002.

PRODUCT PROFILE

1. TRUCK FINANCE

1. Shriram Truck Financing Companies. The wheels of progress.

2. Largest NBFC in the country exclusively engaged in financing of heavy commercial

vehicles.

3. Monopoly position in financing of used vehicles.

4. All India presence with a branch network of 260 offices and employing over 4000

people.

5. Growing at the rate of 30% per annum.

6. Funds managed Rs 6000 crores.

7. Equity investors - Citicorp,, UTI Banks, Reliance Capital and FMO Netherlands have

added tremendous value and strength.


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8. Venture capital firm Chris capital joins as a strategic partner by acquiring 21% equity.

We entered the Consumer Durable Finance business in early 2002 through 'Shriram

City Union Finance Ltd., the consumer finance arm of the group. Within a short span of 2

years, we have managed a portfolio of over Rs.584 crore.

Our monthly business amounts to over Rs.25 crore in individual loans, ranging from as little

as Rs.8, 000 to Rs.1, 00,000, and with tenures ranging from 12 months to 36 months

Since its inception, we have financed over 2, 15,000 white goods and two-wheelers, with

over 90% of the business arising out of the non-metro markets.

This financing is backed by lines of credit extended by ICICI Bank, UTI Bank and

Development Credit.STFC helps meet customer needs end to end, in the transport lifecycle.

Our products (pre-owned and new) offerings to small truck owners (STOs) and first time

(FTUs) includes:

MAIN PRODUCTS

Commercial vehicle finance

Passenger commercial vehicle finance

Multi utility vehicle finance

Three wheeler finance

Tractor finance

Construction equipment finance

OTHER PRODUCTS

Tyre loan

Engine replacement loan

Working capital loan

Co-branded credit card

Freight bill discounting


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Customer profile:

STOs and FTUs have been traditionally under-penetrated as banks have been reluctant to

lend to these segments due to the under-developed banking habits of the customers, mobile

nature of the hypothecated assets and inadequate legal documents available among customers

for verification of their creditworthiness. Further, earnings of these truck owners are

somewhat volatile as they depend on brokers and LTOs for their freight and ~95% of their

contracts are spot in nature. Therefore they are not entertained by the large banks and other

NBFCs. Based on our relationship based approach, we at Shriram Transport have continued

to remain the market leader in this segment. We have also been instrumental in making this

segment one of the most sought after by the banks and large NBFCs in the recent times.

At Shriram Transport, our people are the most critical resource. Being in a relationship-basedbusiness, people are not only the originators but also the appraisers and managers of the

transaction throughout its life cycle.

At Shriram Transport, our employees have initiated, driven and sustained our growth across

decades. With a blend of youth and experience, of the average age of 28 years, we have

evolved into one of the most respected knowledge-led companies in the industry. Our

workforce comprise of more than 12,100 employees across India. Our ability to hire and train

the locals has enabled us to acquire thorough territorial and geographical knowledge. Ourperformance linked remuneration scheme resulted in the employees delivering their best and

also securing our asset quality across the various cycles.

THE GROUP COMPANIES ATHAT CATER TO TRUCK FINANCING NEEDS ADIFFERENT PARTS OF THE COUNTRY ARE

Shriram Investments Limited in the South Shriram Transport Finance Company Limited in

the West Shriram Overseas Finance Limited in Northern/Eastern regions in India.


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OUR EQUITY PARTNERS

Citicorp financial services Ltd. An arm citigroup has taken 14.9% equity stake in Shriram

investments Limited and Shriram Transport Financial Company Limited in 2002.

FMO the Dutch Government owned financial services company has recently picked up equity

stake in SIL and STFC. The company has extended a long term debt of 6 million Euros each

to the two companies.

Reliance Capital has also taken an equity stake in the two companies at a premium.

AN OVERVIEW OF THE SHRIRAM GROUP TRUCK FINANCING BUSINESS IN

INDIA

Table no 1: The showing area of operation in india

AREA OF OPERATION ALL INDIA

Branch offices 327

Employees 5000

Depositors 12.20 lakhs

Agency Force 15,000 plus resident representatives1300.

Funds managed Rs. 6000 crores

Net worth Rs.

Stock Listing Major exchanges including the BSE

and the NSE.

CONSUMER FINANCE:-We entered the consumer Durable Finance Business business in early 2002. Through

Shriram City Union Finance Ltd. The consumer arm of the group. Within a short span o 2

years, we have managed a profile of over rest 684 crores in this business.

Our monthly business amounts to over Rs. 25 crores in individual loans, ranging from

as little as Rs.8000 to Rs. 100000 and with tenures ranging from 12 months to 36 months.


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Since its inception we have financed over 215000 white goods and two wheelers with over

90% of the business arising out of the non metro markets.

This financing is backed by lines of credit extended by

ICICI Band, UTI Bank and Development Credit.

CHIT FUNDS:-

Shriram chits prosperity

Shriram chits are the largest chits fund in the country. We have grown to become a trusted

household investment option. The growth registered by Shriram Chits recent years not only

indicated the usefulness of this savings instrument, but is also a reflection our customers trust

in.

