1 ABSTRACT

In this project, titled COMPARATIVE ANALYSIS AND STUDY OF GMR GROUPS CREDIT RATING. This aims to analyse the credit worthiness of the GMR Infrastructure ltd among the key competitors of the company using the credit rating methodology This study based on financial statements such as Ratio Analysis, Comparative balance sheet with the competitors in the same industry and business process analysis like swot analysis. By using these combined tools it enables to determine in an effective manner. The study is made to evaluate the financial position, the operational results as well as financial progress of a business concern. This study explains ways in which ratio analysis can be of assistance in long-range planning, budgeting and asset management to strengthen financial performance and help avoid financial difficulties. This study makes us to study the credit rating methodology and also about the credit rating agencies in India and finally gives the credit worthiness of the company The study not only throws on the financial position of a firm but also serves as a Stepping stone to remedial measures for GMR Infrastructure ltd. This project helps to identify and give suggestion to improve some of the concerned area of businesses in GMR Infrastructure ltd

LIST OF TABLES TABLE NO 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 NAME OF TABLE CRISIL fixed deposit rating symbols CRISIL rating symbols for short term instruments ICRA rating symbols for long-term debentures, bonds and preference shares ICRA fixed deposit rating symbols CARE rating symbols for long-term instruments CARE short-term investment symbols CARE analysis rating Rating methodology for infrastructure industries ICRA credit rating methodology Comparative balance sheet Comparative profit and loss account Comparative cash flow statements Ratio analysis Key parameters of rating Rank based on the parameters Final ranking Sectors involved in infrastructure companies Power sector projects involved Roads sector projects involved Ratings assigned by the agencies Care ratings Ratings explanation Swot analysis for GMR Swot analysis for LANCO Swot analysis for GVK Swot analysis for JPASSOCIAT Comparison b/w GMR and JPASSOCIAT Comparison b/w GMR and LANCO Comparison b/w GMR and GVK PAGE NO

LIST OF CHARTS

CHART NO 2.1 3.1 3.2 3.3 3.4 6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15

NAME OF CHART Organizational chart of GMR Process of ratio analysis CAREs rating process ICRAs rating process CRISILs rating process EBITDA margin ratio Return on equity Price to earnings ratio Debt to equity ratio Return on capital employed Price to book value EV/EBITDA Cash profit margin Operating cash flow ratio Current ratio Cash ratio Asset efficiency ratio Operating cash margin Operating profit margin Basic earning power ratio

PAGE NO

CHAPTER-1 INTRODUCTION TO THE STUDY 1.1 INTRODUCTION: The removal of strict regulatory framework in recent years has led to a spurt in the number of companies borrowing directly from the capital markets. There have been several instances in the recent past where the fly-by-night operators have cheated unwary investors. In such a situation, it has become increasingly difficult for an ordinary investor to distinguish between 'safe and good investment opportunities' and 'unsafe and bad investments'. Investors find that a borrower's size or names are no longer a sufficient guarantee of timely payment of interest and principal. Investors perceive the need of an independent and credible agency, which judges impartially and in a professional manner, the credit quality of different companies and assist investors in making their investment decisions. Credit Rating Agencies, by providing a simple system of gradation of corporate debt instruments, assist lenders to form an opinion on -the relative capacities of the borrowers to meet their obligations. These Credit Rating Agencies, thus, assist and form an integral part of a broader programme of financial disintermediation and broadening the debt market. Credit rating is used' extensively for evaluating debt instruments. These include longterm instruments, like bonds and debentures as well as short-term obligations, like Commercial Paper. In addition, pured deposits, certificates of deposits, inter-corporate deposits, structured obligations including non-convertible portion of partly Convertible Debentures(PCDs) and preferences shares are also rated.

1.2 DEFINITION OF CREDIT RATING:

A published ranking, based cut_down_on detailed financial analysis by a credit beareu, of one's financial history, specifically as it relates to one's ability to meet debt obligation. The highest rating is usually AAA, and the lowest is D. Lender use this information to decide whether to approve a loan. 1.3 DETERMINANTS: The default-risk assessment and quality rating assigned to an issue are primarily determined by three factors : i) The issuer's ability to pay, ii) The strength of the security owner's claim on the issue, and iii) The economic significance of the industry and market place of the issuer. 1.4 RATING METHODOLOGIES: Rating is a search for long-term fundamentals and the probabilities for changes in the fundamentals. Each agency's rating process usually includes fundamental analysis of public and private issuer-specific data, 'industry analysis, and presentations by the issuer's senior executives, statistical classification models, and judgement. Typically, the rating agency is privy to the issuer's short and long-range plans and budgets. The analytical framework followed for rating methodology is divided into two interdependent segments. The first segment deals with operational characteristics and the second one with the financial characteristics. Besides, quantitative and objective factors; qualitative aspects, like assessment of management capabilities play a very important role in arriving at the rating for an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer. Rating is not based on a predetermined formula, which specifies the relevant variables as well as weights attached to each one of them. Further, the emphasis on different aspects varies from agency to agency. Broadly, the rating agency assures itself that there is a

6 good congruence between assets and liabilities of a company and downgrades the rating if the quality of assets depreciates. The rating agency employs qualified professionals to ensure consistency and reliability. Reputation of the Credit Rating Agency creates confidence in the investor. Rating Agency earns its reputation by assessing the client's operational performance, managerial competence, management and organizational set-up and financial structure. It should be an independent company with its own identity. It should have no government interference. Rating of an instrument does not give any fiduciary status to the credit rating agency. It is desirable that the rating be done by more than one agency for the same kind of instrument. This will attract investor's confidence in the rating symbol given. A rating is a quality label that conveniently summarizes the default risk of an issuer. The credibility of the issuer's, proposed payment schedule is complemented by the credibility of the rating agency. Rating agencies perform this certification role by exploiting the economies of scale in processing information and monitoring the issuer. There is an ongoing debate about whether the rating agencies perform an information role in addition to a certification role. Whether agencies have access to superior (private) information, or if agencies are superior processors of information; security ratings provide information to investors, rather than merely summarizing existing information. Empirical research confirms the information role of rating agencies by demonstrating that news of actual and proposed rating changes affects the price of issuer's securities. Most studies document numerically larger price effects for downgrades than for upgrades, consistent with the perceived predilection of management for delaying bad news.

Despite variations across individual rating agencies, the following features appear to be common in the rating methodology employed by different agencies: Two broad types of analyses are done:

7 (a) industry and business analysis and

(b) financial analysis The key factors considered in industry and business analysis:

(a) Growth rate and relationship with the economy (b) Industry risk characteristics (c) Structure of industry and nature of competition (d) Competitive position of the issuer (e) Managerial capability of the issuer The key factors considered in financial analysis: (a)Earning power (b)Business and financial risk (c)Asset protection (d)Cash flow adequacy (e)Financial flexibility (f)Quality of accounting Subjective judgments seem to play an important role in the assessment of the issue/issuer on various factors. While each factor is normally scored separately, no mechanical formula is used for combining the scores on different factors to arrive at the ratings conclusion. In the ultimate analysis of variables which are viewed as interdependent industry risk characteristics are likely to set the upper limit on rating 1.4.1 Business analyses:

8 It is the academic desciplines of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement, organizational change or strategic planning and policy development. The person who carries out this task is called a business analysts or BA. Those BAs who work solely on developing software systems may be called IT Business Analysts, Technical Business Analysts, Online Business Analysts or Systems Analysts. Business analysis as a discipline has a heavy overlap with requirement analysis sometimes also called requirements engineering, but focuses on identifying the changes to an organization that are required for it to achieve strategic goals. These changes include changes to strategies, structures, policies, processes, and information systems. 1.4.1.1 Goal of business analysis Ultimately, business analysis wants to achieve the following outcomes:

Reduce waste Create solutions Complete projects on time Improve efficiency Document the right requirements

1.4.1.2 Business analysis includes: Enterprise analysis or company analysis: It focuses on understanding the needs of the business as a whole, its strategic direction, and identifying initiatives that will allow a business to meet those strategic goals. Requirements planning and management : It involves planning the requirements development process, determining which requirements are the highest priority for implementation, and managing change.

