Due Diligence for Sample Subprojects under the AEPC component
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(Important Message to Any Person Not Authorized to Have Access to this Report)
Any person who is not an addressee of this report or who has not requested Mangal Advisory Services
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Delivering Excellence, Partnering Success
XYZ Limited
Due Diligence Report
Table of Contents
Scope and Process Summary 1
I. Background 3
II. Industry Overview 5
III. Financial Overview 11
IV. Key Issues / Observations 17
V. Other Matters 38
VI. Projected profitability 45
VII. Annexure
Scope and Process Due Diligence Process This report is based on significant and material findings of the due diligence review performed on
accounting, financial, and tax information of XYZ Limited, made available by the Management.
Information relied on the Due diligence Process
Management Representations
The Management representations stated in this report, have been orally confirmed by them. In addition, in respect of any factual information given to us by the management of XYZ Limited ,we require from them, written confirmation that such information was accurate and that no significant information, essential to the due diligence review, has been withheld from us. Till the date of this report, the Management has not provided us with written confirmation in this respect. Accordingly, our report is subject to this limitation.
For the purpose of this report, we have placed reliance on: • Audited financial statements of XYZ Limited as at and for the year ended 31 Mar 11 and 31 Mar 12
(‘FY11’ and ‘FY12’) • Unaudited financial statements of XYZ Limited (without notes to the financial statements) as at and
for the year ended 31 Mar 13 (‘FY13’) • Information made available for Q1FY14 • Agreements, select documents and details provided by the Management • Information and explanations provided by the Management. • Management information system (MIS) details provided by the Management
Significant scope matters .
Report structure
.
Our period under review was FY11, FY12 and FY13 and Q1FY14. The following was the scope of work: • Analyses of the financial statements including profit and loss account and balance sheets • Analyses of the MIS presented to us by the Management • Calculation of the future projections and assessment of viability of the project
This is an exception based report and matters which have come to our knowledge through our interviews and analyses have been highlighted by us. We make no representation regarding the sufficiency of our work either for purposes for which this report has been requested or for any other purpose.
1
Scope and Process
Limitations The following information was not available which could have a material bearing on our analyses • Area wise (Area 1, Area 2 and Area 3) revenue breakup in units • Area wise (Area 1, Area 2 and Area 3) breakup of variety of products sold • Details of the age and location of deep freezers • Costing of certain products were not made available • Further, our work did not constitute an audit conducted in accordance with generally accepted
auditing standards, or an examination of internal controls or other attestation or review services in accordance with standards established by the Institute of Chartered Accountants of India (ICAI). Accordingly, this report should not be considered as an expression of opinion or any other form of assurance on the financial statements of the Company or on its financial or other information, or on the operating and internal controls of the Company.
• It may be noted that in our work we have relied on the integrity of the information provided to us by the Management for the purpose, and, other than reviewing the consistency of such information, we have not sought to carry out an independent verification, thereof.
2
Background
3
XYZ Pvt. Ltd. (‘XYZ’) was incorporated on 20th May 1998 and is engaged in the business of production and distribution of ‘Classified’ brand of Ice Creams. The Company was converted into a limited company and the name of the Company was changed to XYZ Limited on 5th Aug 2001. The Management represented that this was done to raise funds.
The manufacturing unit is located at ABC Industrial Estate, Plot X,– Area 1, and the registered office is located at PQR City – Area 4
XYZ has a large number of distributors and dealers for the sale of
its product in Area 1 and the neighbouring states of Area 2 and Area 3. XYZ either provides its own deep freezers to such distributors / dealers for the exclusive sale of its ice cream or supplies its product to the distributor / dealer who have their own deep freezers.
The Classified range of ice creams has 25 different product categories with over 180 products on offer.
The current Directors of the company are Mr. A, Mr. B, Ms. C, Mrs. D and Mrs. I
Proposed Transaction
EFG Limited (‘EFG’) is evaluating a buy out of XYZ Limited. In this connection, EFG has appointed Mangal Advisory Services (‘MAS’) to carry out a due diligence review on XYZ.
Background Shareholding Details
Name No. of Shares % holding
Mr. A 80,000 8%
Mr. B 80,000 8%
Ms. C 200,000 20%
Mrs. D 100,000 10%
Mr. E 60,000 6%
Mrs. F 59,600 6%
Ms. G 82,000 8%
Mr. H 40,000 4%
Mrs. I 298,400 30%
Total 1,000,000 100%
Equity Shares of Rs. 10 each
4
Industry Overview
5
2500 2800 3136
3512 3934
2012 2013 2014 2015 2016
Market Size (INR Crore.)
The industry is growing steadily with the western and northern regions accounting for the largest consumption
• Size and Growth
– Total Industry valued at over INR 5500 Crore.
– Organised sector worth INR 2500 Cr. in 2012 (45%)
– Growing over 15% p.a. in 2009-2012
– Forecast to grow at a CAGR of 12% p.a. upto 2016
• Characteristics
– Western and Northern regions together account for 65% of total market consumption
– 60% of ice cream sales occur during the summer months of April-June
– Vanilla is the highest selling flavour and together with strawberry and chocolate it accounts for 70% of the market
Overview Size and Growth
30%
20%
Source: Euromonitor International, Ice cream in India (2012)
Geographic Distribution
North,
30%
South,
20%
East,
15%
West,
35%
6
Market Players
• Fiercely competitive due to attractive economics.
• Organized sector comprises GCMMF’s Amul, HUL’s Kwality Walls, Mother Diary, Baskin Robbins and a number of regional brands
• Amul is the market leader and is at the forefront of targeting the rural market
• For most national players viz. GCMMF, HUL and Mother Diary, revenue from ice cream accounts for a small portion of their total revenues
• Premium segment:
– Baskin Robbins is the single largest premium ice cream brand
– New entrants include Amul, Movenpick, Haagen Dazs and Snowberry
Market share
Source: Economic Times Cold Wars (2011), FNB News The Ice cream industry (2012)
GCMMF
37% Vadilal
15%
Mother Diary
14%
HUL
13%
Baskin Robbins
5%
Others
16%
55% Unorganized
45%
Organized
7
Key Trends
Growing per-capita consumption (from 250 ml in 2010 to 350 ml in 2012)
Increasing manufacturing of “frozen Desserts” (using cheaper vegetable fats rather than Dairy Fats)
Targeting specific niche segments (probiotics, Diet, etc.)
Franchise model and strategic partnerships to enhance distribution
8
Enhancing network through franchises and strategic partnerships Company Projects
HUL Kiosks - Swirls
GCMMF Increase Amul Parlours from 1,800 to 3,000 in 2008 and 10,000 by 2009, Cyber stores in 100 cities, Cyber clubs in 125 cities
Hatsun Agro Premium ice cream outlet – Arun Ice Cream Unlimited
Milkway
Express 1000 outlets in southern and central India by 2009, counters at corporate campuses
Baskin
Robbins Outlets in malls and multiplexes
Company Affiliation Purpose
HUL Indian Oil Corporation (IOC) Retail stores at petrol stations
Oxicash Marketing via scratch and win contests
GCMMF Bharat Petroleum Corporation Ltd (BPCL) Mobile kiosks at petrol stations
Baskin Robbins
Lifestyle, Coca-Cola, ICICI credit cards and Cox & Kings
Exclusive retailing
Milkway Express
Spencer Retail Ltd and Foodworld Targeting the southern market
Movenpick Rhapsody Foods & Beverages
Re-launch brand in Mumbai, Delhi, Bangalore, Hyderabad, Kolkata and Chennai
Part
ner
ship
s F
ran
chis
ing
Source: FnBnews “Coops, the mainstay of India's dairy model”, October 2008; Business Standard “Ice-cream makers add healthy
flavours”, April 2008; FoodIndustryIndia “Gelato ice creams is a hit at AAHAR”, March 2008 9
Source: Financial Express “Ice cream war begins as HUL, Amul oil plans”, February 2008
• Producers have launched more “Indianised” flavours such as Kulfi, Shahi Tukda
• Naturally flavoured ice cream i.e. without any artificial or synthetic flavour has been introduced for the premium segment
• Players are capitalizing on the market which has become extremely health conscious
Product diversification to target specific segments
Company Product Health Benefits
Hindustan Unilever
(HUL)
Moo High calcium content, low
calorie and fat
GCMMF
Probiotic
range –
Amul Prolife
Increases immunity, help in
digestion, prevents
diarrhoea and growth of
colon cancer
Mother Dairy
Diet Low sugar and fat content
10
Financial Overview
11
Overview of Profit & Loss Accounts Profit & Loss Account of XYZ
INR FY13 FY12 FY11
% variance
FY13 over
FY12
% variance
FY12 over
FY11
% to total
FY13
% to total
FY12
% to total
FY11
Revenue
Sales 57,999,179 63,902,156 61,411,260 -9% 4% 101% 102% 98%
Other Income 48,534 29,029 67,006 67% -57% 0% 0% 0%
Difference in WIP and FG
Closing Stock-535,755 -982,288 1,221,269 -45% -180% -1% -2% 2%
Total Income 57,511,958 62,948,898 62,699,535 -9% 0% 100% 100% 100%
Expenses
Raw Material Consumed 16,899,036 17,006,415 16,182,289 -1% 5% 29% 27% 26%
Packaging Material Consumed 8,961,886 10,115,923 10,067,964 -11% 0% 16% 16% 16%
Direct Expenses 5,277,346 6,347,909 6,112,275 -17% 4% 9% 10% 10%
Employee Benefit Expense 14,261,028 12,880,628 11,335,060 11% 14% 25% 20% 18%
Administrative Overheads 3,149,865 3,966,525 3,970,806 -21% 0% 5% 6% 6%
Sales/Distribution Overheads 8,045,023 9,263,617 9,018,900 -13% 3% 14% 15% 14%
Total Expenses 56,594,183 59,581,017 56,687,294 -5% 5% 98% 95% 90%
EBITDA 917,775 3,367,881 6,012,240 -73% -44% 2% 5% 10%
Depreciation 4,671,875 4,779,593 4,695,271 -2% 2% 8% 8% 7%
EBIT -3,754,101 -1,411,712 1,316,970 166% -207% -7% -2% 2%
Interest 1,261,906 1,568,946 1,489,357 -20% 5% 2% 2% 2%
EBT -5,016,006 -2,980,658 -172,388 68% 1629% -9% -5% 0%
Source: Audited / Unaudited Financial Statements
12
Overview of Profit & Loss Accounts (1/2) Revenue from sales includes income from sale of Ice creams. Net sales have reduced by 9% in FY13
over FY12. Net sales in FY12 however increased by 4% in FY12 over FY11. The Management represented that the decline is on account of shortage of funds to deploy additional deep freezers in the market and for various sales promotion schemes.