Chits one of the earliest investment instrument known to man, were founded by the

enlightened communities of India. These have, ever since, worked to the advantages of

communities that are batting scarce capital resource. Shriram chits started its operations in the

year 1974 with a single branch that has quickly grown into trusted household name for

making chits a viable form of saving and borrowing to all sections of the social.

A Shriram chit operates in four states. Tamil Nadu, Andhra Pradesh, karnataka and

Maharastra, where has a reputation for timely disbursement of funds and excellent customer

services which differentiates it from other companies. Using state of the art computer

systems/networks and a transparent accounting system, Shriram Chits have transformed this

contemporary method of savings into an attractive personalised to banking system.

GENERAL INSURANCE:-

Shriram group has adopted a two strategy in this segment.

1. Broking arm Armour Consultants floated in year 2002

2. Retail Marketing Arm: Ski marketing floated in year 2001.

ARMUR CONSULTANTS PRIVATE LIMITED: INSURANCE EXPERTS AT YOUR

SERVICE

Amour consultant is engaged in insurance broking in corporate insurance markets and has

already aggregated business volumes in excess of Rs. 200 crores ($ 44 million) in premiums.

Amour consultant comprises a team of distinguished professionals from insurance, finance,


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law and other management discipline, who have vast business and managerial experience.

The company has handled major claims for renowned clients. There have been several claim

cases that were won even in the arbitration stage.

The tern at Armun Consultants begins with an in depth evaluation of the client

companys business environment. The company risk profile is then studied. Based on the

results of these evaluations. The team then suggests the most cist effective, integrated

insurance package that is perfectly suited to the companys risk profile. The company plans

to extend its customer base of the existing 500000 policy holders to cross the 1 million mark

by the end of financial year 2005-06.

LIFE INSURANCE:-

The shriram group plans to enter the life insurance segment 05. Am application has already

been filed with the IRDA for the same. We are also exploring the possibilities of

collaborating with a foreign partner in this venture. We expect to be a major player in this

very fast growing sector, as a natural corollary of business philosophy and expertise.

STOCK BROKING:-

Our stock broking arm operates under the insight share Brokers Pvt. Ltd. It is a member of

the National Stock Exchange, India and the Multi Commodity Exchange. This unit has

expended the network by 150% over the last year and today it has more than 230 terminals

spread across the length and breadth of the country. It has a retail customer base of around

50000. The company launched its new products like Derivatives and commodity trading in

early 2004.

A QUICK LOOK AT SOME OF THE SALIENT FEATURES

Limits of all clients are fixed at a pre-calculated level.

This is beneficial to them in the long run as it prevents overtrading.

A timely payments and direct share transfer facility from NSE.

Adequate risk control research support.

The clincher. Proactivate and preventive risk control.


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ORGANISATION CHART

BOARD OF DIRECORS

Chart no1: The chart showing organization chart

SHIRAM TRANSPORT FINANCE COMPANY LIMITED

R Sridhar Managing Director

S. Venkatakrishnan Executive Director

Umesh G Revankar Executive Director

K.R.C Sekhar Director

S. Ranganathan Nominee of Citicorp Finance (India) Ltd.

Dr. T S Sethurathnam Nominee of IREDA ltd.

K. Prakash

Company Secretary & Compliance

Officer

Highlights of 2008-2009

19.3% increase in Assets under management

48.7% Increase in total income

57.1% increase in profits after tax

48.6% increase in earnings per share

2,502 employees added


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49 branches opened

2.14% gross NPA

0.83% net NPA

Challenges:

1979: The challenge of getting started

1980s: The challenge of managing investor perception and obtaining Low-cost funds

1990s: The challenge of sustaining our business model.

2000-08: The challenge of scaling up operations.

2008-09

Meeting challenge is an ongoing, undeterred exercise. Challenges they exist across stages

in different terminologies, forms and magnitudes of the perceived and the real. It becomes

easier to face them when one begins to acknowledge their presence, as realizing a potential

risk or challenge is the first step towards resolving it. At Shriram, the most effective way to

mitigate risks and fears were in creating a knowledge-led organization.

Asset quality

Asset quality till date has been our biggest challenge. When we started our business,

our asset quality was perceived risky as we funded a niche customer base and an asset

segment mostly dealt in the unorganized sector. Therefore it was important for us to maintain

our asset quality. With the increase in volumes, the asset quality became more important, as it

had become our forte and strength. During 2008-09, with the global banks and financial

companies going bust, the challenge of maintaining the asset quality was the same old story

for us at Shriram Transport. However, yet the fundamental differentiators remained the same

on our part, While the asset financing companies used to fund the vehicle manufacturers, we

chose to fund the aspirations of our customers. We financed First time users and Small road

truck operators, a segment that was traditionally funded by Unorganized sector and had least

or no banking habits, since a large majority of our customers used the vehicles to earn their

own livelihood, their mobility was mitigated with a relationship-based appraisal as well as

collection approach.


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The company chose to become a partner of its customers in their journey of progress. It

involved providing them with advice and additional products, resulting in strong ties and a

sustainable business model.

The company expanded its product base from pre-owned commercial vehicles to pre-owned

passenger vehicles, 3-wheelers and construction equipment as well as new commercial and

passenger vehicles.

Local representatives were hired for every branch office and strong ties were forged with the

truck associations and most importantly the customer.