9 Requirements elicitation: It describes techniques for collecting requirements from stakeholders in a project. Requirements analysis It describes how to develop and specify requirements in enough detail to allow them to be successfully implemented by a project team. Requirements communication It describes techniques for ensuring that stakeholders have a shared understanding of the requirements and how they will be implemented. Solution assessment and validation It describes how the business analyst can verify the correctness of a proposed solution, how to support the implementation of a solution, and how to assess possible shortcomings in the implementation. There are a number of techniques that a Business Analyst will use when facilitating business change. These range from workshop facilitation techniques used to elicit requirements, to techniques for analyzing and organizing requirements. The best technique to analyse the business is SWOT analysis.This is used to help focus activities into areas of strength and where the greatest opportunities lie. This is used to identify the dangers that take the form of weaknesses and both internal and external threats. *The four attributes of SWOT are strength, weakness, opportunities and threats:. Strength is defined as any internal asset, technology, motivation, finance, business links, etc that can help to exploit opportunities and to fight off threats. Weakness is an internal condition which hampers the competitive position or exploitation of opportunities. Opportunity is any external circumstance or characteristic which favour the demand of the system or where the system is enjoying a competitive advantage.

10 Threat is a challenge of an unfavorable trend or of any external Circumstance which will unfavorably influence the position of the system. 1.4.2 Financial statements Analysis: The financial statements provide some extremely useful information to the extent that the balance sheet mirrors the financial position on a particular date in terms of the structure of assets, liabilities and owners equity, and so on and the profit and loss account shows the results of operations during a certain period of time in terms of the revenues obtained and the cost incurred during the year. Thus, the financial statements provide a summarized view of the financial position and operations of a firm. Therefore, much to be learnt about a firm from a careful examination of its financial statements as invaluable documents performance reports. The analysis of financial statements is thus, an important aid to financial analysis.The focus of financial analysis is on key figures in the financial statements and the significant relationship that exists between them. The analysis of financial statements is a process of evaluating the relationship between component parts of financial statements to obtain a better understanding of the firms position and performance. The first task of the financial analyst is to select the information relevant to the decision under consideration from the total information contained in the financial statements. The second step is to arrange the information in a way to highlight significant relationships. The final step is interpretation and drawing of inferences and conclusion. In brief, the financial analysis is the process of selection, relation and evaluation. The term financial analysis is also known as analysis and interpretation of financial statements. It refers to the establishing meaningful relationship between various items of the two financial statements i.e. Income statement and position statement. It determines financial strength and weaknesses of the firm. Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability, financial soundness and future prospects of the business units.

11

1.4.2.1 Financial analysis serves the following purposes: Measuring the profitability The main objective of a business is to earn a satisfactory return on the funds invested in it. Financial analysis helps in ascertaining whether adequate profits are being earned on the capital invested in the business or not. It also helps in knowing the capacity to pay the interest and dividend. Indicating the trend of Achievements Financial statements of the previous years can be compared and the trend regarding various expenses, purchases, sales, gross profits and net profit etc. can be ascertained. Value of assets and liabilities can be compared and the future prospects of the business can be envisaged. Assessing the growth potential of the business The trend and other analysis of the business provides sufficient information indicating the growth potential of the business. 1.4.2.3 PARTIES INTERESTED Analysis of financial statements has become very significant due to widespread interest of various parties in the financial results of a business unit. The various parties interested in the analysis of financial statements are : (i)Investors: Shareholders or proprietors of the business are interested in the well being of the business. They like to know the earning capacity of the business and its prospects of future growth.

(ii) Management:

12 The management is interested in the financial position and performance of the enterprise as a whole and of its various divisions. It helps them in preparing budgets and assessing the performance of various departmental heads. (iii) Trade unions: They are interested in financial statements for negotiating the wages or salaries or bonus agreement with the management. (iv) Lenders: Lenders to the business like debenture holders, suppliers of loans and lease are interested to know short term as well as long term solvency position of the entity. (v) Suppliers and trade creditors: The suppliers and other creditors are interested to know about the solvency of the business i.e. the ability of the company to meet the debts as and when they fall due. (vi) Tax authorities: Tax authorities are interested in financial statements for determining the tax liability. (vii) Researchers: They are interested in financial statements in undertaking research work in business affairs and practices. (viii) Employees : They are interested to know the growth of profit. As a result of which they can demand better remuneration and congenial working environment. (ix) Government and their agencies: Government and their agencies need financial information to regulate the activities of the enterprises/industries and determine taxation policy. They suggest measures to formulate policies and and regulations. (x) Stock exchange: The stock exchange members take interest in financial statements for the purpose of analysis because they provide useful financial information about companies.Thus; we find that different parties have interest in financial statements for different reasons.

13 1.5 Credit rating process: Receipt of rating request from an issuer Assigning a rating team Collecting information Meeting key officials and the management team Preview meeting Rating committee meeting Rating communication Rating review Surveillance CHAPTER-2 PROFILE OF THE COMPANY 2.1 HISTORY: GMR Group is one of the fastest growing Infrastructure organisation in the country. The GMR Group was found in the year 1976.It is head quartered in Bangalore, India. GMR also takes part in Indian Premier League's (A Twenty20 Cricket league in India) Delhi franchise, Delhi Daredevils. Grandhi Mallikarjun Rao is the Chairman and Managing director of GMR group. With an estimated personal worth of $6.2 billion dollars, G M Rao stands at 198th rank in Forbes' 2008 World Billionaire list. 2.2 BACKBONE: GMR Varalakshmi foundation is the corporate social responsibility arm of the GMR Group.The foundation is not for profit company.The vision is to emerge as a premier national body in the area of corporate social responsibility.The mission is to improves the lives of the poor and needy in a self-generating way.The core activities of the foundation include education,health& hygiene and empowerment. 2.3 GMR GROUP MEMBERS:

14 G.M.Rao-Group chairman&founder Srinivas Bommidala-chairman-Highways&Urban infrastructure G.B.S.Raju-chairman-Corporate&International business Kiran kumar grandhi-chairman-Airports K Balasubramanian-chairman-Corporate social responsibility P M Kumar-executive director-Group corporate development. B.V.N Rao-chairman-Energy business

2.4 VISION & MISSION:

VISION:

GMR will pay a pioneering role in developing innovative projects and provide world class services in infrastructure.
MISSION :

To build entrepreneurial organisations that make a difference to society through creation of value.

2.5 VALUES & BELIEFS:

Humility: They value intellectual modesty and detest false pride and arrogance. Entrepreneurship: They will seek opportunities and they are everywhere. Teamwork and relationship: Going beyond the individual, encouraging boundary less

behavior.
Deliver the promise: They will value a deep sense of responsibility and self discipline,to

meet and surpass commitments made.

Learning: Nurturing active curiosity-to question, share and improve. Social responsibility: Anticipating and meeting relevant and emerging needs of society.

15
Respect for individual: They will treat others with dignity, sensitivity and honour.

2.6 BUSINESS SECTORS: GMR Groups business interests is in Airports, Highways, Energy and Urban Infrastructure. . GMR Infrastructure Limited has in the following sectors: 1. Airports 2. Energy 3. Highways 4. Urban infrastructure 5. EPC 1.Airports: Under operation: GMR hyderabad international airport(63%) Delhi international airport(54%) Instanbul sabiha gokcen international airport(40%) Male international airport(100%)

2.Energy: Under operation: GMR Energy ltd(100%) GMR Power corporation(51%) Vemagiri power generation(100%)

Under development: Badrinath Hydro Power(100%)

16 GMR kamalanga energy(80%) GMR Bajoli Power Project(100%) GMR Chattisgarh Power Project(100%) Upper Karnali Power Project(73%) EMCO Energy limited(100%) GMR Rajahmundry energy(100%) Talong hydro power(100%) Himtal hydro power co.(80%) Island power singapore(100%) GMR Solar Energy (100%) Deedwana Transmission Line (100%) Alwar Transmission Line (100%)

3.Highways: Under operation: GMR Tambaram-Tindivanam(61%) GMR Tuni-Ankapalli(61%) GMR Ambala-Chandigarh(100%) GMR Adloor-Gundla Ponchanpalli(100%) GMR Ulunderpet(100%) GMR Jadcherla(100%)

Under construction: GMR Hyderabad Vijayawada(74%) Chennai outer ringroad(90%) Hungund-Hospet(51%)

17 4.Urban Infrastructure: At Hyderabad Airport 1000 acres for commercial development 250 acres Aviation SEZ 250 acres Logistic SEZ

At Delhi Airport 250 acres for commercial development

In Tamilnadu 3300 acres SEZ

5.EPC: GMR Group is estimating to save 8-12 percent cost by having an in-house engineering, procurement and construction unit through extensive procurement for various verticals.GMR Infrastructure ltd is setting up an in-house division EPC division in order to reduce future project costs and ensures that deadlines are met. 2.7 MERGERS AND ACQUISITION OF GMR :

The largest deal in November 2010 was China Huaneng Corp's acquisition of US-based InterGenInc from GMR Infrastructure for $1.232 million

GIL acquires Barasentosa lestare PT,a coal mining company in feb 26 2009 GMR Group acquired 50 percent stake in Intergen for $1.354 million in October 2008 GMR infrastructure ltd acquires a minority stake in DIAL from GMR holdings pvt ltd in 2008.