Revenue from Other Income includes Credit Balances written off, Interest on Bank deposits and dividend on Money Bank shares.
Raw Materials consumption includes expenses for the flavors, milk and other ingredients required for production of Ice Creams. In FY13, raw material consumption has dropped marginally by 1%, in comparison to a 9% drop in sales.
Packing Materials includes a variety of lids, boxes and spoons used for the packaging of the Ice Cream produced. Costs associated with it have declined by 11% in FY13, in line with the drop in sales.
Direct Expenses primarily includes costs incurred for the production process like electricity INR 26.7 lakhs, repairs and maintenance of plant and machinery and deep freezers INR 9 lakhs and generator diesel INR 6 lakhs. In FY13, Direct Expenses have gone down by 17% primarily on account of reduction in repairs and maintenance cost of Plant and Machinery and Deep freezers. Refer Annexure II for details.
Employee benefit expense comprising of salaries, wages and bonus of INR 1.2 cr along with other staff costs. These costs has shown a steady increase over the years, forming 25% of total Income in FY13, which is on the higher side. Refer Annexure II for details.
Administrative overheads primarily comprise of conveyance INR 7.8 lakhs, security charges of INR 5 lakhs and other expenses required for daily administration. These expenses have declined by 21% in FY13. This is primarily due to no bonus being declared in FY13 while in FY12 bonus of INR 3.8 lakhs was declared and reduction in rent of Area 6 Depot, which has been discontinued in FY13. Refer Annexure II for details.
13
Overview of Profit & Loss Accounts (2/2) Sales/Distribution overheads includes cost incurred in the distribution of Ice creams from the factory to
the distributors/retailers. It primarily comprises of advertising of INR 2.8 lakhs, excise duty of INR 11. 4 lakhs, vehicle maintenance costs INR 30.4 lakhs, repairs and maintenance of vehicles INR 9.3 lakhs. Sales/Distribution Overheads have declined on account of reduction in Advertisement costs in FY13. The Management represented that this was on account of fund constraints. Refer Annexure II for details.
Interest costs primarily comprise interest on term loans, cash credit balance and hire purchase accounts on vehicles. The interest costs have reduced primarily on account of reduction in term loans and lesser utilisation of cash credit. The Management represented that over last 6 months the cash credit has been freezed by the Bank due to non deposit of any cash flows.
The Company has incurred a loss after depreciation of Rs. 50.16 lakhs in FY13, in comparison to a loss of Rs. 29.8 lakhs in the previous year, primarily on account of drop in sales.
14
Overview of Balance Sheets (1/2) Share capital as at 31 March 2013 comprises of 10,00,000
equity shares, of Rs. 10 each, fully paid .
Secured Loans primarily comprise of Term loans availed from Money Bank of Rs. 14.97 lakhs, cash credit limit with Money Bank of Rs. 47.14 lakhs, Fund financiers of Rs. 4.4 lakhs, Cash Bank of Rs. 2.58 lakhs and Business Finance of Rs. 7.23 lakhs.
Unsecured Loans primarily comprise loans given by Mr. A of Rs. 18.05 lakhs, Mr. B of Rs. 11.2 lakhs and Finance Services Pvt Ltd of Rs. 105 lakhs.
As at 31 March 2013, Sundry Creditors includes payments outstanding with the suppliers of raw materials and packing materials. A large amount of the same was found to be overdue.
Advance from customers comprises of the security deposits taken against the deep freezers provided to the distributors. The Management represented that for every deep freezer provided to the distributors, the Management collects security deposit ranging from Rs. 10,000-17,000. This is primarily to secure against any damages to deep freezers or non payment of dues. The deposit is equally apportioned over 5 years.
Outstanding expenses mainly consists of employees and other statutory payable. A large portion of such amounts was found to be overdue.
Balance Sheets of XYZ
INRAs at 31 March 2013
As at 31
March 2012
I. Equity and LiabilitiesShareholders Funds
Share Capital 10,000,000 10,000,000
Reserves & Surplus 2,500,000 2,500,000
Less: Accumulated losses 21,328,934 16,312,927
Net worth (8,828,934) (3,812,927)
Non Current Liabilities
Secured Loans 7,635,188 8,627,688
Unsecured Loans 14,378,328 16,648,340
Current Liabilities
Sundry Creditors 9,321,169 9,905,765
Advance form Customers 10,852,403 9,199,674
Outstanding Expenses 4,624,686 3,311,424
Total 37,982,840 43,879,965
II. AssetsNon Current Assets
Fixed Assets (Net) 26,316,675 30,221,263
Investments 100,000 100,000
Current Assets
Cash and Bank Balances 87,065 319,019
Sundry Debtors 1,954,093 2,597,708
Closing Stock 8,219,813 9,389,156
Advances recievable in cash/kind
for value to be recieved640,994 531,954
Deposits and Other advances 664,200 720,865
Total 37,982,840 43,879,964
Source: Audited / Unaudited Financial Statements
15
Overview of Balance Sheets (2/2)
Fixed assets as at 31 Mar 13 primarily comprise deep freezers INR 82.8 lakhs, plant and machinery INR 59 lakhs, factory building INR 31.8 lakhs.
Investments include 4000 shares of Money Bank of Rs. 25 each.
As at 31 March 2013, of the total debtors, 10% is overdue for more than 6 months. Refer Annexure VI for details.
Closing stock primarily comprise raw material of INR 8 lakhs and packing material of INR 68.2 lakhs in stock as at 31 Mar 13.
Advances recoverable primarily includes advance to creditors INR 2.6 lakhs and prepaid expenses INR 2.9 lakhs.
Deposits and other advances primarily includes income tax for FY09 INR 1.4 lakhs and input credit on VAT INR 1.5 lakhs.
Refer Annexure I for break-up of Fixed Assets, Advances Receivable and Deposits.
Balance Sheets of XYZ
INRAs at 31 March 2013
As at 31
March 2012
I. Equity and LiabilitiesShareholders Funds
Share Capital 10,000,000 10,000,000
Reserves & Surplus 2,500,000 2,500,000
Less: Accumulated losses 21,328,934 16,312,927
Net worth (8,828,934) (3,812,927)
Non Current Liabilities
Secured Loans 7,635,188 8,627,688
Unsecured Loans 14,378,328 16,648,340
Current Liabilities
Sundry Creditors 9,321,169 9,905,765
Advance form Customers 10,852,403 9,199,674
Outstanding Expenses 4,624,686 3,311,424
Total 37,982,840 43,879,965
II. AssetsNon Current Assets
Fixed Assets (Net) 26,316,675 30,221,263
Investments 100,000 100,000
Current Assets
Cash and Bank Balances 87,065 319,019
Sundry Debtors 1,954,093 2,597,708
Closing Stock 8,219,813 9,389,156
Advances recievable in cash/kind
for value to be recieved640,994 531,954
Deposits and Other advances 664,200 720,865
Total 37,982,840 43,879,964
Source: Audited / Unaudited Financial Statements
16
Key Issues / Observations
17
Sales from September 2012 have shown a declining trend resulting in an overall drop of 10% in sales value in FY13 over FY12
o Overall Sales have dropped by 10% in FY13, in comparison with FY12. Consistent drop in sales is observed from Sep 12 till Mar 13. Feb 13 and Mar 13 sales have dropped by over 40% in FY13 over FY12.
o The Management represented that the drop in sales have been primarily due to:
o lack of funds to buy new deep freezers to increase market reach through new distributors/retailers
o increased competitors providing lucrative incentives to XYZ’s distributors also impacted sales. XYZ on account of fund shortage had to cut down its sales spending.
o Mining ban in Area 2 and Area 1 further had its impact on sales
Monthly Sales Comparison
FY13 FY12 FY11% Variance FY13 over
FY12
% Variance FY12
over FY11
Apr 1,43,58,261 1,28,80,636 1,35,32,388 11% -5%
May 1,40,30,496 1,44,07,863 1,40,57,690 -3% 2%
Jun 57,80,062 39,18,714 52,99,546 47% -26%
Jul 32,19,998 27,07,042 20,27,525 19% 34%
Aug 32,73,379 30,64,871 23,50,320 7% 30%
Sep 31,74,293 36,51,149 35,57,117 -13% 3%
Oct 53,91,986 66,76,237 52,33,259 -19% 28%
Nov 54,76,046 66,67,120 57,44,543 -18% 16%
Dec 49,11,613 57,94,921 50,18,965 -15% 15%
Jan 43,69,728 51,60,872 43,33,775 -15% 19%
Feb 44,80,951 75,80,055 65,50,994 -41% 16%
Mar 67,38,930 1,12,72,238 1,03,47,812 -40% 9%
Total 7,52,05,743 8,37,81,718 7,80,53,934 -10% 7%
The sales figures above are gross sales including excise
Source: Sales data are as per the Management Information System and are significantly higher than the sales
reported in the financial statements
18
o The Management represented that the sharp drop in sales in the last 3 months has been primarily due to the news spread in the market about the possible sale of the company, which has been used by the competitors to their advantage. As a result many of the distributors/retailers, especially the ones using their own deep freezers have switched to other brands. The Management further represented that the ban on mining in Area 1 has also had an impact on the sales in Q1FY14.
o The Management however expressed confidence that fund infusion primarily targeted towards a sales and incentive strategy could turn around this situation.
Monthly Sales Comparison
2013 2012 2011 2010% Variance 2013
over 12
% Variance 2012
over 11
% Variance 2011
over 10
Apr 8,454,973 14,358,261 12,880,636 13,532,388 -41% 11% -5%
May 8,560,090 14,030,496 14,407,863 14,057,690 -39% -3% 2%
Jun 1,604,839 5,780,062 3,918,714 5,299,546 -72% 47% -26%
Total 18,619,902 34,168,819 31,207,213 32,889,624 -46% 9% -5%
Q1 FY14 sales have dropped by 46% as compared to Q1 FY13.
Using June month as a base the off season sales in 2013 (June – Sep) may drop by 70% Seasonal Comparison
2012-13 2011-12 2010-11% Variance
2013 over 12
% Variance
2012 over 11
Peak Season Sales* 48,384,317 71,540,200 64,517,847 -32% 11%
Off Season Sales** 4,585,254 15,447,732 13,341,776 -70% 16%
Total 52,969,571 86,987,932 77,859,623 -39% 12%
*from Oct to May
**from June to Sept
Off Season Sales for 2013 have been extrapolated based on the June Sales to rest of the off season sales ratios
for the previous years.19
17 out of 179 products currently offered to customers constitute 60% of unit-wise sales and 57% of net sales in FY13.
39 out of 179 products in the Normal moving category constitute to 31% of net sales in FY13.