A no-fuss company-customer communication model was set up, by ensuring the

representatives who refer a particular case stay responsible for the quality of assets deployed.

It is a combination of these factors that enabled us to maintain minimum

delinquencies across geographies and cycles. In the last five years, our Gross NPAs have

never crossed 2.2%. This enabled us secure the confidence of the investors and stakeholders.

A history of overcoming challenges

At Shriram Transport, we have demonstrated our ability to meet and counter challenges

at every step. This has manifested itself in the following:

Operating in a novel industry.

Funding a segment perceived risky by the rest of the industry.

Formulating an asset valuation model.

Increasing the organized presence in an unorganized industry

Attaining a significant scale in the business

Doing so profitably through affordable funds.


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Thus meeting challenges is an imperative to our survival and not just an enabler of

growth.

Innovation:

1979: Funding pre-owned trucks in organized sector

1980s: Funds from retail deposits, a relationship-based appraisal model

1990s: Instituting a unique asset valuation model

2000-08: Truck Utsav, partnership with private financiers, banker for

Truckers

2008-09:

At Shriram Transport, innovation has hardly ever been an event. It has always been a way of

life. Right from setting up a unique business model, to operating in a segment lead by

unorganized players, to setting up credible processes and systems, to managing cash

collections efficiently across geographies the list is exhaustive and endless. To say the least,

the very fact that enabled us survive and become a leader in the industry segment was and

continues to be our ability to innovate.

A history of innovative solutions

We created a business that had no peers in the organized sector; therefore innovating

processes and systems was a necessity.

We funded a segment that was traditionally perceived to be risky by the existing large

NBFCs and banks; therefore to ensure better asset quality and growth, we innovated a

relationship-based appraisal and collection model the first in the organized segment. The

pre-owned trucks were valued vaguely, based on the relationship and agreement between

buyer and seller. This irrationality would often result in overpriced assets resulting in longer

time to plough back profits for the buyers from the assets and would eventually affect their

repayment capacity; therefore we created a unique valuation model to avoid overpricing in

the segment. Serving a segment with least or no banking habits, collection and management

of cash required innovation to ensure safety, accountability and efficiency. The ability to


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innovate has been our biggest asset and it has resulted in our growing against all odds in the

last three decades.

Growth:

1979: Started operations

1980s: Income and AUM increased @ CAGR of 65% and 66%

respectively

1990s: Income and AUM increased @ CAGR of 45% and 35%

respectively

2000-08: Income and AUM increased @ CAGR of 51% and 72%

respectively

2008-09

Growth is as much a state of the mind as in the balance sheet. Sure, our business acumen

allows us to grow year on year. But more than that, its our ability to make a positive

difference in the lives of our customers that drives growth. We ensure that their aspirations

are transformed into reality. For us at Shriram Transport, we believe that growth is a by-

product of addressing a larger cause of including everyone in its fold.

A history of consistent performance

In the first 25 years of our existence, we focused on creating a fundamentally sound

business. In the process we attained an asset under management of Rs. 1,701 crores as on

31.03.2004. In the last five years, we have grown at a CAGR of 69% to reach an AUM of Rs.

23,281 crores and emerge as the leading asset financing NBFC in India. In the process, we

have a customer base of more than 600,000 across India and a branch network of 479. In

addition, we have developed a respected brand and a corporate environment based on higheststandards of transparency, performance, accountability and ethics. So in true sense, for us

growth has been much more than the numbers can reveal.


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SWOT ANALYSIS OF STFC

Strengths:

The largest asset financing NBFC in India

Unique business model

The only player in the organized sector to offer pre-owned commercial vehicle financing to

FTUs and SRTOs

Pan India presence covering over 600,000 customers

Strong, stable and experienced management team

Extensive expertise in asset valuation

Strong ability of raising resources from multiple sources Strong financials

Weakness:

Business segment heavily dependent on economic activity

Opportunities:

Tap more customers through partnership with private financiers

Truck Bazaar to enable tapping the customers at the entry point

Passenger commercial vehicle financing

Second hand tractor financing

Freight challan discounting, working capital loans, tyre loans, etc.

Construction equipment financing

Threats:

Maintaining relationships and asset quality, while achieving scalability.

News issues of STFC

Shriram group has acquired the assets of GE Transportation Financial Services, part of the

Indian operations of General Electric (GE), for Rs 1,200 crore.

This acquisition will help the south-based financier of commercial vehicles and construction

reach a new set of customers.


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In an interview with CNBC-TV18, R Sridhar, Managing Director of Shriram Transport

Finance says the acquisitions would help improve the net interest margins (NIM) and add to

bottom line going forward. The acquisition would be funded through borrowings.

Here is a verbatim transcript of an exclusive interview with R Sridhar on CNBC-TV18. Also

watch the accompanying video.

Q: Can you confirm for us whether you have indeed acquired GEs transportation finance

service and what exactly has the cost been for you?

A: The portfolio which we are acquiring is about Rs 1,200 crore. This consists of around Rs

1,000 crore of commercial vehicles where we are actually engaged in and also around Rs 200

crore of construction equipment portfolios. So this we have been negotiating for a long time

and it was concluded just now.

Q: What has your acquisition cost been? Is this a profitable acquisition? Is it a profit making

entity?