18 GMR Infrastructure ltd, a unit of GMR holdings pvt ltd of india acquired Coralrose ltd ,a construction company andsunwood properties korea BV,an Amsterdam-based real estate agency in 2008. GIL acquires island power co pte ltd , a jurong island-based electric utility company from InterGen N.V. of 800 MW.

GMR Energy ltd has acquired 63% stake in south africas homeland, mining and energy SA ltd , a unit of canadas homeland energy group ltd in 2008.

2.8 EVENTS HAPPENED RECENTLY IN GMR:

The important event recently happened is that , Mr.BVN.Rao(business chairman,energy sector) launched the GMR business excellence reference manual called blue book coinciding with BE assessor workshop on 7th feb 2011.

GMR group has been awarded with The best infrastructure project from all over India by property world magazine.property world belongs to the united business media group.

GVPGL has won the prestigious national energy conversation award at delhi on 14th dec 2010.

GHIAL and luthansa cargo AG(LCAG) on 3rd dec 2010 signed a MOU to jointly develop RGIA,hyderabad in to a key cargo hub in south asia for the transport of temperature sensitive pharmaceuticals.

2.9 COMPETITORS OF GMR: Reliance Infra Adani Power Jaypee jaiprakash asso Unitech

19 Lanco infrastructure GVK Infra IVRCL Infra IRB Infra II&FS Trans

2.10 KEY COMPETITORS OF GMR: 2.10.1 GVK POWER AND INFRASTRUCTURE LTD: HISTORY: GVK power and infrastructure ltd is a diversified business entity with a focus on infrastructure and urban infrastructure.G.V.Krishna reddy,the chairman and managing director of GVKPIL,is a first generation entreprenuer who establishes the business. The area of business interests including power,roads,urban infrastructure,bio-science,hotels and manufacturing. The company was incorporated in the year 1994 as jagurupadu operating and maintenance company,a private company ,under the companies act 1956.later the company name has changed to jagurupadu operating and maintenance private ltd company in the year 2005 and then the company has changed to private ltd to public ltd and then the company name is changed as GVK power and infrastructure ltd. GVK foundation is involved in the corporate social responsibility to help out the needy . GROUP MEMBERS: G.V.Krishna Reddy G.V.Sanjay reddy A.Issac George K.Narsim Shenoy Abid Hussain

G.V.K SECTORS:

20 POWER: OPERATIONAL: o Jagurupadu combained cycle power plant phase-1(217mw) o Jagurupadu combained cycle power plant phase-2(220mw) o Gautami combained cycle power plant(464mw) UNDER DEVELOPMENT: o Alaknanda(330mw)-uttarkand o Goindwal sahib(540mw)-punjab UNDER IMPLEMENTATION: o Jagurupadu phase-3(800mw)-A.P o Gautami-2(800mw)-A.P o Goriganga(370mw)-Uttarkhand o Rattle(690mw)-J&K o Tokisud-Jharkhand
AIRPORTS:

Mumbai international airport(74%) Bangalore international airport(29%)

ROADS:

Jaipur-kishangarh BOT project(6lane from the 500km) Deoli-kota road BOT project(4 lane from the 83km)

URBAN INFRASTRUCTURE:

21 3000 acres SEZ in perambalur(tamilnadu)

2.10.2 LANCO INFRATECH: HISTORY: Lanco is the one of the fastest growing integrated infrastructure enterprises of India.The area of business interests are in power,roads, EPC,infrastructure,property development. The founder chairman of lanco infratech is L.Rajagopal, a techno-crat turned industrialist. He started the lanco foundation, a charitable trust in the year 2000 to reach out to the needy.And also he is the member of parliament,India. GROUP MEMBERS: L.Madhusudhan rao-executive chairman G.Bhaskara rao-executive vice-chairman L.Sridhar-vice-chairman G.Venkatesh babu-managing director

LANCO SECTORS: CONSTRUCTION:

Power plants based on Gas, Coal, Bio-mass and Hydro. Irrigation and water supply projects, including dams, tunnels, lift irrigation, sewerage schemes and marine works.

Civil construction including commercial and residential buildings, mass housing projects and townships, industrial structures, information technology parks, Corporate offices, Hospitals and more.

Transportation engineering projects including roads, highways, bridges and flyovers.

POWER: OPERATIONAL PROJECTS:

22
o o o o o o o o

Lanco kondapalli 1&2(734mw) Aban power(120mw) Lanco power 1&2(600mw) Udipi power 1(600mw) Lanco,chitradurga(3mw) Lanco,thirunelveli(10mw) Vamshi hydro energies(10mw) Vamshi industrial power(5mw)

UNDER IMPLEMENTATION:
o o o o o o o o

Lanco kondapalli 3(732mw) Lanco power(3&4)(1320mw) Lanco anpara(1200mw) Udipi power 2(600mw) Lanco babandh(1320mw) Lanco budhil hydro power(70mw) lanco teesta hydro power(500mw) lanco mandakini hydro power(76mw)

ROADS:

Bangalore-madbugal on NH-4(81km) Neelamangala-devihalli on NH-48(82km)

EPC: The EPC group at lanco ensures project delivery cycles, greater capital expenditure control, sourcing the best service and technology providers and most importantly allows its

23 clients to focus on their core business.the core competence of lanco is its experienced team for managing contracts during all phases of project,while meeting the highest standards. Lanco provides engineering,procurement,construction,project management and commissioning services on turnkey basis to the power sector leveraging on the experience and expertise of its group companies,its construction capability and competent manpower. international

INFRASTRUCTURE: LANCO infrastructure ltd has executed many challenging projects across india including highways.lanco is currently executing the Varanasi non metro airport project 2.10.3 JAIPRAKASH ASSOCIATION: HISTORY: Jaiprakash associates was previously known as jaiprakash industries ltd but after merging with jaypee cements in the year of 2004, the company gots its present name. Jaiprakash associates ltd is under the jaypee group,which is an industrial infrastructural group in india .The group was established in 1974 and has a turnover more than Rs.30,000million. Jaiprakash associates has subsidary companies which are jaiprakash hotels,jaiprakash hydro power and jaiprakash ventures GROUP MEMBERS:

Manoj gaur-executive chairman Sunil kumar sharma-executive vice chairman Sarat kumar jain-vice chairman Sunny gaur-managing director Pankaj gaur-joint managing director

24

JP SECTORS:

Civil Engineering:

Jaiprakash Associates Ltd., the flagship company of the Group, is a pioneer in construction of river valley and hydropower projects on turnkey basis in India. Jaypee Group has executed 13 Hydropower projects spread over 6 states of India and neighbouring Bhutan to generate 10,290 MW of power. Hydropower : OPERATIONAL: o Baspa 2(300mw) o Vishnuprayag(400mw) UNDER IMPLEMENTATION: o Karcham wangtoo(1000mw) UNDER DEVELOPMENT: o Lower siang(2700mw)
o

Hirong(500mw)

o Kynshi stage-2(450mw) o Umngot stage-1(270mw)

Thermal Power:

25 These all projects are in under implementation Bina power(1250mw) Jaypee nigrie(1320mw) Kannur(240mw) Karchana(1980mw) Bara(3300mw)

Transmission System: Jaiprakash Hydro-Power Limited has plans to venture into the development of transmission systems with the Power Grid Corporation of India Ltd (PGCIL). Cement: Jaypee Group is the 4th largest cement producer in the country. It produces ordinary Portland cement and Pozzolana Portland cement under the brand names Buland and Buniyad. The group has plants at Rewa and Bela. Jaypee group is poised to achieve cement production capacity of 20 MTPA by the year 2009.