The remaining 123 products in the Slow moving category constitute to the remaining 12% of sales.
The Management represented that the non moving products were produced on a ‘made-to-order’ basis as and when there was a request. Furthermore, the minimum order quantity for such products had to be 10 units.
It would be more prudent to focus and increase the market for the fast moving variety rather than waste production space and time for the non moving items.
88% of the revenue is attributed to just 56 out of 179 products
Number of
Products Unit Sales Revenue
% Unit
Sales
%
Revenue
Sales
Fast Moving 17 4,68,186 3,71,24,389 60% 57%
Normal Moving 39 2,31,444 2,04,32,810 30% 31%
Slow Moving 123 74,897 79,15,879 10% 12%The sales figure from our analysis does not reconcile with total sales figures in the MIS. The unit price
provided to us was the net price obtained from Area 2 which would differ from the net sales obtained
from Area 1 and Area 3 due to the difference in VAT rates
20
XYZ has a distribution network in Area 1, Area 3 and Area 2. The Management represented that at one time Area 1 and Area 3 were contributing equally to the total sales. However, Area 1 sales have declined over the period to the current status.
Sales from Area 1, Area 2 and Area 3 contributed 29%, 25% and 46% to the total sales, respectively.
Sales in Area 3 declined the most at 13% followed by Area 1 11% and Area 2 5%.
Sales in all three Areas had increased in FY12 over FY11. However, the main increase was in Area 2 of 23%. The Management represented that this was on account of opening of new markets in Area 2.
Sales in all three states are primarily categorised as:
Sales through Company deep freezers which exclusively houses Classified brand
Sales through deep freezers belonging to distributors, wherein he could store other brands as well.
The Management however could not provide us the exact break up between own deep freezer and distributor owned deep freezer sales. We were informed that Area 1 has a large number of distributor owned deep freezer sales.
Sales from all three states have dropped in FY13 over FY12. Area-wise Sales
FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% to Total
Sales FY13
% to Total
Sales FY12
Area 1 22,123,838 24,743,479 24,278,616 -11% 2% 29% 30%
Area 2 18,713,955 19,683,174 15,956,648 -5% 23% 25% 23%
Area 3 34,367,950 39,355,065 37,818,670 -13% 4% 46% 47%
Total 75,205,743 83,781,718 78,053,934 -10% 7% 100% 100%
21
Sales in Area 1 contributed 29% of the total sales in FY13. Sales in Area 1 have declined by 11% in FY13 over FY12 while remaining steady in FY12 over FY11.
Except for Market 1, Market 3 and Market 6, sales from the remaining 10 markets have declined in FY13 in comparison with FY12.
Sales from Market 4, Market 7, Market 10, Market 12, Market 13 and other sales (party orders, exhibition and staff sales) have been falling year on year since 2011.
Only Market 1 has shown steady growth over the period.
Largest drop in sales of 31%, amounting to approx. 7 lakhs is seen from Market 13 distributor in FY13.
Area 1 – Sales from 10 out of 13 locations have declined in sales in FY13, in comparison to FY12 in Area 1 (1/2)
Area 1
Distributor FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% tot total in
FY13
% tot total in
FY12
Market 1 1,964,805 1,852,917 1,783,890 6% 4% 3% 2%
Market 2 2,540,828 2,905,521 2,796,050 -13% 4% 3% 3%
Market 3 2,634,143 2,621,135 2,359,127 0% 11% 4% 3%
Market 4 1,703,184 2,058,504 2,250,900 -17% -9% 2% 2%
Market 5 636,065 784,990 648,581 -19% 21% 1% 1%
Market 6 132,327 126,795 173,609 4% -27% 0% 0%
Market 7 2,070,060 2,200,978 2,255,509 -6% -2% 3% 3%
Market 8 2,644,612 2,752,985 2,420,792 -4% 14% 4% 3%
Market 9 818,916 842,747 693,123 -3% 22% 1% 1%
Market 10 936,155 1,086,862 1,104,183 -14% -2% 1% 1%
Market 11 833,135 1,105,043 1,061,214 -25% 4% 1% 1%
Market 12 1,285,630 1,408,697 1,422,340 -9% -1% 2% 2%
Market 13 1,493,676 2,175,546 2,278,264 -31% -5% 2% 3%
Other Sales 1,997,506 2,374,717 2,887,255 -16% -18% 3% 3%
Differences in
sales432,796 446,042 143,779
Total 22,123,838 24,743,479 24,278,616 -11% 2% 29% 30%
Total sales 75,205,743 83,781,718 Source: Management information and MAS analyses
22
Area 1 – Sales from 10 out of 13 locations have declined in sales in FY13, in comparison to FY12 in Area 1 (2/2)
The Management represented that the strategy in Area 1 has been primarily to target the low income groups and no brand awareness especially in major cities has ever been created about the product. Further, on account of working capital constraints, institutional sales have not been targeted due to the requirement of offering a credit period.
The Management represented that decline in sales in Area 1 is due to:
Increased competition from several brands in Area 1 providing various sales incentives to distributors have reduced market size especially among distributor owned freezer sales
Ban on mining
Area 1
Distributor FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% tot total in
FY13
% tot total in
FY12
Market 1 1,964,805 1,852,917 1,783,890 6% 4% 3% 2%
Market 2 2,540,828 2,905,521 2,796,050 -13% 4% 3% 3%
Market 3 2,634,143 2,621,135 2,359,127 0% 11% 4% 3%
Market 4 1,703,184 2,058,504 2,250,900 -17% -9% 2% 2%
Market 5 636,065 784,990 648,581 -19% 21% 1% 1%
Market 6 132,327 126,795 173,609 4% -27% 0% 0%
Market 7 2,070,060 2,200,978 2,255,509 -6% -2% 3% 3%
Market 8 2,644,612 2,752,985 2,420,792 -4% 14% 4% 3%
Market 9 818,916 842,747 693,123 -3% 22% 1% 1%
Market 10 936,155 1,086,862 1,104,183 -14% -2% 1% 1%
Market 11 833,135 1,105,043 1,061,214 -25% 4% 1% 1%
Market 12 1,285,630 1,408,697 1,422,340 -9% -1% 2% 2%
Market 13 1,493,676 2,175,546 2,278,264 -31% -5% 2% 3%
Other Sales 1,997,506 2,374,717 2,887,255 -16% -18% 3% 3%
Differences in
sales432,796 446,042 143,779
Total 22,123,838 24,743,479 24,278,616 -11% 2% 29% 30%
Total sales 75,205,743 83,781,718 Source: Management information and MAS analyses
23
Q1 FY14 Sales have fallen by 34% in comparison with Q1 FY13 in Area 1.
Sales from all the areas have fallen in Q1 FY14 as compared to the previous period.
The Management represented that the main reason was ban on mining and the markets news that XYZ was to be sold. This caused several distributors to stop ordering Classified products and switch to competitors.
The Management further represented that Area 1 dealers get more lucrative offers (in terms of no or very less deposit for deep freezers and other variable incentives) from other competitor brands , while XYZ has been unable to do the same due to shortage of funds.
Further, competitor entry providing low priced products like Hangyo has also eaten into Classified’s market.
Area 1 FY14 FY13 FY12
Quarter 1 Quarter 1 Quarter 1% Variance
2013 over 12
% Variance
2012 over 11
Market 1 521,185 788,499 594,612 -34% 33%
Market 2 703,394 1,043,174 867,135 -33% 20%
Market 3 723,923 1,022,116 695,182 -29% 47%
Market 4 327,345 722,188 631,559 -55% 14%
Market 5 181,226 249,628 215,786 -27% 16%
Market 6 31,939 49,735 33,200 -36% 50%
Market 7 510,076 701,099 697,659 -27% 0.5%
Market 8 645,123 1,029,147 761,420 -37% 35%
Market 9 158,339 268,576 252,118 -41% 7%
Market 10 245,906 331,007 337,702 -26% -2%
Market 11 169,262 376,856 346,622 -55% 9%
Market 12 261,386 484,508 454,888 -46% 7%
Market 13 482,189 730,378 770,030 -34% -5%
Other Sales 734,193 891,541 952,542 -18% -6%
Total 5,695,486 8,688,452 7,610,455 -34% 14%
Source: Management information and MAS analyses
24
Sales in Area 3 contributed 46% of the total sales in FY13. Sales in Area 3 have declined by 13% in FY13 over FY12, contrary to growing by 4% in FY12 over FY11.
The major reason for this decline has been discontinuance of Area 6 Depot, which was contributing 16% of the total sales in FY12. The Area 6 depot which was managed by XYZ was discontinued in mid FY13.The Management represented that apart from day to management issues, the cost of running the depot including rent, salaries of staff, pilferages etc were found to be very high and hence unprofitable. Thus, the Management decided to appoint individual distributors in Area 6. However, it was found that the distributors have not performed at par with the Depot in FY13 resulting in an overall drop in sales from Area 6 of 16%.
Market 7 and Market 8, contributing 11% and 7% of total revenue, dropped in sales by 16% and 19% respectively in FY13. The Management represented that lack of marketing efforts in FY13 (holding promotional events and distributing marketing material / incentives) and increased competition (distributors stocking low price products of competitors) led to a decrease in sales from these regions.
Except for Market 23, all old distributors (in operation before 2009) have lagged behind in sales in FY13. Further, 28% of sales were generated from new distributors.
The Management represented that it was a regular practice to discontinue with underperforming distributors, who do not meet the sales target as laid out in the agreement, and shift to other new distributors to achieve higher sales.
Area 3 sales in FY13 have dropped by 13% over FY12 sales
Area 3
Distributor FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% total in
FY13
% total in
FY12
Market 1 6,872,970 13,110,152 11,993,206 -48% 9% 9% 16%
Market 2 2,367,012 - - - - 3% 0%
Market 3 1,293,567 - - - - 2% 0%
Market 4 427,207 - - - - 1% 0%
Market 5 8,449,802 10,046,681 9,198,648 -16% 9% 11% 12%
Market 6 5,609,829 6,954,320 6,200,641 -19% 12% 7% 8%
Market 7 749,743 2,240,942 2,384,008 -67% -6% 1% 3%
Market 8 1,470,260 - - - - 2% 0%
Market 9 1,009,078 2,178,067 2,246,008 -54% -3% 1% 3%
Market 10 394,748 1,127,710 1,429,750 -65% -21% 1% 1%
Market 11 1,474,343 - - - - 2% 0%
Market 12 - 802,421 1,327,421 -100% -40% 0% 1%
Market 13 - 91,974 14,951 -100% 515% 0% 0%
Market 14 429,178 1,028,927 982,976 -58% 5% 1% 1%
Market 15 491,562 - - - - 1% 0%
Market 16 792,633 1,057,842 980,643 -25% 8% 1% 1%
Market 17 - - 595,772 - -100% 0% 0%
Market 18 460,643 300,674 381,629 53% -21% 1% 0%
Market 19 - - 83,017 - -100% 0% 0%
Market 20 - 415,355 - -100% 0% 0%
Market 21 77,949 - - - - 0% 0%
Market 22 1,434,108 - - - - 2% 0%
Market 23 563,318 - - - - 1% 0%
Total 34,367,950 39,355,065 37,818,670 -13% 4% 46% 47%
Total sales 75,205,743 83,781,718
Source: Management information and MAS analyses
25
Sales from all the distributors have dropped in Quarter 1 of FY14, in comparison with Quarter 1 of FY13.