A: This is a portfolio acquisition that we have taken over the customers. The receivables and

the assets, which the company wanted to sell because they are getting out of this business is

what we have purchased. With regards to the cost definitely its attractive. We have been in

segment truck financing. Its definitely attractive than what the yields we are getting in our

business.

Q: What challenges did the year 2008-09 pose on the companys asset quality? Was the

company also affected? What initiatives did it undertake during the year to emerge stronger?

A: Maintaining asset quality was crucial during the year, as in all the years. However, since

the year witnessed an economic crisis that stemmed from the consequences of worsening

asset quality in the books of global banks and financial institutions; the fundamental

importance of investing in the right kind of assets and funding right kind of customers was

reinstated. With the global liquidity crises, a recessionary phase was experienced in terms of

corporate and government spending, resulting in delays and deferment of infrastructure

activities. The domestic consumption was affected and so was the case with exports. The


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purchase decisions were deferred resulting in slowdown in new commercial and passenger

vehicle sales.

We were not directly affected by the events during the year in terms of consumer demand or

asset quality. We performed well in the first two quarters and our assets grew 52% y-o-y.

Third quarter onwards, the global slowdown was starting to extend within India. In the wake

of depleting economic environment, we took a stand to proactively curtail our lending and

target a responsible growth against a rapid one. We ensured that protection of the asset

quality was the foremost requirement in every deal. The customers equity was increased,

leading to lower LTV. Additional credit appraisal processes were also introduced. In the

mean time, we also focused on tapping consumer base in related segments of pre-owned

passenger and 3-wheelers.

Therefore, I would say, the challenges during the year didnt derail our growth plans but we

viewed it as an opportunity to address and improve our asset quality.

The results were the same a gross NPA of less than 2.2%, achieved during one of the most

challenging years globally.

Q: Are you satisfied with the companys performance in 2008-09?

A: Our performance in 2008-09 should be seen in context with the economic and industrial

performance in our country. The year under review has been one of the most challenging

years for the world at large. To post an increase of 43.7% in net income and 57.1% in net

profits is truly satisfying. During the year under review, our focus was to protect the asset

quality and to ensure low cost funds. As a result, we consciously took a decision to strengthen

our lending process and therefore curtail our disbursements. And as a result, our assets under

management increased by 19.3% and our gross NPAs stood at 2.14%.

Q: What new challenges did the year under review pose to the company in relation to

availability of funds? What was the companys strategy to ensure access to lower cost funds?

In a year marked by widespread liquidity concerns globally, there were two major

challenges for us:

1. To procure funds since liquidity was a major issue with the banks and financial

institutions, the lending activity was curtailed to the minimum during the year.


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2. To ensure a competitive interest rate - Funds at competitive costs are as vital as the

deployment of funds at higher yields. Especially in our business, where the liabilities are

procured at both fixed and floating rate and the funds are deployed at fixed rate.

In wake of global liquidity crunch, we undertook an organization-wide initiative to identify,

analyze and incorporate additional efficiency in our cash management and internal accruals.

The idea was to reduce dependence on high cost funds. We procured funds from large banks

and FIs during the year. We opted to dedicate a higher focus on generating funds through

securitization of our assets, and mobilized Rs. 3,124.98 cr through this initiative. The

deployment of funds was also critically scanned to ensure a strong fund and asset position.

Q: What is the rationale behind partnering with smaller private financiers, when the company

can dominate in the segment by opening dedicated centers in these geographies?

A: The private financiers dominate geographies on account of local knowledge and existing

relationships. With the higher scale of operations, we at Shriram Transport are also faced

with a challenge of preserving our asset quality, through maintaining a relationship-based

model. Therefore, it was a prudent decision to grow with partnership and not through

competition. While competition would restrict growth, partnerships will enable the company

to tap a wider market without substantial dilution of direct relationships.

Q: What is the way ahead for Shriram Transport?

A: It has been the same old story of facing challenges, innovating solutions and posting

growth. However, the arena has become bigger as we speak. The vision for the coming years

has been set and the focus will be in the coming years, to achieve accelerated growth. We

have envisioned the pre-owned vehicle financing industry to grow consistently in the coming

years, of which, we would want to account more than 40% market share, translating into an

asset under management much higher than the existing Rs. 23,000 cr. The growth will require

us to reinvent the possibilities, to ensure a new beginning and to evolve ourselves to a level

where we can sustain the scale of operations in the years to come. We have started initiating

the process for the future. I invite you to witness our efforts of creating infrastructure for

future growth in the following pages.


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FINANCIAL STATEMENT

FINANCIAL HIGHLIGHTS 2007-08 2006-2007

Profit before depreciation and taxation 64,289.27 29,907.55

Less: Depreciation, lease adjustment and impairment

loss

3,705.97 985.13

Profit before tax 60,583.30 28,922.42

Less:Provision for Taxation including

Fringe Benefit Tax

21,600.65 9,882.71

Profit After Tax 38,982.65 19,039.71

Add:Balance brought forward

from previous year

12,248.92 53,22.65

Balance available for appropriation Appropriations 51,231.57 24,362.36

General Reserve 3,900.00 2,000.00

Statutory reserve 7,800.00 3,810.00

Dividend 10,295.62 5,432.18

Tax on dividend 1,749.74 871.26

Balance carried to Balance sheet 27,486.21 12,248.92

Dividend

Directors at their meeting held on November 28, 2007 declared an Interim Dividend of Rs.