Hospitality: Jaypee group owns and operates four five star deluxe hotels through a subsidiary company, Jaypee hotels limited. These hotels are: Hotel Siddharth and hotel vasant continental in New Delhi, Hotel Jaypee palace Agra, and Jaypee residency Manor, Mussoorie.

Real estate development:

26 Jaypee group is developing real estate in Greater Noida. Its property, Jaypee Greens,is spread over an area of 450 acres. It comprises golf resorts , villas, townhouses. Expressways & Highways: Jaypee Group is constructing the prestigious 160 km long Expressway with Six lane access that would connect the historical city of Agra with Greater Noida. Information Technology: Jaypee Group Company JIL Information Technology Limited (JILIT) specializes in: Hardware & Networking, Multimedia Services & Software, and Enterprise Resource Planning.

2.11 GMR Group Organizational Chart CHAIRMAN

Executive director

President

27

Executive vice president

AssociateVice president

General manager(H.R)

General manager(finance)

General manager(marketing)

General manager(production)

Associate manager

Associate manager

Regional officer

Associate manager

Executive manager

Executive manager Senior co-crdinator

Executive manager Senior Co-ordinator

Chart:2.1

Junior coordinator Assistant

junior Co-ordinator Assistant

2.12 AWARDS & RECOGNISATIONS: Mr.G.M.Rao received first generation entreprenuer of the year at CNBC TV18-2009 and he also got a doctorate from Andhra University. silver plate award for supporting cause of elders-on october 1,2009, new delhi.

28 RGIA also won the essar steel infrastructure excellence award 2009 organised by CNBC TV18-2009. Mr.kiran kumar grandhi , chairman got young entrepreneur award 2009 in the area of travel and tourism. G.M.R Vemagiri power generation ltd has won the Innovative environmental project award at the CII environmental best practices award 2011 organized by CII-Godrej green business centre on 28 & 29 January 2011 RGIA and IGIA have been rankes 1st and 4th best airports in their respective categories in the latest ASQ rankings of Airports Council International.

CHAPTER-3 REVIEW OF THE LITERATURE: 3.1 Techniques and tools of financial analysis

29 Financial statements give complete information about assets, liabilities,equity, reserves, expenses and profit and loss of an enterprise. They are not readily understandable to interested parties like creditors, shareholders, investors etc. Thus, various techniques are employed for analysing and interpreting the financial statements. Techniques of analysis of financial statements are mainly classified into three categories : (i) Cross-sectional analysis It is also known as inter firm comparison. This analysis helps in analysing financial characteristics of an enterprise with financial characteristics of another similar enterprise in that accounting period.For example, if company A has earned 15% profit on capital invested. This does not say whether it is adequate or not. If we analyse further and find that a similar company has earned 16% during the same period, then only we can make a conclusion that company B is better.Thus, it turns into a meaningful analysis. (ii) Time series analysis It is also called as intra-firm comparison. According to this method,the relationship between different items of financial statement is established, comparisons are made and results obtained. The basis of comparison may be : Comparison of the financial statements of different years of the same business unit. Comparison of financial statement of a particular year of different business units. (iii) Cross-sectional cum time series analysis This analysis is intended to compare the financial characteristics of two or more enterprises for a defined accounting period. It is possible to extend such a comparison over the year. This approach is most effective in analysing of financial statements. 3.2 Comparative position in relation to other firms The purpose of financial statements analysis is to help the management to make a comparative study of the profitability of various firms engaged in similar businesses. Such comparison also helps the management to study the position of their firm in respect of sales,expenses, profitability and utilising capital, etc. Assess overall financial strength The purpose of financial analysis is to assess the financial strength of the business. Analysis also helps in taking decisions, whether funds required for investing for business growth are provided

30 from internal sources of the business or not if yes, how much? And also to assess how much funds have been received from external sources. Assess solvency of the firm The different tools of an analysis tell us whether the firm has sufficient funds to meet its short term and long term liabilities or not. Ratio analysis is used to analyse the present and future earning power of the issuing corporation and to get insight into the strengths and weaknesses of the firm. Bond rating agencies have suggested guidelines about what value each ratio should have within a particular quality rating. Different ratios are favoured by rating agencies. For any given set of ratios, different values are appropriate for each industry. Moreover, the values of every firm's ratios vary in a cyclical fashion through the ups and downs of the business cycle. To assess the strength of security owner's claim, the protective provisions in the indenture (legal instrument specifying bond owners' rights), designed to ensure the safety of bondholder's investment, are considered in detail. The factors considered in regard to the economic significance and size of issuer includes: nature of industry 'in which issuer is, operating (specifically issues like position in the economy, life cycle of the industry, labour situation, supply factors, volatility, major vulnerabilities, etc.), and the competition faced by the issuer (market share, technological leadership, production efficiency, financial structure, etc.) 3.3Ratio Analysis: Ratio analysis is a widely-used tool of financial analysis. It can be used to compare the risk and return relationships of firms of different sizes. It is defined as the systematic use of ratio to interpret the financial statements so that the financial strengths and weakness of a firm as well as its historical performance and current financial condition can be determined. The term ratio refers to the numerical or quantitative relationship between two items and variables. These ratios are expressed as 1. percentages, 2. fraction and 3. proportion of numbers.

31 These alternative methods of expressing items which are related to each other are, for purposes of financial analysis, referred to as ratio analysis. It should be noted that computing the ratios does not add any information not already inherent in the above figures of profits and sales.What the ratio do is that they reveal the relationship in a more meaningful way so as to enable equity investors, management and lenders make better investment and credit decisions. 3.3.1 PROCESS OF RATIO ANALYSIS Selection of relevant data from the financial statements depending upon the objective of the analysis.

Calculation of appropriate ratios from the above data

Comparison of the calculated ratio with the ratios of the same firm in the past, or ratios developed from projected financial statements or the ratios of other firms in the same year of the same company type or the ratios of the industry to which the firm belongs

Interpretation of ratios

Chart:3.1

3.4 THE KEY RATIOS USED IN THE STUDY:

The main ratios which are very useful for the study that measures the business and financial analysis. 1. EBITDA Margin:

32 A measurement of a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a company's core profitability.EBITDA margin measures the extent to which cash operating expenses use up revenue.

EBITDA EBITDA margin = _________________ Total revenue

2.Price to earnings ratio: A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Market value per share Price to earnings ratio = ___________________________ Earnings per share In general, a high P/E suggests that investors are expecting higher earnings growth in the future compared to companies with a lower P/E. However, the P/E ratio doesn't tell us the whole story by itself. It's usually more useful to compare the P/E ratios of one company to other companies in the same industry, to the market in general or against the company's own historical P/E. It would not be useful for investors using the P/E ratio as a basis for their investment to compare the P/E of a technology company (high P/E) to a utility company (low P/E) as each industry has much different growth prospects. 3.Return on equity: The amount of net income returned as a percentage of shareholders equity.return on equity measures a corporations profitability by revealing how much profit a company generate with the money shareholders have invested.

33 Calculated as: Net income Return on equity=______________________ Share holders equity Net income is for the full fiscal year(before dividends paid to common stock holders but after dividends to preferred stock)share holders equity does not include preferred shares. Also known as return on net worth(RONW). 4.Debt to equity ratio: A measure of a company's financial leverage calculated by dividing its total liabilities by stockholders' equity. It indicates what proportion of equity and debt the company is using to finance its assets. Debt to equity ratio= total liabilities Shareholders equity Sometimes only interest-bearing, long-term debt is used instead of total liabilities in the calculation. Also known as the Personal Debt/Equity Ratio, this ratio can be applied to personal financial statements as well as corporate ones. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this were to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread among the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This can lead to bankruptcy, which would leave shareholders with nothing. A high debt to equity ratio generally means that a company has been aggressive in financing its growth with debt. This can result in volatile earnings 5. Return on capital employed: .