The distributors in Area 6 have achieved sales of approx. Rs. 15.4 lakhs, whereas the Depot had generated sales of Rs. 64.9 lakhs in the same duration in the previous year.
Sales from major markets like Market 5 and Market 6 have dropped by 32% and 66% respectively in Q1 FY14 in comparison with the previous year.
Similarly no sales was seen from promising markets like Market 23, Market 11 etc.
The Management represented that this decline is largely due a lack of focus on marketing due to lack of funds and believe that an inflow of funds is immediately required to launch an aggressive marketing strategy and reposition the brand.
Area 3 FY14 FY13 FY12
Distributor Quarter1 Quarter 1 Quarter 1% Variance
2013 over 12
% Variance
2012 over 11
Market 1 - 6,459,868 5,435,611 -100% 19%
Market 2 965,773 - - - -
Market 3 580,666 - - - -
Market 4 - - - - -
Market 5 2,877,258 4,240,655 4,620,523 -32% -8%
Market 6 1,040,332 3,090,514 2,842,456 -66% 9%
Market 7 - 706,477 1,024,943 -100% -31%
Market 8 432,887 - - - -
Market 9 - 577,277 1,037,120 -100% -44%
Market 10 - 419,247 438,584 -100% -4%
Market 11 461,428 - - - 0%
Market 12 - - 583,108 - -100%
Market 13 - - - - -
Market 14 - 429,178 451,802 -100% -5%
Market 15 419,286 - - - -
Market 16 144,168 499,537 443,053 -71% 13%
Market 17 - - - - -
Market 18 112,665 213,778 176,321 -47% 21%
Market 19 - - - - -
Market 20 - - - - -
Market 21 - - - - -
Market 22 - 223,053 - -100% -
Market 23 558,195 - - - -
Total 7,592,658 16,859,584 17,053,521 -55% -1%
Source: Management information and MAS analyses
Q1 FY14 sales have gone down by 55% in comparison with Q1 FY13 sales in Area 3.
26
Sales in Area 2 contributed 25% of the total sales in FY13. Sales in Area 2 have declined by 5% in FY13 over FY12, contrary to growing by 23% in FY12 over FY11. Area 2 region has had the lowest drop in revenue, while it had the highest increase in revenue in FY12.
Market 1 is an important territory contributing 10% of the overall sales and has been able to generate a 5% higher sales in FY13.
Market 2, one of the major contributors to sales in FY11 discontinued operations with XYZ since FY12. The new distributor in Market 2, has not generated par sales. The Management represented that the new distributor has a wider network and believes he will generate more sales in the immediate future.
Several distributors outperformed their FY12 sales levels including Market 4, Market 7, Market 8, and Market 11.
FY13 sales have dropped by 5% in comparison to a 23% increase in FY12 over FY11 in Area 2 (1/2)
Area 2
Distributor FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% total
in FY13
% total in
FY12
Market 1 7,348,459 6,986,310 4,715,634 5% 48% 10% 8%
Market 2 - - 4,028,715 - -100% 0% 0%
Market 3 3,226,326 3,846,841 - -16% - 4% 5%
Market 4 3,124,188 3,064,337 3,525,753 2% -13% 4% 4%
Market 5 - 1,104,271 2,337,270 -100% -53% 0% 1%
Market 6 850,879 1,582,871 1,349,276 -46% 17% 1% 2%
Market 7 1,998,333 1,148,735 - 74% - 3% 1%
Market 8 293,077 124,906 - 135% - 0% 0%
Market 9 - 20,695 - -100% - 0% 0%
Market 10 1,347,044 1,453,823 - -7% - 2% 2%
Market 11 525,649 336,489 - 56% - 1% 0%
Market 12 - 13,896 - -100% - 0% 0%
Total 18,713,955 19,683,174 15,956,648 -5% 23% 25% 23%
Total sales 75,205,743 83,781,718 Source: Management information and MAS analyses
27
Amongst the old distributors (in operation before 2008), Market 8 dropped by 46%. The Management represented that though the Market 8 distributor had performed well there were long outstanding dues from him amounting to Rs. 2 lakhs. Hence, the Management decided to discontinue supplies to him till he paid off the old outstanding.
It was observed that the significant increase in sales in FY12 over FY11 was due to new distributors appointed in FY12. In FY12, 35% of total sales came from new distributors. It was also observed that all these new distributors had better sales in FY13 over FY12.
It was observed that no additions to distributors was done in FY13. The Management represented that on account of lack of funds to buy deep freezers they could not venture into new markets.
FY13 sales have dropped by 5% in comparison to a 23% increase in FY12 over 11 in Area 2 (2/2)
Area 2
Distributor FY13 FY12 FY11% Variance
FY13 over 12
% Variance
FY12 over 11
% total
in FY13
% total in
FY12
Market 1 7,348,459 6,986,310 4,715,634 5% 48% 10% 8%
Market 2 - - 4,028,715 - -100% 0% 0%
Market 3 3,226,326 3,846,841 - -16% - 4% 5%
Market 4 3,124,188 3,064,337 3,525,753 2% -13% 4% 4%
Market 5 - 1,104,271 2,337,270 -100% -53% 0% 1%
Market 6 850,879 1,582,871 1,349,276 -46% 17% 1% 2%
Market 7 1,998,333 1,148,735 - 74% - 3% 1%
Market 8 293,077 124,906 - 135% - 0% 0%
Market 9 - 20,695 - -100% - 0% 0%
Market 10 1,347,044 1,453,823 - -7% - 2% 2%
Market 11 525,649 336,489 - 56% - 1% 0%
Market 12 - 13,896 - -100% - 0% 0%
Total 18,713,955 19,683,174 15,956,648 -5% 23% 25% 23%
Total sales 75,205,743 83,781,718 Source: Management information and MAS analyses
28
Area 2 FY14 FY13 FY12
Quarter 1 Quarter 1 Quarter 1% Variance
2013 over 12
% Variance
2012 over 11
Market 1 2,180,629 2,838,469 2,204,477 -23% 29%
Market 2 1,144,009 1,530,780 1,552,909 -25% -1%
Market 3 632,833 1,595,037 1,009,946 -60% 58%
Market 4 - - 1,017,937 - -100%
Market 5 351,718 579,153 757,968 -39% -24%
Market 6 609,802 871,218 - -30% -
Market 7 - 293,077 - -100% -
Market 8 - - - - -
Market 9 270,634 679,997 - -60% -
Market 10 142,133 233,052 - -39% -
Total 5,331,758 8,620,783 6,543,237 -38% 32%
Source: Management information and MAS analyses
Sales from Area 2 had gone up 32% in Q1 FY13 over FY12, but dropped by 38% in Q1 FY14 over FY13.
Sales from all the distributors have dropped in Q1FY14 over Q1FY13.
The distributors who had outperformed in FY13 had a drastic decline in sales primarily Market 4 by 60%, Market 8 by 100%, Market 11 by 39% and Market 7 by 30%.
The Management represented that they have stopped offering incentive schemes for distributors/dealers and organizing events for publicity due to unavailability of funds. This has made it easy for low price competitors like Hangyo and Adityaa Ice Creams to take over XYZ market share.
Further, market 2 is currently experiencing strong competition from brands like Creambell and Vadilal.
Q1 FY14 sales have dropped by 38% in comparison with Q1 FY13 sales in Area 2.
29
Raw Material and Packing Materials costs constitute of 51% on Net sales in FY13.
o Raw Material and Packing Material form 51% of total sales in FY13.
o The cost sheets maintained by the management indicated that these items would constitute 45% of the total sales, however upon verification of prices of raw materials and packing materials against purchase bills, it was found that most of the costs taken were understated by 10-15%.
Raw Material/Packing
Material37,429,421
Net Sales 73,454,086
% to Net Sales 51%
o The Management represented that there was an error in the rates taken in their costing and agreed that the input costs were high.
o The management further represented that they would be able to achieve a lower cost by bulk purchases during non-peak season thereby reducing the cost levels to about 42 % of sales. For this however, they would require some additional working capital infusion.
o The claims made by the Management would need to be verified by holding dialogues with some critical suppliers regarding the extent in drop in prices if bulk purchases are made.
30
42 products with gross margins below 20%
These 42 products account for 22% of total unit sales in FY13.
5 of the products have negative margins and have accounted for gross loss of INR 1,17,034
Management has represented that they did not possess the financial expertise to conduct such an analysis before and hence these margins had never come to light.
Management has further represented that they would take immediate steps to discontinue products with low/ negative gross margins
31
Product Unit Sales Gross Margins Gross Profit
Product 1 73 20% 4478
Product 2 360 20% 22085
Product 3 2527 20% 92018
Product 4 800 20% 28388
Product 5 30 19% 1752
Product 6 8 19% 117
Product 7 17 19% 993
Product 8 7150 19% 96147
Product 9 1746 19% 21478
Product 10 3 19% 37
Product 11 4 19% 49
Product 12 16587 19% 204042
Product 13 1 19% 12
Product 14 2904 19% 89110
Product 15 62116 18% 759387
Product 16 30303 18% 363705
Product 17 61 17% 2825
Product 18 573 17% 13939
Product 19 186 17% 4525
Product 20 100 17% 608
Product 21 217 17% 5279
Product 22 2671 17% 63973
Product 23 2093 17% 50130
Product 24 5479 16% 87911
Product 25 629 15% 13350
Product 26 345 15% 7322
Product 27 446 11% 8697
Product 28 992 11% 19343
Product 29 126 11% 2457
Product 30 9 10% 60
Product 31 6 10% 40
Product 32 8395 10% 55593
Product 33 4768 8% 25970
Product 34 2677 8% 29008
Product 35 1397 6% 5197
Product 36 849 5% 3615
Product 37 1012 5% 4309
Product 38 2212 -5% -8308
Product 39 5067 -10% -32063
Product 40 2871 -12% -26327
Product 41 315 -22% -10074
Product 42 1083 -45% -40262
Product FY13Value after
Excise
Variable
Cost
Contribution
Margin %Contribution
Cumulative
%
Product 76 46869 118 65 45% 2,497,811 11%
Product 77 22177 131 68 48% 1,404,323 17%
Product 78 63911 68 48 29% 1,266,122 23%
Product 79 23711 103 59 43% 1,035,961 27%
Product 80 25644 82 46 44% 923,078 32%
Product 81 62116 68 56 18% 759,387 35%
Product 82 20863 82 49 40% 688,631 38%
Product 83 8237 197 120 39% 629,398 41%
Product 84 27734 82 60 27% 605,733 43%
Product 85 11794 80 31 61% 573,166 46%
Product 86 30294 68 50 27% 551,996 48%
Product 87 8537 131 74 44% 489,522 51%
Product 88 19957 82 58 29% 475,182 53%
Product 89 17813 82 56 32% 464,429 55%
Product 90 7867 131 74 44% 451,104 57%
Product 91 13447 80 49 39% 419,619 59%
Product 92 4402 164 78 52% 378,692 60%
60% of the contribution is achieved by 17 products in FY13.