1/- per equity share (10 percent) for the financial year 2007-08, which was paid on December

27, 2007. The payment of this Interim Dividend involved an outflow of Rs. 2,539.03 lakhs

(including tax on dividend).

The Directors have recommended a final dividend of Rs. 4/- per equity share (40 percent) for

the financial year ended on March 31, 2008. The dividend distribution would result in a cash

outflow of Rs. 9,506.34 lakhs (including tax on dividend of Rs. 1,380.92 lakhs) as against Rs.

4,309.13 lakhs (including tax on dividend of Rs. 625.96 lakhs) in the previous year.

Operation

Shriram transport finance Company has earned a Profit before Tax of Rs. 60,583.30 lakhs for

the year ended March 31, 2008 as against Rs. 28,922.42 lakhs of the earlier year, posting an


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increase of 109.47 percent year on year. The Profit after Tax of Rs. 38,982.65 lakhs also is

104.74 percent more when compared to the previous year, which was Rs. 19,039.71 lakhs.

The total Income for the year under consideration was Rs. 2, 49,414.27 lakhs and total

expenditure was Rs. 1, 88,830.97 lakhs. The total disbursements made for financing of

commercial vehicles during the year under review were Rs. 11, 58,973 lakhs. As on March

31, 2008, the outstanding hypothecation loans were Rs. 15, 00,224 lakhs and assets given on

financial lease were Rs. 7,042 lakhs.

During the year ended March 31, 2008, the Company mobilized Rs. 4, 25,616 lakhs through

non convertible debentures, Rs. 30,577 lakhs through sub- ordinate debts, Rs. 5, 25,664 lakhs

through term loans, Rs.1,32,700 lakhs through working capital loans, Rs. 28,195 lakhs

through commercial paper and Rs. 2, 11,822 lakhs through securitization deals.

Fixed Deposit

As on March 31, 2008, there were 438 fixed deposits aggregating to Rs.

52 lakhs that have matured but remained unclaimed. There were no deposits, which were

claimed but not paid by the Company. The unclaimed deposits have since fallen down to 386

amounting to Rs. 48.54 lakhs. Steps are being taken continuously to obtain the depositors

instructions so as to ensure renewal/ repayment of the deposits in time.

Share capital conversion of warrant

During the year under review, your Company allotted 69,00,000 equity Shares of Rs. 10 each

at a premium of Rs. 102 per share to Shriram Holdings (Madras) Private Limited, the

promoter of the Company, on exercise by them of their option to convert the warrants held by

them.

Preferential offer

In accordance with the Guidelines on Preferential Issues contained in Chapter XIII of SEBI

(Disclosure and Investor Protection) Guidelines, 2000, the Company, during the year under


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review, issued and allotted 1, 20,00,000 equity shares of Rs. 10/-each fully paid up at a price

of Rs. 300/- per equity share to six allot tees at a premium of Rs. 290 per share.

The Company also allotted 80,00,000 warrants by way of preferential allotment to Shriram

Holdings (Madras) Private Limited at a subscription price of Rs. 30 per warrant conferring an

option to the holder to subscribe to one equity share per warrant at an exercise price of Rs.

300 per warrant and the subscription amount for

the Warrants being adjusted against the exercise price of the warrants.

Outlook and opportunity

The rising crude oil price, which has recently crossed US$ 130 per barrel, rising commodity

prices and the sub-prime mortgage crisis in the United States of America have brought about

an economic imbalance worldwide. Though the Indian economy is not affected directly by

the sub-prime crisis, the rising commodity and crude oil prices have fuelled a steep rise in

inflation. The inflation has crossed 8 percent, which is the highest recorded in about four

years. It is feared that the inflation could be even higher, especially with the rupee declining

against the dollar amid slackening foreign appetite for Indian assets, which in turn would

make imports costlier. To curtail the inflationary trends in the economy, the Government,

through administrative measures, has tightened up the money supply which has tended to

push up the interest rates, consequently inducing slackened off-take of credit.

The economic instability in the world financial markets, the rising inflationary pressures and

the tightening of money flow has brought down the industrial production in the last few

months. There are clear signs of slowdown in sectors like cement, capital goods, steel and IT,

which were the bellwethers of the stock market in the recent years. The galloping inflation

has stoked fears of additional monetary tightening measures that -would slow down the

economy further and prompt a flight of foreign investor funds.

The ripples of this were also seen in the automobile manufacturing sectors, except to some

extent in the passenger commercial vehicle segment. The commercial vehicles sales

continued to grow in FY 2007-08, but at a slower rate than that of previous years. The sale of


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commercial vehicles recorded a slower growth of 4.07 percent in 2007-08 as against 33.25

percent of the previous year.