34 This is considered to be the best measure of profitability in order to assess the over all performance of the business. As the primary objective business is to earn profit higher the Return On Capital Employed, the more efficient the firm is in using its funds. The ratio can be funds for a number of years as to find a trend as to whether the profitability of the company is in improving or otherwise. Earnings before interest and tax Return on capital employed = ____________________________ Net current assets 6.Price to book value: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Calculated as: Price to book value= Where, book value = shareholders equity . no.of equity shares A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. As with most ratios, be aware that this varies by industry. This ratio also gives some idea of whether you're paying too much for what would be left if the company went bankrupt immediately. Also known as price to equity ratio. 7.EV/EBITDA: EV / EBITDA, is a measure of the cost of a stock which is more frequently valid for comparisons across companies than the price to earnings ratio. Like the P/E ratio, the EV / EBITDA ratio is a stock price Book value .

35 measure of how expensive a stock is. It measures the price in the form of Enterprise value an investor pays for the benefit of the company's cash flow in the form of EBITDA. Enterprise value EV/EBITDA = _______________________________________________ Earnings before interest and tax depreciation amortization Where, EV=Market capital+debt+preference shares+minority interest-cash Market capital=price value*equity shares EV/EBITDA values can vary depending on EBITDA is calculated. EBITDA can vary due to differences in counting of depreciation and amortization which can be counted at different rates over time. Unlike P/E ratios, however, EV / EBITDA ratios can be used to compare a wide variety of companies.P/E ratios can be an invalid way of comparing different companies for several reasons which are accounted for in EV / EBITDA. It is a better measurement of companies takeover value. 8.Operating cashflow: A measure of how well current liabilities are covered by the cash flow generated from a Companys operations. Formula: OCF Ratio= cash flow from operations Current liabilities The operating cash flow ratio can gauge a company's liquidity in the short term. Using cash flow as opposed to income is sometimes a better indication of liquidity simply because, as we know, cash is how bills are normally paid off. Companies operations .

9.Current ratio:

36 The current ratio is the ratio of total current assets to total current liabilities. It is calculated by dividing current assets by current liabilities: Current assets Current Ratio = ________________ Current liabilities The current assets of a firm, as already stated, represent those assets which can be, in the ordinary course of business, converted into cash within a short period of time, normally not exceeding one year and include cash and bank balances, marketable securities, inventory of raw materials, semi-finished (work-in-progress) and finished goods, debtors net of provision for bad and doubtful debts, bills receivable and prepaid expenses. The current liabilities defined as liabilities which are short-term maturing obligations to be met, as originally contemplated, within a year, consist of trade creditors, bills payable, bank credit, provision for taxation, dividends payable and outstanding expenses. 10. Cash ratio: The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. Formula: cash ratio = total cash and cash equivalents Current liabilities The cash ratio is generally a more conservative look at a company's ability to cover its liabilities than many other liquidity ratios. This is due to the fact that inventory and accounts receivable are left out of the equation. Since these two accounts are a large part of many companies, this ratio should not be used in determining company value, but simply as one factor in determining liquidity. 11.Asset efficiency ratio: The asset efficiency ratio provides an indication of how well the assets of a company .

37 are utilized to generate a cash flow return. As an alternative measure, total property, plant and equipment could be used in place of total assets for the denominator to reflect a companys ability to minimize waste in generating cash flows from operations based on its investment in operational assets. These measures, tracked over a period of time, can provide useful insights especially when the results are compared to other companies in the same industry. Formula: asset efficiency ratio = cash flow from operations . Total assets 12.operating cash margin: The operating cash margin ratio is somewhat similar to a traditional profit margin ratio except for the use of CFO in place of either net income or operating income as the numerator. Thus, the operating cash margin ratio provides a more robust indicator of performance based on cash generating ability as opposed to a profit margin ratio with its focus on accrual based accounting income. Essentially, the operating cash margin ratio highlights the timing of cash flows with respect to the timing of sales. Formula: Operating cash margin = cash flow from operations . sales Therefore, this ratio can prove useful as part of a process to evaluate cash management performance, as well as, credit granting policies and receivable collections. However, since cash flow margins are likely to exhibit substantial variations among companies in different industries, it is more effective to focus a comparative analysis on companies within the same industry. 13.Operating profit margin: A ratio used to measure a company's pricing strategy and operating efficiency. Calculated as:

38 Operating profit margin = earning before interest and tax . Net sales Operating profit margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Also known as "net profit margin". Operating profit margin gives analysts an idea of how much a company makes (before interest and taxes) on each dollar of sales. When looking at operating margin to determine the quality of a company, it is best to look at the change in operating margin over time and to compare the company's yearly or quarterly figures to those of its competitors. If a company's margin is increasing, it is earning more per dollar of sales. The higher the margin, is the better.

14.Basic earning power: The basic earning power ratio compares earnings apart from the influence of taxes or financial leverage,to the assets of the company.this allows more direct comparision of similar firms that use different financing strategies or have different tax situations. Formula: Basic earning power = earnings before tax and interests .

39 Total assets The ratio indicates basic probability of assets and is useful in comparing firms with different degree of leverage. 15.EBITDA to Interest coverage ratio: The ratio that is used to assess a companys financial durability by examining whether it is at least profitably enough to pay off its interest expenses. Formula: EBITDA to interest coverage ratio= EBITDA Interest payments A ratio greater than 1 indicates that the company has morethan enough interest coverage to pay off its interest expenses. 3.5 Tips to improve financial health. Author: Bill Hudley Spend less money, or save more money or do both. If the annual income does nothing more than remain constant, your financial condition will improve. The above statement may sound come across as flippant, but its a fact of life, regardless.Needless to say we all have different personalities and different responses to needs and desires in life. A very important yardstick, in my view, is the growth rate of personal assets. If you sit down to all of the savings accounts, investment accounts and properly values and the total value is greater than the same time of the previous year, it stands to improve that the financial health intact and possibly improved. 3.5.1 Steps to Improve Financial Performance Author: Terry Peltes Given the challenges facing physicians, successful practices must take proactive steps to combat negative trends and improve their overall financial performance. .

40 To improve practice operations, processes can be streamlined to reduce costs; productivity improvements can be implemented by the employees to increase revenue; a reporting structure can be created that allows for better decision making by employees; and a rewards system can be implemented to recognize hard-working employees. To determine how you can improve your practice's performance, consider the following management procedures. 1) Internal Cost Reduction Strategies Cost reduction strategies focus on reducing the internal costs generated by services provided to the marketplace. 2) External Cost Reduction Strategies These strategies include the cost of services purchased from outside consultants or vendors. 3) Asset and Credit Management Strategies These strategies ensure that you are getting the most value from the resources invested in your practice. 4) Personnel Resources When managed properly, personnel costs and productivity can have a substantial impact on profitability. 5) Management Reporting The use of timely, relevant, properly formatted reports to manage your practice cannot be overstated. This is a crucial link between setting financial and operational goals and managing the practice to achieve them. 6) Revenue Enhancement Industries can improve their financial performance by improving their ability to negotiate favorable managed care contracts and reducing practice expenses as a percentage of revenue. 3.5.2 Excellence in Financial Management Author: Matt H. Evans Ratio analysis can be used to determine the time required to pay accounts payable

41 invoices.If the average number of days is close to the average credit terms, this may indicate aggressive working capital management; i.e. using spontaneous sources of financing. However, if the number of days is well beyond the average credit terms, this could indicate difficulty in making payments to creditors. 3.5.3 Analyze Investments Quickly With Ratios Author: Jonas Elmerraji The information you need to calculate ratios is easy to come by: Every single number or figure you need can be found in a company's financial statements. Once you have the raw data, you can plug in right into your financial analysis and put those numbers to work for you. Everyone wants an edge in investing but one of the best tools out there frequently is misunderstood and avoided by new investors. When you understand what ratios tell you, as well as where to find all the information you need to compute them, there's no reason why you shouldn't be able to make the numbers work in your favour. 3.6 BUSINESS ANALYSIS: Business analysis is the list of academic disciplines of identifying business needs and determining solutions to business problems. Solutions often include a systems development component, but may also consist of process improvement, organizational change or strategic planning and policy development. SWOT ANALYSIS: A technique that enables a group or individual to move from everyday problems and traditional strategies for a fresh perspective.swot is said to be strength and weakness as internal environment ,opportunities and threats as external environment. Strength: Any existing or potential resources or capability within the organization that provides a competitive advantage in the market. Weakness:

42 Any existing or potential force which could serve as a barrier to maintaining or achieving a competitive advantage in the market Opportunities: Any existing or potential force in external environment that ,if properly leveraged ,could provide a competitive advantage Threats: Any existing or potential force in the external environment that could erode a competitive advantage. Aim of swot analysis: Take advantage of strengths and opportunities Minimize weaknesses and eliminate threats

3.6.1 Measures to improve the business process: A Business process improvement (BPI) typically involves six steps: 1. Selection of process teams and leader: Process teams, comprising 2-4 employees from various departments that are involved in the particular process, are set up. Each team selects a process team leader, typically the person who is responsible for running the respective process. 2. Process analysis training: The selected process team members are trained in process analysis and documentation techniques. 3. Process analysis interview: The members of the process teams conduct several interviews with people working along the processes. During the interview, they gather information about process structure, as well as process performance data

43 4. Process documentation: The interview results are used to draw a first process map. Previously existing process descriptions are reviewed and integrated, wherever possible. Possible process improvements, discussed during the interview, are integrated in to the process maps. 5. Review cycle: The draft documentation is then reviewed by the employees working in the process. additional review cycle may be necessary in order to achieve a common view(mental image) of the process with all concerned employees. This stage is an interaction process. 6.Problem analysis: A thorough analysis of process problems can then be conducted, based on the process map, and information gathered about the process. At this time of the project, process goal information from the strategy audit is available as well, and is used to derive measures for process improvement.

3.7 CREDIT RATING AGENCIES IN INDIA: The popular credit rating agencies in India are: 1.Credit Rating and Information Services of India Limited(CRISIL). 2. Investment Information and Credit Rating Agency of India Limited (ICRA) . 3. Credit Analysis and Research Limited (CARE). 4.Duff&phelps credit rating india private ltd(DCR) 5.FITCH rating agency

44

1.CRISIL : CRISIL was set-up by ICICI and UTI in 1988, and rates debt instruments. Nearly half of its ratings on the instruments are being used. CRISIL's market share is around 75%. It has launched innovative products for credit risks assessment viz., counter party ratings and bank loan ratings. CRISIL rates debentures, fixed deposits, commercial papers, preference shares and structured obligations. Of the total value of instruments rated, debentures' accounted for 3 1.196, formed deposits for 42.3% and commercial paper 6.6%. CRISIL publishes CRISIL rating in SCAN that is a quarterly publication in Hindi and Gujarati, besides English. CRISIL evaluation is carried out by professionally qualified persons and includes data collection, analysis and meeting with key personnel in the company to discuss strategies, plans and other issues that may effect ,evaluation of the company. The rating rating over the life of the debt instrument. 2. ICRA : ICRA was promoted by IFCI in 1991. During the year 1996-97, ICRA rated 261 debt instruments of manufacturing companies, finance companies and financial institutions equivalent to Rs. 12,850 crore as compared to 293 instruments covering debt volume of Rs. 75,742 crore in 1995-96. This showed a decline of 83.0% over the year in the volume of rated debt instruments. Of the total amount rated cumulatively until March-end 1997, the share in terms of number of instruments was 28.5% for debentures(including long term instruments), 49.4% for Fixed Deposit programme (including medium- term instruments), and 22.1% for Commercial Paper Programme (including shortterm instruments). The corresponding figures of amount involved for these three broad rated categories was 23.8% for debentures, 52.2% for fixed deposits, and 24.0% for Commercial Paper. The factors that ICRA takes into consideration for rating depend on the nature of borrowing entity. The inherent protective factors, marketing strategies, competitive edge, competence and effectiveness of management, human resource development policies and practices, hedging of risks, trends in cash flows and potential liquidity, financial flexibility, asset process ensures confidentiality. Once the company decides to use rating, CRISIL is obligated to monitor the

45 quality and past record of servicing of debt as well as government policies affecting the industry are examined. Besides determining the credit risk associated with a debt instrument, ICRA has also formed a group under Earnings Prospects and Risk Analysis (EPRA). Its goal is to provide authentic information on the relative quality of the equity. This requires examination of almost all parameters pertaining to the fundamentals of the company including relevant sectoral perspectives. This qualitative analysis is reinforced and completed by way of the unbiased opinion and informed perspective of one analyst and wealth of judgement of committee members. ICRA opinions help the issuing company to broaden the market for their equity. As the name recognition is replaced by objective opinion, the lesser know compapies are also able to access the equity market.

3.CARE : CARE is a credit rating and information services company promoted by IDBI jointly with investment institutions, banks and finance companies. The company commenced its operations in October 1993. 'In January 1994, CARE commenced publication of CAREVIEW, a quarterly journal of CARE ratings. In additioh to the rationale of all accepted ratings, CAREVIEW often carries special features of interest to issuers of debt instruments,investors and other market players.

4.DCR: DCR India or Duff & Phelps Credit Rating India Private Ltd is one of the top credit rating agencies in India. Over the years, DCR India has been providing excellent services to its clients. Duff & Phelps Credit Rating India Private Ltd (DCR India) has played an important role in rating India's forex debt obligations.

46 Duff & Phelps Credit Rating India Private Ltd (DCR India) rated the forex debt obligations of India as ' BBB-' or a Triple B Minus. This rating is of great importance for the economy of India and the credibility of the national government. This rating reflects the fact that the Indian national government is trying its best to improve the state of Indian economy. As per the rating of DCR India, the national government of India is trying to bring about a better economic environment through the introduction of several economic policies and plans for the last 17 years. Over the years India has had powerful accounts of payments. Since the decade of 1990s the records of debt service have also been impressive. The external debt indicators of India are also showing better patterns. All these support the rating provided by Duff & Phelps Credit Rating India Private Ltd (DCR India) 5.FITCH: Fitch ratings was founded as fitch publishing company on December 24,1913 by John Knowles fitch.Located in the heart of the financial district in new York city,the fitch puvlishing company began as a publisher of financial statistics whose consumers included the new York stock exchange.it became a recognized leader in providing critical financial statistics to the investment community through such publications as the fitch bond book and the fitch stock and bond manual.In 1924,the fitch publishing company introduced the now familiar AAAtoD ratings scale to meet the growing demand for independent analysis of financial securities. Fitch ratings was one of the three ratings first agencies first recognized as a nationally recognized statistical rating organization(NRSRO) by the securities and exchanges commission in 1975.

3.7.1 Rating symbols and their explaination: 1.Rating symbols used by CRISIL:

47 Symbols FAAA(F triple A) Highest safety FAA(F double A) High safety FA Adequate safety FB Inadequate safety FC High risk FD Default Table:5.1 CRISIL fixed deposit rating symbol This rating indicates that the degree of safety regarding timely payment of interest and principal is very strong This rating indicates that the degree of safety regarding timely payment of interest and principal is strong This rating indicates that the degree of safety regarding timely payment of interest and principal is satisfactory This rating indicates that the in adequate safety of timely payment of interest and principal This rating indicates that the degree of safety regarding timely payment of interest and principal is doubtful This rating indicates that the issuer is either in default or expected to be in default upon maturity

Table:5.2

Symbols P1 Highest safety P2 High safety P3 Adequate safety P4 Inadequate safety P5 Default

CRISIL rating for short term instrument This rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is very strong This rating indicates that the degree of safety regarding timely payment of interest and principal on the instrument is strong This rating indicates that the degree of safety ragarding timely payment of interest and principal on the instrument is satisfactory This rating indicates that the degree of safety regarding timely payment on the instrument is minimal This rating indicates that the issuer is either in default or expected to be in default upon maturity