Product 76 is the highest contributor to net margin in FY13, amounting to approx. Rs. 25 lacs with 46,869 units sold at 45% contribution margin .
In spite of low unit sales, the following items have contributed significantly to profits, due to higher contribution margins and moderate to high demand.
Product 83
Product 85
Product 90
Product 92
Even with a large number of units sold, the following products have not significantly contributed to
profits due to low contribution margins:
Product 91
Product 88
Product 84
Product 81
It is important to note that most of the products with the highest contribution margins do not feature in the top 60% of the gross profit contributors. The Management has to have a relook at the sales strategy.
33
High Margin items account for 7% of total unit sales
Although these are high margin items, many of them do not contribute significantly to overall gross profit.
The gross margins do not show any co-relation to the pack size, nor to the flavour.
This indicates that pricing methodology has to be revised.
Products in Category X and Category Y were the highest to be sold, but the same could not be benefited from due to low contribution margins from them.
32
Product Unit Sales Gross Margins Gross Profit
Product 43 1214 73% 116794
Product 44 3180 62% 180818
Product 45 1729 61% 124751
Product 46 11794 61% 573166
Product 47 243 59% 28356
Product 48 1144 57% 46190
Product 49 6 57% 485
Product 50 336 55% 36638
Product 51 240 55% 26057
Product 52 1055 55% 114542
Product 53 419 55% 37475
Product 54 271 53% 28406
Product 55 4402 52% 378692
Product 56 22 52% 1360
Product 57 2043 52% 126315
Product 58 15 52% 927
Product 59 6749 52% 346665
Product 60 148 51% 8961
Product 61 2748 51% 166379
Product 62 312 51% 51586
Product 63 113 51% 18683
Product 64 21 51% 3472
Product 65 5 51% 827
Product 66 201 51% 33233
Product 67 62 51% 10251
Product 68 6 51% 992
Product 69 29 51% 4795
Product 70 349 51% 8267
Product 71 2732 51% 64718
Product 72 2980 51% 70593
Product 73 3354 51% 79453
Product 74 2013 50% 119934
Product 75 6234 50% 368663
Insufficient Control Over Assets with Third Parties
•A large portion of the value of fixed assets in the form of deep freezers is with the distributors/ dealers. While the Management maintained that they are aware of the location of each deep freezers, including the switching between distributors, we were not provided sufficient data to verify this claim. As at 31 Mar 13 INR 82.8 lakhs of deep freezers, comprises 31.5% of total assets are lying with such third parties. Appropriate controls and checks and balances need to be put in place to ensure complete controls on such assets.
Controls over deep freezers
•Agreements are entered into with distributors at the time of allotting the deep freezers. A deposit is collected from the distributor against such deep freezers. The agreement states that each year 20% of such deposit would be adjusted. At the end of the 5th year the asset belongs to the distributor. In other words he is permitted to keep the products of XYZ’s competitors in the freezer. While on account of no records maintained we were unable to verify such instances, it may result in the loss of business to XYZ as beyond the 5th year the sales generation may significantly diminish. The Management however represented that the life of the freezers is on an average 3-5 years and the cost of repairs / maintenance goes up after such period.
•The agreement also states that if the cumulative sales till 4th year does not match the targets set, XYZ has the right to take back such freezers. Considering that the life of the freezer is 3-5 years, it is more prudent to have sales targets set for 1-2 years to take such decisions. Though the Management represented that there have been instances wherein a distributor has been discontinued due to non performance within a year, no data was provided for our review.
Agreements pertaining to deep freezers
•The accounts team correctly accounts for the deposit received from distributors as a liability. However, as per the agreement each year 20% of the deposit becomes non – refundable. Hence, it amounts to an income to XYZ and ceases to be a liability, However, we did not come any income accounted for in the period under review. It was also observed that the amount of liability was increasing year on year. A verification of distributor wise deposit status revealed that such adjustments of deposits were not carried out. A reconciliation activity would be required to be conducted to estimate the actual amount of liability, while the balance would need to be accounted for as income. The tax impact on the same would need to be examined in detail.
Liability pertaining to
deposits collected from distributors not
properly accounted for
34
The average income per deep freezer has dropped by Rs.16,000 on an average in FY13 over 12.
The Management represented that the agreement with the distributors with regards the deep freezers has a clause for re-possession of the deep freezer by XYZ if a sales target of INR 300 per day is not met. However we did not come across any sales target in the agreement.
As per the targets, the sales per deep freezer should have been INR 1,09,400 against the three year high of 94,573.
In spite of targets not being achieved, there was no evidence of any freezers being re-possessed.
The Management represents that lack of marketing efforts was one of the main reasons for this drop as earlier they used to provide advertising material worth Rs. 5,000-6,000 ( for P.O.P displays, Glow signs etc.) on an average to newly acquired distributors, which they have now discontinued, along with the withdrawal of attractive dealer schemes (variable incentives).
Revenue per Deep freezer is showing a declining trend since FY11. Income per Deep Freezer
FY13 FY12 FY11
Total Sales 75,205,743 83,781,718 78,053,934
Sales from Company
Owned Deep freezers*56,404,307 62,836,289 58,540,451
No. of company owned
Deep freezers 829 745 619
Average Income per
Deep Freezer68,039 84,344 94,573
*Sales from company owned deep freezers i s taken as 75% of tota l sa les .
as informed by the management.
35
Over due payments requiring immediate clearance
Over due payments as at 30 June 2013
Balance sheet items
Statutory Liabilities 30-Jun-13
Consultation Charges 11,000
Employees Labour Welfare Fund 2,205
Employer's Labour Welfare Fund 6,615
ESI - Employees Contribution Payable 63,314
ESI - Employers Contribution Payable 171,265
Group Gratuity Premium with LIC 505,992
LIC in lieu of EDLI 77,602
PF - Employers PF Payable 747,741
PF - Employees PF Payable 164,940
PF Admn. Charges 53,625
Area 1 VAT for the month of April 13 62,000
Area 1 VAT for the month of May 13 66,000
Area 1 VAT for the month of June 14 15,000
Area 1 Vat for the year 2012-13 80,000
Area 2 Vat for the month of May 13 218,182
Area 2 Vat for the month of June 13 37,630
Area 3 Vat For the month May 13 268,906
Area 3 Vat For the month June 13 45,984
Electricity Bill for the month of June 2013 150,000
Mediclaim of Employee 115,000
LIC Group Grauity 2011-12 242,285
LIC Group Grauity 2012-13 240,000
LIC Group Grauity Previous Years 1,343,109
Bank Guarantee ( Electricity Department ) 600,000
Statutory dues total 5,288,395
Other Loans
Mr. Y 500,000
Classified Agencies, Area 3 100,000
Other loans total 600,000
Money Bank Term Loan Up to June 2013 1,712,968
Money Bank ( O/D Account ) CC Up to June13 4,733,830
Total loans 6,446,798
Bonus (2011-12) 948,034
Overdue Sundry Creditors 5,837,338
Balance sheet payments 19,120,565
Off Balance sheet payments
Other Loans
X Cold Drinks, Area 1 34,006
Classified Agencies, Area 3 275,000
Cash Bank 65,000
Other advances (Oct 12 to June 2013) 722,000
Secret Enterprises, Area 3 200,000
The Management represented that the following payments were over-due and needed to be cleared off immediately.
However, there could be interest and penalty on certain statutory liabilities which need to be examined and quantified.
Further, it would be advised that dialogue be held with the creditors to be repaid to understand their present and future commitment with the Company as several of them are critical suppliers of raw materials.
36
Adjustments to Current Assets and Liabilities
Note 1: The Management represented that certain debtors are irrecoverable and would need to be written off.
Note 2: The amount of inventory is revalued to the cost price / NRV as at 31 Mar 13, whichever is lower.
Note 3: Certain loans and advances were found to be irrecoverable and need to be written off. The Management represented that an amount excess paid for construction in 2011 would be repaid. However, considering the period lapsed we have assumed the amount to be irrecoverable.
Particulars As per balance sheet
as at 31 Mar 13
Adjustments Note Revised numbers
Current Assets 11,479,100 -6,207,154 5,271,946
Sundry debtors 1,954,093 -101,015 1 1,853,078
Inventory 8,219,813 -6,015,061 2 2,204,752
Loans and advances 640,994 -86,423 3 554,572
Deposits 664,200 -4,656 4 659,544
Total
Current liabilities 24,798,258 734,448 25,532,705
Sundry creditors 9,321,169 2,637,501 5 11,958,669
Advances from customers 10,852,403 -2,566,762 6 8,285,641
Outstanding expenses 4,624,686 663,709 7 5,288,395
Net current assets -20,260,759
Source: MAS analyses
Note 4: Comprises FBT payment made which is irrecoverable.
Note 5: Certain sundry creditors and loans off the balance sheet have been added to the amount of sundry creditors.
Note 6: We have assumed the amount of liability to be equal to the WDV of deep freezers, hence excess liability is written off. For details refer slide on insufficient control over deep freezers.
Note 7: The Management represented a higher outstanding liability including some off balance sheet items. Further, there could arise some amount of interest and penalty on the delayed payments of statutory liabilities. However, it would not be possible to quantify the same.
37
Other Matters
38
Status of Statutory Dues Income Tax
The assessment for FY08 and FY09 has been completed. A refund of Rs. 30,184 is due to be received for FY08. No assessment notice has been received from FY10 onwards, as represented by the Management. In the absence of such assessment orders we cannot comment on any probable liability.
Sales Tax Assessment
Area 3 – no assessment notice received till date as represented by Management.
Area 2 – Assessments till FY09 is completed. No assessment orders received from FY 10 onwards as represented by Management.