The current deceleration facing the economy though demands continuous

Government attention; there is no need to get disheartened as the economic and the financial

experts in the country believe it to be only an aberration. A few months back the inflation was

well under control as it had gone down to as low as 3.07 percent and the stock market indices

were hitting new heights. The economy has undergone a major shift in the past few years that

has boosted the GDP growth rate to 7-8 percent and it is widely felt that this shift is here to

stay. Our economy has grown at 9.4 percent in 2005-06, 9.6 percent in 2006-07 and is

estimated to have grown close to 9 percent in 2007-08.This transformation has been the result

of an ongoing programme of liberalization over the last decade and a greater integration with

the world economy. A combination of factors such as strong macro- economic fundamentals,

a rich resource of intellectual manpower and the outsourcing boom have interacted positively

with each other and transformed India into a globally competitive force. Even the tier-3 and

the tier-4 cities are witnessing far more entrepreneurial activity.

The Countrys fundamentals are strong enough to withstand a wide range of potential shocks,

including sudden set-backs in short-term capital inflows and even a sharp decline in global

growth.

The economic power of a new and vibrant India is now getting the attention world around.

Our nation has recorded an average GDP growth rate of 7.65 percent during the Tenth Plan

(2002-07). The Indian growth story, therefore, is expected to remain intact despite the current

turmoil.

Even with the backdrop of somewhat subdued economic growth, Company is projected to

perform well. The potential for new commercial vehicle financing is expected to be about Rs.

35,000 crores and that of the pre-owned commercial vehicles, Rs. 63,000 crores and is

projected to grow over 11.5 percent and over 14 percent respectively in the next three years.

Your Company has carved out about 25 percent share of the pre-owned commercial vehicle

financing market and has continued to maintain its leadership position in this segment.

Closely working with partners, your company was able to penetrate deeper into this market

Place. Plans are afoot to tap the huge market in smaller cities across the country, directly and

through our partners. Your Companys unique business model, which is difficult to emulate,


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valuation expertise built up by it over the years would ensure that your Company would

continue to enjoy its leadership position in this segment.

In the new commercial vehicle financing segment, despite a slowdown in the sales and stiff

competition from banks and other NBFCs, your Company was able to retain its market share

of about 8 percent to 9 percent. Relationship based approach and your Companys pan India

presence through its over 430 branch network would enable it to continue to maintain its

share of this market in future as well.

Your Board is, therefore, confident that in spite of the current challenging economic

situation, your Company would largely be able to stay on course and continue to maintain its

growth.

B). THEOROTICAL BACKGROUND

FINANCIAL STATEMENT AND ANALYSIS

Financial statements and reports are the tools which provide information of the firms

financial affairs. This information is required for financial analysis & decision making. It

assesses the financial status of organization which is prepared with help of accounting

principle.

Financial statement has mainly as follow:

Balance sheet

Profit & loss account

Financial statement is prepared on basis of generally accepted accounting principle.

These are

a. Business entity principle

b. Going concern principle

c. Monetary principle

d. Historical principle

e. Realizations principle

f. Accrual concept

Basic conventions under which financial statements prepared is:

consistency


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conservativeness

disclosure

Analyzing of financial statements helps to know the financial health of the borrower,

which provides the detail of the liabilities and the assets of the applicant. It also helps to study

the trends in the financial matters of the company. It helps to valuate the assets of the

applicant company. It assists in decision making process relating to the future activities.

Financial statements act as a basic document for banker, supplier, creditors etc in their

credit appraisal of the firm. Financial statement provides the reliable information about the

resources and firms obligation. It assists in estimating earning potential of the firm.

Profit and Loss account:-

Meaning:- profit and loss account is one of the essential document which shows the

summary of revenues, expenses and net income of the firm during the particular financial

period.

Functions of the Profit and Loss account:-

It gives a concise summary of the firms revenue and expenses during the particular

period.

It measures the firms profitability.

It represents the activity of the firm.

NATURE OF RATIO ANALYSIS

Ratio analysis is a powerful tool of financial analysis. A ratio is defined as "the

indicated quotient of two mathematical expressions" and as the relationship between two or

more things". In financial analysis ratio is used as a benchmark for evaluating the financial

position and performance of a firm. Ratios help to summaries large quantities of financial

data and to make qualitative judgment about the firm's financial performance.

The ratio reflecting a quantitative relationship helps to form a qualitative judgment the

focus of financial analysis is on the key figures in the financial statements and the significant

relationships that exist between them.

The analysis of financial statements is a process of evaluating relationships between

component parts of financial statements to obtain a better understanding of the firm's position

and performance. The first task of the financial analyst is to select the information relevant to


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the decision under consideration from total information contained in the financial statement.

The second step involved in financial analysis is to arrange the information in away to

highlight significant relationships. The final step is interpretationand drawing of inferences

and conclusions. Ratio analysis is the most-widely used technique of financial statement

analysis.

IMPORTANCE OF RATIO ANALYSIS

As a tool of financial management, they are of crucial significance. The importance of ratio

analysis lies in the fact that it presents facts on a comparative basis and enables the drawing

of inferences regarding the performance of a firm. Ratio analysis is relevant in assessing the

performance of a firm in respect of the following aspects.

LIQUIDITY POSITION

With the help of ratio analysis conclusions can be drawn regarding the liquidity Position of a

firm. The liquidity position of a firm would be satisfactory if it is able to meet its current

obligations when they become due.