2.Rating symbols used by ICRA:

48

Symbols LAAA Highest safety

LAA High safety

LA Adequate safety

LBBB Moderate safety LB Risk prone

LC Substantial risk LD Default Table:5.3

Long term debt-debentures,bonds and preference shares Indicates fundamentally strong position.Risk factors are negligible. There may be circumstances adversely affecting the degree of safety but such circumstances, as may be visualised, are not likely to affect the timely payment of principal and interest as per terms Risk factors are modest and may vary slightly. The protective factors are strong and prospects of timely payment of interest and principal as per terms, under adverse a circumstances, as may be visual-ised, differ from LAAA only marginally. Risk factors are more variable and greater in periods of economic stress. The protective factors are average and any adverse change in circumstances, as may be visualised, may alter the fundamental strength and affect the timely payment of principal and interest as per terms Considerable variability in risk factors.The protective factors are below average. Adverse changes in business/economic circumstances are likely to affect the timely payment of principal and interest as per terms. Risk factors indicate that obligations may not be honoured when due. The protective factors are narrow. Adverse changes in business/ ecanomic conditions could result in inability unwillingness to service debt on time as per terms. There are inherent elements of risk and timely servicing of debt/obligations could be possible only in case of continued existence of favourable circumstances. Extremely speculative. Either already in default of payment of interest and/or principal as per terms or expected to default. Recovery is only likely on liquidation or reorganisation.

49

Symbols MAAA Highest safety MAA High safety MA Adequate safety MB Inadequate safety MC Risk prone MD Default A1 Highest safety A2 High safety A3 Adequate safety A4 Risk prone A5 Default Table:5.4

Medium term debt including fixed deposit programmes The prospect of timely servicing of the interest and principal as per terms is the best The prospect of timely servicing of the interest and principal as per terms is high but not high as in MAAA rating The prospect of timely servicing of the interest and principal is moderate.however,debt servicing may be affected by adverse changes in the business/economic conditions The timely payment of interest and peincipal are more likely to be affected by future uncertainties Susceptibility to default high.adverse changes in business/economic conditions could result in inability/unwillingness to service debts on time and as per terms either in default or expected to default The prospect of timely payment of debt/obligation is the best The relative safety is marginally lower than in A1 rating The prospect of timely payment of interest and instalment is adequate but any adverse change in business/economic conditions may affect the fundamental strength The degree of safety is low.likely to default in case of adverse changes in business/economic conditions Either in default or expected to default

3.Rating symbols used by CARE:

50 Symbols AAA Highest safety Long term and medium term instruments Debt instrument carrying the rating are considered to be of the best quality,carrying negligible investment risk.debt service payments are protected by stable cash flows with good margin.while the underlying assumptions may change,such changes as can be visualised are most unlikely to impair the strong position of such instruments Instruments carrying this rating are judged to be of high quality by all standards.They also classified as high investment grade.They are rated lower than AAA. Instruments with this rating are considered upper medium instrument and have many favourable investment attributes.safety for principal and interest are considered adequate.assumptions that do not materialise may have a greater impact as compared to the instruments rated higher. Such instruments are considered to be of investment grade.they indicate sufficient safety for payment of interest&principal,at the time of rating.however,adverse changes in assumptions are more likely to weaken the debt servicing capability compared to the higher rated instruments. Such instruments are considered to be speculative,with inadequate protection for interest and principal payments Instruments with some ratings are generally classified susceptible to default.while interest and principal payments are being met,adverse changes in business conditions are likely to lead to default. Such instruments carry high investment risk with likelihood of default in the payment of interest and principal Such instruments are of the lowest category.They are either in default or are likely to be in default soon

AA High safety A Adequate safety

BBB

BB B

C D Table: 5.5

Symbols PR-1

Short term investments Instruments would have superior capacity for repayments of short term promissiory obligations.issuers of such instruments will normally be characterised by leading market positions in established industries, high rates of

51 return on funds employed etc., Instruments would have strong capacity for repayment of short term promissory obligations.issuer would have most of the characteristics as for those with PR-1 instruments but to a lesser degree. Instruments have an adequate capacity for repayment of short term promissiory obligations.the effect of industry characteristics and market composition may be more pronounced.variability in earnings and profitability may result in changes in the level of debt protection Instruments have minimal degree of safety regarding timely payment of short term promisiory obligations and safety is likely to be adversally affected by short term adversity or less favourable conditions The instrument is in default or is likely to be in default on maturity

PR-2

PR-3

PR-4

PR-5 Table: 5.6 Symbols CARE-1 CARE-2

CARE-3

CARE-4

CARE-5 Table: 5.7 3.7.2 RATING PROCESS Client

Credit analysis rating Excellent debt management capability.such companies will normally be characterised as leaders in the respective industries Very good debt management capability.such companies would normally be regarded as close to those rated CARE-1,but with a lower capability to withstand changes in assumptions Good capability for debt management.such companies are considered medium grade.assumptions that do not materialise may impair debt management capability in future Barely satisfactory capability for debt management.the capacity to meet obligations is likely to be adversely affected by short term adversity or less favourable conditions Poor capability of debt management.such companies are in default or are likely to default in meeting their debt obligations

Agencies

Required for Interacts with team, responds to Appeal for review of queries&provides Submits information rating (once) additional data necessary and detailed schedules

Assigns rating Team interacts with client, undertakes site visits & analyses data submitted by Press published Rating kept release, under periodic clients. in website, care view. surveillance

52

The team does analysis of the information

Rating commitee awards rating.rating letter and rationale issued to client Acce pt rating

Yes

NO

Chart: 3.2

3.7.3 RATING AGENCIES METHODOLOGIES: The construction is one of the important sectors in India today. The industry can be gauged from the fact that supports a large number of upstream and downstream industries.

53 Moreover, the industry has strong linkages with the overall economy and enjoys a large economic multiplier effect. The Indian construction industry can classified into three broad subgroups as follows: Category Residential and Commercial/industrial Infrastructure Urban-infrastructure List of construction activities Residential and commercial buildings and complexes such as houses,offices,hospitals,restaurants,shops and shopping complexes etc. Roads,ports,bridges,flyovers,dams,power plants,telecom facilities,oil&gas plants,refineries Municipal roads,water supply,sewerage etc. Table:5.8 1.CRISILS CREDIT RATING METHODOLOGY: CRISIL extensive experience in the credit evaluation of construction companies has led to the evaluation of specific rating methodology for companies in this industry.A discussion of the specific parameters used in the methodology follows. BUSINESS RISK ANALYSIS: Market position: Area of expertise and business potential therein: Construction company which has expertise in or are active in sectors of the construction industries where higher activity levels are anticipated,benefit from significantly better business prospects than their counterparts whose area of expertise has a relatively lower growth expectation. It is crisils view, as indeed as that of most observers of the indian economy,that the countries physical infrastructure needs of significant improvement.This includes areas of construction activity like roads, ports,energy and housing,with each sector carrying a demand potential that would call for an expenditure of several billion rupees each. The and

drainage,sanitation,solid waste management systems

54 timing and extent of activity in each sector would, however, depend on the interplay of numerous factors. Using this knowledge and understanding of economic environment, CRISIL continally attempts to identify segments of the construction industry that are likely to witness more actively than others. This view is coupled with the area of expertise of individual construction companies to arrive at the demand potential for those companies. Diversity and dispersion of project portfolio: CRISIL views construction companies that have a diversified project portfolio both across sectors and geographies of implementation ,more favourably than companies that tend to have a more concentrated portfolio.In similar situation,other things remaining equal,a construction company with a large number of small projects would be viewed more favourably from a credit perspective than a company whose portfolio includes a small number of large projects.such diversity and dispersion enables the company to better withstand unforeseen adverse developments in any project that is being implemented. Operating efficiency: Track record and implementation expertise: Construction companies that have a strong track record of project implementation to the required quality standards and without cost,or time overrun enjoy,in crisils opinion,a strong position with respect to winning future business in their future expertise.The track record importance arises from the fact that most the construction projects are awarded on the tender basis,where experience in the sector is a prerequisite for bidding.Moreover,this prior experience also enhances the companies expected skills. Some large players, however, have been able to establish project manager expertise spanning much wider range of technical skills. Cost structure and operating philosophy: Construction companies,cost structure is also an important element to determine the operating efficiencies.A high fixed cost structure will make it unviable for the company for the quoting aggressively for projects and impact success ratio. Similarly, if such companies quote