Area 1 – Assessment completed till FY10. Liability of Rs. 35,634 payable as on date. No assessment orders received from FY11 onwards as represented by Management.
Excise duty
The Management represented that excise duty became applicable for the Company from March 2011 as per Amendment to Notification No. 1/2011-C.E.
There was a minor delay in payment of excise duty for the month of December 2012. Interest amounting to approximately Rs. 71 was found to be payable.
Service Tax
The Management represented that service tax is payable by the Company when their logistics supplier does not charge service tax in his bill.
There was a minor delay in payment of service tax in FY11. Interest amounting to approximately Rs. 22 was found to be payable, in case a query is raised by the Department.
39
Status of Statutory Dues
Area 1 VAT
Delays were observed in the payment of whole amount of VAT month on month from FY11. However, it was also observed that the Management was paying such amounts every quarter together with interest on such delayed payments. In certain cases however the interest paid was calculated to be less than the amount found payable. In the absence of the details of month-wise delay in payment of VAT we cannot calculate such liability.
Further, in FY13 there were delays in payment of VAT on which no interest was paid. The amount approximately works out to be Rs. 1,020.
Area 3 VAT
In FY11 there were delays observed in payment of VAT. The interest liability could work to approx. Rs, 1,042.
In FY13 there were major delays observed in payment of VAT. There were also some payments made towards interest on such delayed payments. However the total interest liability net of such payments could work out to approx. Rs. 76,270.
Area 2 VAT
In FY13 there were significant delays observed in payment of VAT. There were also some payments made towards interest on such delayed payments. However the total interest liability net of such payments could work out to appox. Rs. 14,895.
40
Status of Statutory Dues
Provident Fund
Delays were observed in the payment of Provident Fund (PF) (employer’s and employees contribution) for the FY11 and FY12 and for employee’s contribution till June 2012. Further, the employer’s contribution was not paid from July 2012 till June 2013 and employees contribution from April – June 13 together amounting to Rs.9,66,306. However, interest on all such delayed payments as mentioned above and admin charges from April – June 2013 have not been considered.
The Management represented that the total amount payable on account of PF was Rs. 9,98,193.
ESIC
There were significant delays observed in payment of ESIC in FY11 and FY12. From Jan 13 to June 13 the Company has not paid ESIC amounting to Rs. 2,34,579. Further, interest on all such delayed payments as mentioned above have not been considered.
The Management represented that the total amount payable on account of ESIC was Rs. 2,53,066.
41
Other Observations Fixed Assets Register
The fixed assets register was not found to be in the preferred format. Details pertaining to the date of additions to assets, name of supplier, date of purchase, units of purchase, identification codes etc., were not maintained. Considering a large value of the assets of XYZ are with third parties it is important to have a proper documentation of such assets.
Physical verification of assets
While we were informed that physical verification of assets was conducted, we were not provided any records. A large value of assets in the form of deep freezers lie with third parties. A physical verification is a requisite at least once a year to check if the value of any deep freezer has diminished. Appropriate action against the distributor could be immediately taken in such cases rather than waiting for the contract period to end.
Physical verification of inventories
We were informed that physical verification of inventories was conducted and a segregation between fast moving items and slow moving items was done. However, we were not provided any documents to support this claim. Our checks however did not reveal any significant mismatches. However, going forward, we suggest a thorough process of physical verification and segregation of the stock into fast and slow moving.
As 15 on gratuity and leave encashment not complied with
Accounting Standard 15 of the Institute of Chartered Accountants of India (‘ICAI’) requires the Company to make a provision in its books for gratuity and leave encashment payable from the 1st day of the employee joining the organisation. However, in case of XYZ such provisions were done only at times of payment. Considering the high cost of employees and a large number of employees having served a long time in the organisation, the liability payable towards gratuity and leave encashment would need to be calculated and a provision would need to be made into the books. 42
Other Observations
No agreements for unsecured loans
The shareholders of XYZ have provided unsecured loans to the Company to the tune of INR 1.44 cr. However, there are no agreements in place which define the terms and conditions of such loans. In the absence of such agreements we suggest the Management of EFG to obtain a written statement from XYZ that such loans do not bear any interest or any other form of returns.
Finance team requirement
It was observed that while XYZ had a good production and marketing team, it was lacking in the finance department. This was reflective in the way critical records which could help take important decisions were maintained. The Management expressed that no support in terms of financial analyses was ever made available to it. Going forward, we suggest a finance team to be appointed to instill financial discipline in the company.
HR review
We suggest the Management of EFG to do an HR review to decide the requirement of the staff going forward. Our analyses shows that the number of staff maintained for administrative / support functions may be in excess of the requirements.
IDC lease agreement
The IDC agreement was entered into on 29th April 1999 for a lease period of 30 years. The total plot area was 4,836 sq mts with a permission to built up to 50% of the plot area.
Licence for Foods Safety and Standard Act 2006 has expired on 31 Dec 12 and has been applied for renewal
The annual returns under Payment of Bonus Act Standard of Weight and Measurement Act have not been filed.
43
Maximum Production Costs per day (Peak Season)
Production
ProcessNo. of Hours
per batch
Manpower
required Electricity cost
Day Shift Overtime
Preparation of Ageing Mix 3.5
Ageing 8
Filling & Storage 8 8 1,851 3,703 2,975
Total Production Cost per Day 6,096
Cost of Raw material
Cost per batchMaximum No.
of Batches
Raw Material
Cost
Raw Material 13,613 4 54,451
Cost of Packing Material
Cost of
Packing
Material per
Maximum No.
of Units
produced
Packing
Material Cost
Packing Material 30 3,000 89,903
Maximum Cost per day 159,475
Manpower cost
9,026
5 1,157 3,120 2,314
Maximum Production (Variable) Cost per day
Based on Management representation,
following are the assumptions made to arrive at the cost.
16 hour workday has been assumed
Manpower will be working for 8 hours at regular wages and 8 hours at OT wages (double)
All machinery has been assumed to be used.
Raw material and Packing Material cost has been taken as the cost of the most produced ice cream
Manpower cost has been arrived at assuming that the most labour intensive ice-cream is being produced.
The output per day (FG ) is assumed as 3,000 units as represented by Management.
The Intermediate mix output per day has been assumed at maximum possible in the 16 hours i.e. 2,000 Litres. 44
Projected Profitability Statement
45
Projected Profitability Statement
46
Projected Profitability of XYZ Ltd.
INR April-Dec Jan - Mar FY14 FY15 FY16 FY17 FY18
Revenue from operations 33,249,825.0 20,222,814.9 53,472,639.9 107,520,000.0 119,340,000.0 133,660,800.0 149,700,096.0Total income 33,249,825.0 20,222,814.9 53,472,639.9 107,520,000.0 119,340,000.0 133,660,800.0 149,700,096.0
Expenditure
Raw Material and packing
material consumed
16,624,912.5 10,111,407.5 26,736,320.0 52,416,000.0 56,723,793.8 61,942,382.8 67,641,082.0
Direct Expenses 2,992,484.3 1,820,053.3 4,812,537.6 9,676,800.0 10,740,600.0 12,029,472.0 13,473,008.6
Employee Benefit Expense 12,300,136.7 4,510,050.1 16,810,186.8 19,331,714.8 22,231,472.0 25,566,192.8 29,401,121.7
Administrative Overheads 2,676,657.5 1,159,666.6 3,836,324.0 4,603,588.8 4,833,768.3 5,075,456.7 5,329,229.5
Sales/Distribution Overheads 4,453,013.3 1,931,074.5 6,384,087.8 8,853,581.5 9,982,864.8 10,482,008.1 11,006,108.5
39,047,204.1 19,532,252.0 58,579,456.1 94,881,685.1 104,512,498.8 115,095,512.3 126,850,550.3EBITDA -5,797,379.1 690,562.9 -5,106,816.2 12,638,314.9 14,827,501.2 18,565,287.7 22,849,545.7EBITDA % to sales -17% 3% -10% 12% 12% 14% 15%Depreciation 3,503,906.3 1,355,468.8 4,859,375.1 5,255,468.8 4,729,921.9 4,256,929.7 3,831,236.7EBIT -9,301,285.4 -664,905.9 -9,966,191.2 7,382,846.1 10,097,579.2 14,308,358.0 19,018,308.9Interest cost 983,005.33 566,238.82 1,549,244.15 2,253,896.96 3,176,040.00 3,542,011.20 3,967,052.54 PBT -10,284,290.7 -1,231,144.7 -11,515,435.4 5,128,949.2 6,921,539.2 10,766,346.8 15,051,256.4Tax - - - - - - - PAT -10,284,290.7 -1,231,144.7 -11,515,435.4 5,128,949.2 6,921,539.2 10,766,346.8 15,051,256.4
-31% -6% -22% 5% 6% 8% 10%
Inference
47
• Based on our analysis there would entail a significant amount of initial investment to turn around XYZ. Considering that the sales in Q1FY14 have dropped drastically due to negative sentiments in the market, it could well be a challenge to revive the distribution network which is critical to XYZ.
• The IRR in the first 5 years would be negative and EFG can expect a payback period of not less than 7-8 years.
• The net asset value as on date is very low which does not give much security to EFG in case the expected turn around does not happen.
• In addition EFG would also need to pay off past accumulated liabilities and bear losses in the first year together with repayment of unsecured loan to the existing shareholders.
• Considering the above the following could be the investment envisaged to be done by EFG:
Investment envisaged by EFGINR FY14 FY15 FY16 FY17 FY18
Investment into the company 5,000,000 7,500,000 - 1,250,000 -
Investment to clear old dues 15,311,268 - - - -
Investment to clear unsecured loan of shareholders 14,378,328 - - - -
Losses incurred in FY14 6,656,060
Investment to replace old shareholders 5,061,666 - - - -
Total investment 46,407,322 7,500,000 - 1,250,000 -
Assumptions for Profitability projections P&L Head
Assumption Management Representation
MAS Take
Sales for FY 14 (April – Dec)
Sales for FY 14 have been extrapolated based on the sales achieved upto June and the average percentage these sales have formed in the past years of the total sales.
The Management feels that the sales can be improved with the infusion of funds to purchase deep freezers and invest into marketing
MAS has considered that it would take at least six months for all takeover formalities to be completed prior to fresh investment into deep freezers/ marketing.
Sales for FY 14 (Jan – Mar)
Sales for the period have been considered based on the average sale per deep freezer achieved in FY 13. A fresh investment into 200 deep freezers has been considered for this period.
- do - MAS has considered that investment into deep freezers would happen in a phased manner of 200 in the last quarter of FY 14, 200 in the first quarter of FY15 and 100 in the Second quarter of FY 15.
