NIRMA LIMITED-LONG-TERM LIABILITIES

Details of long-term liabilities:

Secured borrowings (in Rs. Crores)

Mar 2003

Mar 2004

Mar 2005

Mar 2006

Mar 2007

Mar 2008

Bank borrowings 115.98 150.69 66.5 48.48 239.15 182.54

Short term bank borrowings 20.98 95.69 66.5 48.48 239.15 182.54

Long term bank borrowings 95 55 0 0 0 0

Since the company has been a net re-payer of loans for the past few years (ref:

Company’s cash flow statements), the long term borrowings were all paid by FY 2004

and the company has no pending long term bank borrowings in FY 2008.

The short term borrowing (in FY 2008) from banks are secured on pari passu basis (Pari

passu – a legal term referring to the equal treatment of two or more parties in an

agreement, extracted from: http://mba.tuck.dartmouth.edu/pecenter/resources/ glossary

_p_r.html), by a first charge, by way of hypothecation of specified stock of raw materials,

stock in process, finished goods, other merchandise being movable, book debts, both

present and future and by way of second charge on specified fixed assets, both present

and future, of the Company.

Nirma’s Cash flow from operations was pretty healthy till FY 2007, when it fell to

172.49 crores from 373.55 crores last year. The company also did not issue any other

debt instruments in FY 2007; rather, it borrowed from banks in this year. This might

explain the rise in borrowings from bank in FY 2007.

The company has reduced its Bank Borrowings (Secured Loans) in FY 2008 by around

23% as compared to FY 2007.

Unsecured borrowings (in Rs. Crores) Mar 2003

Mar 2004

Mar 2005

Mar 2006

Mar 2007

Mar 2008

Short-term loans from banks in foreign currency

140.08 0 0 0 43.57 87.94

Non-Convertible debentures 140 25 0 0 0 140.00

Borrowings from corporate bodies 0 28.94 10.89 2.16 41.12 33.37

Deferred credit 3.83 3.07 2.35 1.63 0.96 0.04

The short-term loans from banks in foreign currency have nearly doubled from FY 2007

to FY 2008. This might be to support the acquisition of Searles Valley Minerals Inc.

(SVM) and Searles Valley Minerals Operations Inc. (SMVO), the USA based Soda Ash

producer in FY 2008.

Privately placed Floating Rate Non-Convertible Debentures worth Rs. 140 Crores were

issued by Nirma in FY 2008 to raise money for the above mentioned acquisition.

The borrowings from other corporate bodies decreased by around 19 % from FY 2007 to

FY 2008.

The total unsecured borrowings in FY 2008 (Rs. 261.35 Crores) is triple than that in the

year 2007 (Rs. 85.65 Crores)

Nirma Ltd. (Rs. Crore) Mar 2003 Mar 2004 Mar 2005 Mar 2006 Mar 2007 Mar 2008

Secured borrowings 450.01 570.91 564.46 344.3 239.15 182.54

Unsecured borrowings 143.83 108.36 13.24 3.79 85.65 261.35

Secured : Unsecured Borrowings 3.13 5.27 42.63 90.84 2.79 0.70

The ratio of secured borrowings to unsecured borrowings was lowest in FY 2008. From

an investor point of view, this is not a healthy sign as unsecured borrowing outweighs

secured borrowings. This might indicate the company’s credibility might have gone down

as far as secured borrowings are concerned and hence it has to opt for unsecured

borrowings to fund its projects and acquisitions.

The aggregate level of loan funds increased from Rs.324.85 crores in the previous year to

Rs.443.94 crores at the end of 31st March 2008.

The debt to equity ratio of the Company is 0.17 in FY 2008.

Type of long-term loans, bonds, debentures:

The Floating Rate Non-Convertible Debentures were redeemable with interest on the

expiry of 364 days from the deemed date of allotment. However the investor/ company

were given the option to put/call the FRNCD any day from the date of allotment.

These FRNCD were all privately placed debentures. The company’s annual report

highlights this fact as given under:

“During the year, the Company has issued short term privately placed

secured debentures. The said debentures have been repaid before the time

permit for creating the Security and hence there is no need to create the

security. Refer note no.7 of Schedule 19 of accounts.”

There are no outstanding instruments, for the long term debt.

Overall Comments: Nirma has been a Net Re-payer of loans for the past few years. This has

resulted in zero long term bank borrowing and reduced short term band borrowings for the past

few years. The company has loans (secured short term borrowing worth Rs. 182.54 Crores and

unsecured borrowings in foreign currency worth Rs. 87.94 Crores) as on FY 2008 to fund its

acquisitions. At the same time in FY 2008, privately placed Floating Rate Non-Convertible

Debentures worth Rs. 140 Crores were issued by the company. No commercial paper or fixed

deposits were issued by the company and there are no other outstanding instruments for the long

term.

References:

1. Company’s Annual Reports

2. Cmie-Prowess