LONG-TERM SOLVENCY

Ratio analysis is equally useful for assessing the long-term financial viability of a firm. The

long-term solvency is measured by the leverage/capital structure and profitability ratios,

which focus on earning power and operating efficiency. Ratio analysis reveals the strength

and weaknesses of a firm in this respect.

OPERATING EFFICIENCY

Ratio analysis throws light on the degree of efficiency in the management and utilization of

its assets.

OVER-ALL PROFITABILITY

The management is constantly concerned about over-all profitability of the enterprise. This is

possible if an integrated view is taken and all the ratios are considered together.


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TYPES OF RATIOS

Several ratios, calculated from the accounting data, can be grouped into various classes

according to financial activity or function to be evaluated. The parties interested

in financial analysis are Short and long-term creditors, owners and management. In view of

the various users of ratios can be classified into following categories,

A. Liquidity Ratios.

B. Leverage Ratios.

C. Activity Ratios.

D. Profitability Ratios

E. Other Ratios.

A. LIQUIDITY RATIOS.

Liquidity refers to the ability of a firm to meet its obligations in the Short run, usually one

year. Liquidity ratios measure the ability of the firm to meet its current obligations. Liquidity

ratios by establishing a relationship between cash and other Current assets to Current

obligations provide a quick measure of liquidity. A firm should ensure that it does not suffer

from lack of liquidity, and also that it does not have excess Liquidity. Therefore it is

necessary to strike a proper balance between high liquidity and lack of liquidity. Following

are some of the important liquidity ratios, current ratio, quick ratio, interval measure and net

working capital ratio.

1. Current Ratio:-

The current ratio is a measure of the firm's short-term solvency. It indicates the availability

of current assets in rupees for every rupee of current liability. A ratio greater than one mean

that the firm has more current assets than Current claims against them. As a conventional

rule, a current ratio of 2: 1 is considered satisfactory. The current ratio calculated by dividing

Current assets by Current liabilities.


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Current Ratio = Current Assets

Current Liability

2. Quick ratio:-

Quick ratio establishes a relationship between quick, or liquid, assets and current liabilities.

An asset is said to be liquid if it can be convel1ed into cash immediately. Liquid assets

include cash, debtors, bills receivables and marketable securities. The quick ratio is found

out by dividing quick assets by current liabilities.

Quick Assets (current assets- inventory)

Quick Ratio =

Current Liabilities

A quick ratio of 1: 1 is considered as a satisfactory current financial condition.

3. Interval Measure:-

Interval measure assesses a firm's ability to meet its regular cash expenses. It relates liquid

assets to average daily operating cash outflows. The daily operating expenses will be equal

to cost of goods sold plus selling, administrative and general expenses less depreciation

divided by number of days in the year. It indicates the number of days for which the firm has

sufficient liquid assets to finance its operations.

Current Assets - Inventory

Interval Measure =

Avg. daily operating expenses

B. LEVERAGE RATIOS:-


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Interest

The short-term creditors, like bankers and suppliers of raw material, are more concerned

with the firm's current debt-paying ability. On the other hand, long-term creditors, like

debenture holders, financial institutions etc. are more concerned with the firm's long-term

financial strength. In fact, a firm should have a strong short-as well as long-term financial

position. To judge the long-term financial position of the firm, financial leverage ratios are

calculated. These ratios indicate mix of funds provided by owners and lenders. As a general

rule, there should be an appropriate mix of debt and owners' equity in financing the firm's

assets. Leverage ratios may be calculated items the balance sheet items to determine the

proportion of debt in total financing. Leverage ratios are also computed from the profit and

loss items by determining the extent to which operating profits are sufficient to cover the

fixed charges.

1. Interest Coverage Ratio:-

The interest coverage ratio or the times-interest-earned is used to test the firm's debt-

servicing capacity. The interest coverage ratio shows the number of times the interest charges

are covered by funds that are ordinarily available for their payment. The interest coverage

ratio is computed by dividing earning before depreciation, interest and Taxes (EBDIT) by

interest charges.

EBDIT

Interest Coverage =

This ratio indicates the extent to which earnings may fall without causing any

embarrassment to the firm regarding the payment of interest charges.

C. ACTIVITY RATIOS:-

Activity ratios are concerned with measuring the efficiency in asset management.

Sometimes, these ratios are also called efficiency ratios or asset utilization ratios. The

efficiency with which the assets are used would be respected in the speed and rapidity with

which assets are converted into sales. The greater the rate of turnover or conversion, the


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more efficient the utilization. For this reason, such ratios are also designated as turnover

ratios. Turnover is the primary mode for measuring the extent of efficient employment of

assets by relating the assets to sales. An activity ratio may, therefore, be defined as a test of

the relationship between sales and various assets of a firm. Several activity ratios can be

calculated to judge the effectiveness of asset utilization.

1. Inventory Turnover (Times):-

This ratio indicates the number of times inventory is replaced during the year. It measures the

relationship between the cost of goods sold and the inventory level. Inventory turnover

indicates the efficiency of the firm in producing and selling its product. It is calculated by

dividing the cost of goods sold by the average inventory.

Cost of goods sold

Inventory Turnover =

Average Inventory

When numbers of days in the year are divided by inventory turnover, we obtain days of

inventory holdings,

No. Of Days in a YearInventory Turnover in Days =

Inventory Turnover

2. Debtors Turnover Ratio (Times):-

A firm sells goods for cash and credit. When the firm extends credit to its customers, debtors

are created in the firm's account. Debtors are expected to be converted into cash over a short

period of time and, therefore, are included in current assets.