Sales FY15 Sales for the period have been calculated assuming that each freezer invested into (including old freezers) will generate sales of approximately INR 18K in Q1, 20K in Q2, 22K in Q3 and 22.5K in Q4
Management represented that they generally consider a target of INR 300 per day per deep freezer.
The target is a bit aggressive considering the past three years’ data, hence the same has been discounted by INR 14,000 to INR 90,000 which will be achieved gradually by Q4
48
Assumptions for Profitability projections P&L Head Assumption Management
Representation
MAS Take
Sales FY16 onwards Sales for FY16 have
been assumed to
meet the target of
INR 90,000 per deep
freezer p.a.,
thereafter increasing
at 12% p.a.
Management was not
able to provide any data
on growth rate
As per research, the ice cream
industry has been growing @
15% per annum for the last 3
years, additionally, Experts
estimate a growth rate of 12%
p.a. for the next 5 years.
Raw Material Cost For the FY 14, this
cost has been
assumed to be 50%
of the sales. Subsequently a 1-2%
drop in costs has
been assumed every
year.
Management
represented the cost to
be pegged at 45% of
sales, Management further represented that
through bulk purchase
and by introducing
“frozen Desserts” the raw
material cost could be further reduced to about
40% of sales.
Upon analysis and verification
through bills, the actual cost
was found to be 50% of sales.
A drop in prices due to bulk purchases is possible, however
the extent could not be
verified. MAS has assumed that
the cost could be reduced
from the present level of 50% to about 45%.
Direct Expenses This has been
assumed to remain
constant at 9% of
sales.
Management represents
that through the
introduction of newer
machinery, efficiency
would increase and
hence costs would go
down.
Since there was no substantial
evidence provided to the
extent of reduction of costs,
the direct costs have been
assumed as stable.
49
Assumptions for Profitability projections P&L Head Assumption Management
Representation
MAS Take
Employee Benefits Employee Benefits for FY
14 have been
considered the same as
FY 13 levels. There after
an increase of 15% p.a.
has been assumed
considering the expansion of distribution
network
Management
represented that
employee cost would
be reduced by at
least 20% due to
better machinery
being introduced.
The reduction in employee cost
would be offset by the
expansion of the distribution
network. Considering the
number of additions of deep
freezers, the strength of the
marketing/ distribution team would need to increase.
Administrative
Expenses
These expenses have
been considered to remain constant in FY14
and a 15% increase has
been considered
thereafter
N/a N/a
Sales and Distribution
Expenses
This has been assumed
to be directly
proportional to the
number of deep
freezers. The numbers
have been taken
based on historical
average.
N/a N/a
50
Appendix I – Balance Sheet Break-up
51
Fixed Assets DEPRECIATION
ASSETS RATE OF OPENING ADDI- DELE- AS ON 31.03.2013 DEPRECIATION AS ON AS ON
DEPR BALANCE TIONS TIONS TOTAL TILL DATE 31.03.2013 31.3.2012
TANGABLE ASSETS
Lease hold Land 0.00 19,99,010 19,99,010 19,99,010 19,99,010
Air Confitioner 13.91 1,10,200 1,10,200 57,885 52,315 60,768
Factory Building 10.00% 91,63,784 91,63,784 59,78,202 31,85,582 35,39,535
Deep Freezers 13.91% 2,18,99,243 14,72,348 57,120 2,33,14,471 1,50,28,830 82,85,641 80,93,788
Effluent Treatment 13.91% 13,81,313 13,81,313 11,05,137 2,76,176 3,20,799
Electrical Installation 13.91% 17,35,226 17,35,226 11,56,950 5,78,276 6,71,711
Furniture & Fixture 18.10% 7,56,593 7,56,593 6,25,357 1,31,236 1,60,240
Generators 13.91% 18,36,624 18,36,624 5,81,186 12,55,438 14,58,286
Handling Equipments 13.91% 47,26,807 43,996 47,70,803 32,80,873 14,89,930 16,85,602
Laboratory Equipments 13.91% 20,584 20,584 15,271 5,313 6,172
Office Equipments 13.91% 4,87,240 4,87,240 3,71,407 1,15,833 1,34,549
Vehicles 30.00% 1,44,97,451 3,14,142 1,41,83,309 1,13,69,624 28,13,685 41,50,760
Plant & Machinery 13.91% 2,05,91,569 29,307 9,48,229 1,96,72,647 1,37,50,010 59,22,637 77,28,299
Computers 40.00% 7,87,336 1,03,810 8,91,146 7,13,590 1,77,556 1,65,002
TOTAL 7,99,92,981 16,49,461 13,19,491 8,03,22,951 5,40,34,322 2,62,88,629 3,01,74,519
INTANGABLE ASSETS
Microsoft Software 40.00% 1,29,845 1,29,845 1,01,799 28,046 46,744
TOTAL 8,01,22,826 16,49,461 13,19,491 8,04,52,796 5,41,36,120 2,63,16,675 3,02,21,263
PREVIOUS YEAR 7,51,13,306 66,80,557 16,71,037 8,01,22,826 4,99,01,562 3,02,21,263 2,84,79,415
GROSS BLOCK NET BLOCK
52
Advances Receivable Advances
Advances to Creditors INR
Creditor 1 867
Creditor 2 348
Creditor 3 3
Creditor 4 151,400
Creditor 5 25,000
Creditor 6 26
Creditor 7 639
Creditor 8 15
Creditor 9 1,500
Creditor 10 84,873
Creditor 11 13
Sub-total 264,683
Prepaid Expenses
Prepaid Gr. Med. Mktg/Personal
Accidental (Dr. Loader) 57,996
Prepaid Group Insurance(in Lieu
Of EDLI Scheme) -
Prepaid Insurance (P & M /
Building) 37,239
Prepaid Insurance (Vehicles) 90,654
Prepaid Rates & Taxes 100,124 Prepaid Membership &
Subcription 2,000
Advances to Staff 88,298
Total 640,994
53
Deposits Deposits
INR
Income Tax 08-09 1,42,758
Cylinder Deposit 52,000
Electricity Deposit 4,400
Entry Tax ( recoverable agst VAT) 4,644
Excess MAT paid 2007-2008 ( refund) 30,184
Fringe Benefit Tax 07-08 ( excess paid) 4,656
Fixed Deposit ( APMC Bank Guarantee) 21,120
Deposits 10,800
Guest House Deposit 40,500
Input Vat @ 5% (Capital Goods) 1,38,211
Input Vat @ 12.5% (Capital Goods) 9,363
Interest receivable on security deposit 32,561
Internet Deposit 700
Lease Deposit 25,000
Mobile Deposit 16,017
Area 3 Depot Deposit 20,000
Area 3 Guest House Deposit 5,000
Money Bank Guarantee 75,000
Sales Tax Deposit 22,936
Telephone Deposit 8,350
Total 6,64,200
54
Appendix II – Profit and Loss Account Break-up
55
Direct Expenses and Employee Benefit Costs Direct Expenses
Particulars FY13 FY12 FY11% Variance
FY13 over FY12
% Variance
FY12 over FY11
% to Total
FY13
% to Total
FY12
% to Total
FY11
Consumable Stores and Spares 4,25,540 4,87,912 6,32,372 -13% -23% 1% 1% 1%
Generator Diesel 5,99,742 6,23,210 4,11,011 -4% 52% 1% 1% 1%
Electricity Charges 26,79,553 29,33,506 29,32,228 -9% 0% 5% 5% 5%
Freight Charges 2,30,270 3,71,883 4,78,412 -38% -22% 0% 1% 1%
Insurance (Plant and Machinery) 42,227 46,819 44,868 -10% 4% 0% 0% 0%
Laboratory Consumables 17,563 54,403 18,990 -68% 186% 0% 0% 0%
Loading and Unloading 1,450 7,040 14,888 -79% -53% 0% 0% 0%
Loss on Sale of Asset 1,57,327 13,116 69,310 1100% -81% 0% 0% 0%
Repairs and Maintenance (Plant and
Machinery& Deep Freezer)9,09,430 15,42,158 13,13,525
-41% 17% 2% 2% 2%
Printing & Stationery Manufacturing 2,14,245 2,67,862 1,96,672 -20% 36% 0% 0% 0%
Power & Fuel 0% 0% 0%
Total 52,77,346 63,47,909 61,12,275 -17% 4% 9% 10% 10%
Employee Benefit Expense
Particulars FY13 FY12 FY11% Variance
FY13 over FY12
% Variance
FY12 over FY11
% to Total
FY13
% to Total
FY12
% to Total
FY11
Salaries, Wages & Bonus 1,19,57,402 1,07,61,554 95,28,752 11% 13% 21% 17% 15%
Provident & Family Pension Fund 8,70,440 7,84,261 6,90,616 11% 14% 2% 1% 1%
Employees State Insurance 3,85,754 3,60,128 3,07,692 7% 17% 1% 1% 0%
Gratuity Fund 2,63,707 2,61,736 2,18,977 1% 20% 0% 0% 0%
Employees Group Insurance 1,40,960 54,341 66,905 159% -19% 0% 0% 0%
Group Medi/Accidental Insurance 1,86,923 1,87,144 1,94,465 0% -4% 0% 0% 0%
L.W.F - Employer's Contribution 17,175 18,990 17,460 -10% 9% 0% 0% 0%
Leave Encashment 15,263 41,062 19,719 -63% 108% 0% 0% 0%
Staff Welfare Expenses 4,23,404 4,11,412 2,90,474 3% 42% 1% 1% 0%
Total 1,42,61,028 1,28,80,628 1,13,35,060 11% 14% 25% 20% 18%
56
Administrative Overheads Other Administrative Overheads