The liquidity position of the firm depends upon the quality of debtors to a great

extent. In other words, debtors turnover ratio is a test of the liquidity of the debtors of a

firm. It shows how many times debtors turn over during the year. Debtors turn over is found

out by dividing credit sales by average debtors.


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Average collection = No. of days in yearPeriod Debtors turnover

Current Assets

Sales/ Credit Sales

Debtors Turnover =Average Debtors

4. Collection Period (Days):-

The second type of ratio for measuring the liquidity of a firm's debtors is the average

collection period ratio. This ratio is, in fact, Inter-related with, and dependent upon, the

receivables turnover ratio. It is calculated by dividing the days in a year by the Debtors

turnover.

The average collection period measures the quality of debtors since it indicates the

speed of their collection. Shorter the average collection period, the better the trade credit

management and better the liquidity of debtors, as short collection period and high turnover

ratio imply prompt payment on the pm1 of debtors. In general, short collection period is

preferable.5. Fixed Assets and Current Assets Turnover:-

The firm may wish to know its efficiency of utilizing fixed assets and Current assets

separately. The ratios indicate the amount of fixed and Current assets needed for every rupee

of sales.

Sales

Fixed Assets Turnover =

Net Fixed Assets

Sales

Current Assets Turnover =


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6. Working Capital Turnover:-

A firm may like to relate net Current assets to sales. It may thus compute working capital

turnover by dividing sales by net working capital. The ratio indicates how efficiently the

working capital of the firm is being utilized.

Working Capital Turnover = Sales

Net working Capital

The reciprocal of the above ratio indicates the amount of working capital needed for

each rupee of sales.

D. PROFITABILITY RATIOS:-

Apart from the creditors, both short-term and long-term, also interested in the financial

soundness of a firm are the owners and management or the company itself. The management

of the firm is naturally eager to measure its operating efficiency. Similarly, the owners

invest their funds in the expectation of reasonable return. The operating efficiency of a firm

and its ability to ensure adequate return to its shareholders depends ultimately on the profits

earned by it. The profitability of the firm can be measured by its profitability ratios. The

profitability ratios are calculated to measure the rate of return, earning per share, rate of

return to equity shareholders and so on.

1. Gross Profit Margin:-

The gross profit margin reflects the efficiency with which management produces each unit

of product. This ratio indicates the average spread between the cost of goods sold and thesales revenue.

When we subtract the gross profit margin from 100 per cent, we obtain the ratio of

cost of goods sold to sales. Both these ratios show profits relative to sales after deduction of

production costs, and indicate the relation between production costs and selling price.


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Gross Profit

Gross Profit Margin =

Sales

A high gross profit margin relative to industry average implies that the firm is able to

produce at relatively lower cost.

2. Net Profit Margin:-

Net profit is obtained when operating expenses; interest and taxes are subtracted from the

gross profit. Net profit margin ratio establishes a relationship between net profit and sales

and indicates management's efficiency in manufacturing, administering and selling the

products. This ratio is the overall measure of the firm's abi1ity to turn each rupee sales into

net profit. If the net margin is in adequate, the firm will fail to achieve satisfactory return on

shareholders' funds. The net profit margin ratio is measured by dividing profit after tax by

sales.

Profit After Tax

Net Profit Margin =

Sales

This ratio also indicates the firm's capacity to withstand adverse economic conditions. A firm

with high net margin ratio would be in an advantageous position to survive in the face of

falling selling prices and rising costs.

3. Return on Investment:-

In this ratio the profits are related to the capital employed. The term capital employed refers

to long-term funds supplied by the creditors and owners of the firm. Thus this ratio provides

a test of profitability related to the sources of long-term funds. A comparison of this ratio

with similar firms, with the industry average and overtime would provide sufficient insight

into how efficiently the long term funds of owners and creditors are being used, The higher

the ratio, the more efficient is use of the capital employed.


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Sales

EBIT

Return on Investment = Capital Employed

ROE indicates how well the firm has used the resources of owners. This ratio is one of the

most important relationships in financial analysis. The earning of a satisfactory return is the

most desirable objective of a business. The ratio net profit to owners, equity reflects the

extent to which this objective has been accomplished.

4. Operating Expense Ratio:-

The operating expense ratio explains the changes in the profit margin ratio. This ratio is

computed by dividing operating expenses by sales.

Operating expenses

Operating Expenses Ratio =

The operating expense ratio indicates the average aggregative variations in expenses, where

some of the expenses may be increasing while others may be falling. The ratio is a yardstick

of operating efficiency. This ratio when compared from year to Year for the firm will throw

light on managerial policies and programmers.

E. OTHER RATIOS

1. Earning Per Share (EPS)

Apart from the rates of return, the profitability of a firm from the point of view of theordinary shareholders is the EPS. It measures the profit available to the equity holders on a

per share basis, i.e. the amount that they can get on every share held. The earnings per share

are calculated by dividing the profit after taxes by the total number of shares outstanding.

As per Accounting Standard- 20 issued by ICAI it is made compulsory in financial

statement.