Particulars FY13 FY12 FY11% Variance
FY13 over FY12
% Variance
FY12 over FY11
% to Total
FY13
% to Total
FY12
% to Total
FY11
Analysis Charges - 15,222 11912 -100% 28% 0% 0% 0%
Bonus 34,675 3,81,188 335387 -91% 14% 0% 1% 1%
Books and Periodicals - - 8375 -100% 0% 0% 0%
Broker Charges - 4,000 4000 -100% 0% 0% 0% 0%
Consultation Charges 3,23,000 2,89,736 208500 11% 39% 1% 0% 0%
Conveyance Expenses 7,76,934 7,19,777 580609 8% 24% 1% 1% 1%
Entry Tax 1,47,808 1,76,249 196780 -16% -10% 0% 0% 0%
Fax Charges - 1,167 430 -100% 171% 0% 0% 0%
Garden Material & Expenses - 1,685 21977 -100% -92% 0% 0% 0%
General Expenses 22,737 80,868 160578 -72% -50% 0% 0% 0%
Guest House Rent goa / Others 2,99,000 2,13,108 384500 40% -45% 1% 0% 1%
Guest House Maintenance 17,690 53,734 66756 -67% -20% 0% 0% 0%
Hardware Maintenance Charges 70,479 67,234 32000 5% 110% 0% 0% 0%
Lease Rent 36,270 36,270 36270 0% 0% 0% 0% 0%
Legal Fees 3000 -100%
Mobile Expenses 2,81,236 3,42,022 332990 -18% 3% 0% 1% 1%
Office Expenses 1,32,303 1,69,373 168256 -22% 1% 0% 0% 0%
Pooja Expenses 270 5,087 6329 -95% -20% 0% 0% 0%
Postage and Courier Charges 13,245 11,880 13143 11% -10% 0% 0% 0%
Printing and Stationery 1,42,092 2,62,723 183590 -46% 43% 0% 0% 0%
Professional Charges, Statutory & Tax
Audit Fees55,944 54,062 82777 3% -35% 0% 0% 0%
Rates & Taxes 1,22,439 67,317 102595 82% -34% 0% 0% 0%
Rent Pune Depot /Godown 20,800 2,79,630 204870 -93% 36% 0% 0% 0%
Repairs & Maintenance of Land &
Building1,567 2,080 175039 -25% -99% 0% 0% 0%
Security Service Charges 5,31,568 5,13,852 415863 3% 24% 1% 1% 1%
Service Tax 5,673 7,534 9354 -25% -19% 0% 0% 0%
Software Maintenance Charges - 70,200 64200 -100% 9% 0% 0% 0%
Subscription & Membership A/c. 12,300 18,350 12350 -33% 49% 0% 0% 0%
Telephone Expenses 1,01,835 1,22,177 148376 -17% -18% 0% 0% 0%
Total 31,49,865 39,66,525 39,70,806 -21% 0% 5% 6% 6%
57
Sales and Distribution Overheads
Sales & Distribution Overheads
Particulars FY13 FY12 FY11% Variance
FY13 over FY12
% Variance
FY12 over FY11
% to Total
FY13
% to Total
FY12
% to Total
FY11
Advertisement 2,81,494 12,85,663 9,18,885 -78% 40% 0% 2% 1%
Debit Balance Written Off A/c 40,872 84,199 3,105 -51% 2612% 0% 0% 0%
Discount Paid 5,15,027 2,38,427 10,26,596 116% -77% 1% 0% 2%
Excise Duty 11,38,803 6,21,549 59,707 83% 941% 2% 1% 0%
Lodging & Boarding 84,307 1,14,182 84,177 -26% 36% 0% 0% 0%
Insurance of Vehicles 1,87,776 1,47,521 1,49,977 27% -2% 0% 0% 0%
Octroi Charges 4,13,066 6,86,673 7,30,818 -40% -6% 1% 1% 1%
Rates and Taxes of Vehicles 1,12,964 1,13,780 1,33,563 -1% -15% 0% 0% 0%
Repairs & Maintenance Vehicles/others 9,32,141 10,84,304 12,58,428 -14% -14% 2% 2% 2%
Sundry Expenses 14,402 21,546 58,432 -33% -63% 0% 0% 0%
Toll Charges 91,373 1,09,615 95,561 -17% 15% 0% 0% 0%
Travelling Expenses 1,73,378 2,35,020 1,25,277 -26% 88% 0% 0% 0%
Travelling Expenses (TA/DA) 3,40,637 4,19,484 3,51,253 -19% 19% 1% 1% 1%
Value Added Tax 6,12,854 5,54,321 7,01,319 11% -21% 1% 1% 1%
Van Hire Charges 61,350 84,230 48,190 -27% 75% 0% 0% 0%
Vehicle Maintenance (Diesel/Petrol) 30,44,578 34,63,104 32,73,613 -12% 6% 5% 6% 5%
Total 80,45,023 92,63,617 90,18,900 -13% 3% 14% 15% 14%
58
Appendix III – Key Employee Details
59
Key Employee Details Sr. No. EMPLOYEES NAME DOJ Designation No of Yrs. of Service Gross
salary
1 MR. K Since
inception Managing Director14 years 4 months 59,500
1 MRS. L 9/1/1999 Manager - Accounts 13Yrs 10 Months 30,000
4 MR. M 1/1/2002 Marketing Manager 11Yrs 6 Months 31,000
5 MR. N 3/2/2009 Marketing Manager (Area 2) 4 Yrs 3 Months 29,000
6 MR. O 9/15/2004 Assistant Sales Manager (Area 1) 8 Yrs 9 months 21,000
7 MR. P 6/1/2005 Assistant Sales Manager (Area 1) 8 Yrs 11,000
8 MRS. Q 12/10/1999 Market Coordinator 13Yrs 6 Months 14,300
9 MR. R 12/1/2011 Production Manager 1 Year 6 Months 22,000
10 MR. S 1/12/2012 Maintenance Manager 1 Year 5 Months 25,000
11 MR. T 10/16/2012 Assistant Sales Manager (Area 1) 8 months 15,000
60
Appendix IV – Insurance Cover
61
Insurance Cover Sr. No. Description of Assets Sum Insured Policy Premium
1 Building 62,00,000
2 Compund Wall 3,60,000
3 Plant and Machinery 1,73,83,000
4 Boiler 1,68,000
5 Homogenizer 4,80,000
6 Addition to Boiler 66,000
7 Continious Freezer 11,30,000
8 Harding Tunnel 20,00,000
9 Furniture, Fixtures and Fittings 12,00,000
10 Stock of Row Material, Packing Materials,
Finished Goods and Stock in Process 46,00,000
TOTAL 3,35,87,000 40,333
62
Appendix V – Secured Loans Details
63
Secured Loan Details
64
Appendix VI – Ageing of Debtors
65
Ageing of Debtors SUNDRY DEBTORS <6 MONTHS >6 MONTHS TOTAL
Debtor 1 57,959 57,959
Debtor 2 14,273 14,273
Debtor 3 2,553 2,553
Debtor 4 1,414 1,414
Debtor 5 22,148 22,148
Debtor 6 3,026 3,026
Debtor 7 1,514 1,514
Debtor 8 970 970
Debtor 9 4,394 4,394
Debtor 10 1,157 1,157
Debtor 11 2,661 2,661
Debtor 12 696 696
Debtor 13 1,459 1,459
Debtor 14 5,215 5,215
Debtor 15 1,096 1,096
Debtor 16 1,876 1,876
Debtor 17 1,259 1,259
Debtor 18 798 798
Debtor 19 3,514 3,514
Debtor 20 4,521 4,521
Debtor 21 509 509
Debtor 22 566 566
Debtor 23 2,603 2,603
Debtor 24 3,476 3,476
Debtor 25 803 803
Debtor 26 1,694 1,694
Debtor 27 2,072 2,072
Debtor 28 3,384 3,384
Debtor 29 4,667 4,667
Debtor 30 6,206 6,206
Debtor 31 1,033 1,033
Debtor 32 562 562
Debtor 33 8,770 8,770
Debtor 34 6,308 6,308
Debtor 35 2,231 2,231
Debtor 36 574 574
Debtor 37 1,767 1,767
Debtor 38 5,508 5,508
Debtor 39 202,575 202,575
Debtor 40 528 528
Debtor 41 244 244
Debtor 42 638 638
Debtor 43 3,755 3,755
Debtor 44 134,560 134,560
Debtor 45 1,617 1,617
SUNDRY DEBTORS <6 MONTHS >6 MONTHS TOTAL
Debtor 46 1,700 1,700
Debtor 47 1,387 1,387
Debtor 48 595 595
Debtor 49 125,149 125,149
Debtor 50 6,219 6,219
Debtor 51 508 508
Debtor 52 1,297 1,297
Debtor 53 388 388
Debtor 54 4,162 4,162
Debtor 55 949 949
Debtor 56 72,091 72,091
Debtor 57 570 570
Debtor 58 552 552
Debtor 59 1,310 1,310
Debtor 60 200 200
Debtor 61 2,419 2,419
Debtor 62 481 481
Debtor 63 991 991
Debtor 64 2,313 2,313
Debtor 65 5,141 5,141
Debtor 66 484 484
Debtor 67 1,163 1,163
Debtor 68 2,306 2,306
Debtor 69 1,620 1,620
Debtor 70 339 339
Debtor 71 1,032 1,032
Debtor 72 884 884
Debtor 73 1,471 1,471
Debtor 74 4,632 4,632
Debtor 75 884 884
Debtor 76 3,000 3,000
Debtor 77 3,380 3,380
Debtor 78 3,149 3,149
Debtor 79 13,660 13,660
Debtor 80 1,240 1,240
Debtor 81 62,039 62,039
Debtor 82 2 2
Debtor 83 3,672 3,672
Debtor 84 1,339 1,339
Debtor 85 3,315 3,315
Debtor 86 1,390 1,390
Debtor 87 4,502 4,502
Debtor 88 1,586 1,586
Debtor 89 2,272 2,272
Debtor 90 6,247 6,247
Debtor 91 2,862 2,862
SUNDRY DEBTORS <6 MONTHS >6 MONTHS TOTAL
Debtor 92 1,605 1,605
Debtor 93 1,079 1,079
Debtor 94 137,334 137,334
Debtor 95 700 700
Debtor 96 23,150 23,150
Debtor 97 4,927 4,927
Debtor 98 1,538 1,538
Debtor 99 499 499
Debtor 100 1,261 1,261
Debtor 101 10,734 10,734
Debtor 102 108,157 108,157
Debtor 103 398 398
Debtor 104 1,225 1,225
Debtor 105 1,491 1,491
Debtor 106 5,220 5,220
Debtor 107 1,494 1,494
Debtor 108 1 1
Debtor 109 2,383 2,383
Debtor 110 795 795
Debtor 111 1 1
Debtor 112 3,557 3,557
Debtor 113 1,300 1,300
Debtor 114 1,140 1,140
Debtor 115 3,181 3,181
Debtor 116 2,949 2,949
Debtor 117 259,696 259,696
Debtor 118 5,408 5,408
Debtor 119 798 798
Debtor 120 2,566 2,566
Debtor 121 3,948 3,948
Debtor 122 4,998 4,998
Debtor 123 803 803
Debtor 124 10,497 10,497
Debtor 125 1,888 1,888
Debtor 126 156,776 156,776
Debtor 127 3,755 3,755
Debtor 128 2,167 2,167
Debtor 129 7,459 7,459
Debtor 130 12,020 12,020
Debtor 131 61,187 61,187
Debtor 132 657 657
Debtor 133 764 764
Debtor 134 3,877 3,877
Debtor 135 2,863 2,863
Debtor 136 824 824
TOTAL 1,781,586 172,507 1,954,093
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