55 aggressively,then they may not be able to cover their cost.therefore several companies operate extensively through sub-contractors to increase the variable element of their cost structures.Thus,having an optimum cost structure is critical for the longterm viability of a construction company.while,analysing the operating efficiency of a company,CRISIL will access the companys opearting philosophy,its cost structure,past track records in tenders,reasons for losing tenders etc. Knowledge of and comfort with the local environment: Construction companies that are more kowledgeable about the environment in which they operate are significantly better eqquiped to handle uncertainties and surprises that are a potential part of all construction projects.with increasing globalisation,most business activities have tended to span national and regional boundaries.However this process has been particularly slow in the construction industry, which has retained its predominantly local character in most markets.In CRISIL view,this is likely to continue over the short to medium term,given the continuing importance of the awareness of naunces and detail about the local environment as an ingredient of successful project implementation of the construction industry FINANCIAL RISK ANALYSIS: CRISILS analysis of financial risk for construction company is broadly in line with the creiteria adopted for other manufacturing companies.The following elements are centrally included in our analysis for construction companies.

Accounting quality: Construction company that follow a consistent,transparent and conservative policy on financial accounting tend to be viewed more favourably in crisils credit analysis than those that do not.since construction companies can adopt varying accounting policies for income and profit recognition,analysis of accounting is very critical first step in the financial risk analysis of such companies.construction companies have followed diverse policies with respect to income recognition.the analysis focuses on project-wise activity on a year to year basis in order to determine the companies effective business level.

56

Cash flow and liquidity analysis: Construction companies revenue and cash flow profile could be covered given to the nature of business they undertake.Additionally, there could be a sharp distinction between the cash flows and the accrued income.Therefore,conventional techniques of ratio analyis are often not sufficient to ascertain the credit worthiness of a construction company.CRISIL analysis of construction companies tends to be more focused on a cash based analysis of revenues, expenses and financial indicators. Construction companies that have a strong liquidity position and a more predictable project cashflows are viewed more favourably from a credit perspective.predictability of cash flows is often supported by project,geographic and customer diversification and hence companies with diversified revenue streams may be viewed more favourably compared to companies with concentrated revenue streams. CONCLUSION: CRISILS analysis of Construction Company is unique from that of a typical manufacturing company. This unique approach leverages on crisils in depth understanding of this sectors and on specific naunces.In crisils opinion, the key success factors for the construction sectors include: Expertise in high growth segments Diversified and dispersed project portfolio Strong track record of project implementation Optimum cost structure Strong cashflow generation capabilities

2. ICRAS CREDIT RATING METHODOLOGY:

57 The methodology for assigning Credit Ratings entails a comprehensive evaluation of the risks that could impact an issuers ability to generate cash flows. This risk analysis is complemented by a cash flow analysis that seeks to capture the adequacy of the issuers projected cash flows vis--vis its debt servicing obligations. All factors that have a bearing on the issuers ability to generate cash flows are considered while assigning ratings. Conceptually, these factors may be classified as business risk, financial risk drivers, and management related factors. ICRAs rating process places considerable emphasis on evaluating business risks, as it does on evaluating the financial ratios. For credit risk evaluation, stable businesses (low industry risk) even with lower level of cash generation are viewed more favourably as compared with businesses with higher cash generation potential but relatively high degree of volatility associated with such cash flows (higher industry risk). This risk analysis is complemented by a cash flow analysis that seeks to capture the adequacy of the issuers projected cash flows vis--vis its debt servicing obligations. The risk analysis framework for a typical construction company may be depicted as follows: BUSINESS RISK -industry risk -competitive position -management quality -new project risk FINANCIAL RISK -financial position -profitability -capital structure -financial capability -future cashflow adequacy Table:5.9 Some of the key risk factors that ICRA analyses while arriving at a Credit Rating are discussed in the following sections.

Business Risk The business risk that an issuer is exposed to is a combination of the industry risk in its major product segments and its competitive position within the industry.

58 - Industry Risk The objective here is to understand the attractiveness of the industry in which the issuer operates. The aspects examined include: Intensity of competition Vulnerability to imports Regulatory risks Outlook for user industries Working capital intensity Overall prospects and outlook for the industry The rating analysis begins with an evaluation of the business that the company is in. The dynamics of the business influence a companys operating risk to a large extent. The analysis thus focuses on the overall industry prospects as well as the key success factors in the industry. - Issuers Competitive Position An assessment of the issuers competitive position within an industry is made on the basis of its operating efficiency as well as its market position. Some of the factors assessed are: Scale of operations Vintage of technology used Capital cost position Location advantage in terms of proximity to construction Operating efficiencies (yields, rejection rates, energy consumption, etc.) Market position as reflected in trends in market share, ability to command premium pricing, extent of distribution network, and relationship with key customers Usually, a peer comparison is carried out to evaluate each of the above factors.

59 Financial Risk The objective here is to determine the issuers current financial position and its financial risk profile. Some of the aspects analysed in detail in this context are: Operating profitability: The analysis here focuses on determining the trend in the issuers operating profitability and how the same appears by peer comparison. Gearing: The objective here is to ascertain the level of debt in relation to the issuers own funds and is viewed in conjunction with the business risks that the issuer is exposed to. Debt service coverage ratios: Here, the trends in the issuers key debt service coverage ratios like Interest Coverage and Net Cash Accruals/Total Debt are examined. Working capital intensity: The analysis here evaluates the trends in the issuers key working capital indicators like Receivables, Inventory and Creditors, again with respect to industry peers. Accounting quality: Here, the Accounting Policies, Notes to Accounts, and Auditors Comments are reviewed. Any deviation from the Generally Accepted Accounting Practices is noted and the financial statements of the issuer are adjusted to reflect the impact of such deviations. Contingent liabilities/Off-balance sheet exposures: In this case, the likelihood of devolvement of contingent liabilties/off-balance sheet exposures and the financial implications of the same are evaluated. Financial flexibility: The issuers financial flexibilityas reflected by it unutilised bank / credit limits, liquid investments, and the nature of its relationship with banks, financial institutions and other intermediariesis assessed. CONCLUSION: ICRAs credit ratings are a symbolic representation of its opinion on the relative credit risk associated with the instrument being rated. This opinion is arrived at following a detailed evaluation of the issuers business and financial risks, its competitive strengths, its likely cash flows over the life of the instrument being rated, and the adequacy of such cash flows vis-vis its debt servicing obligations. 3.CARES CREDIT RATING METHODOLOGY:

60 The term infrastructure projects is used to describe projects to provide water supply, sanitation, solid waste management,power,bridges and roads, urban transport, bus terminals, public housing, shopping complexes,ports and other public facilities.Infrastructure services in India have been traditionally provided by public agencies operating at different levels of government viz., local, state and central. These include municipalities, utility boards, development authorities and government departments. For instance in India, water supply and sanitation, is provided by different institutions in different areas. While generally, municipal corporations are responsible for capital works and maintenance; a few cities have metropolitan utility boards that undertake this function. In smaller cities, project implementation is done by state level utility boards or the states Public Health Engineering Department whereas the maintenance function is done by the local bodies. The term municipal bodies is used to describe local administrations or statutory undertakings providing civil or infrastructural services. CARE undertakes rating exercise based on Information provided by the company In-house database and data from other sources that CARE considers reliable. CARE does not undertake unsolicited ratings The primary focus of the rating exercise is to assess future cash generation capability and their adequacy to meet debt obligations in adverse conditions. The analysis attempts to determine the long-term fundamentals and probabilities of change in these fundamentals which could affect the credit worthiness of the borrower The analytical framework of CAREs rating methodology is divided into two interdependent segments. The first deals with the operational characteristics and the second with the financial characteristics. Besides quantitative factors,qualitative aspects like assessment of management capabilities play a very important role in arriving at the rating for an instrument. The relative importance of qualitative and quantitative components of the analysis varies with the type of issuer Rating determination is a matter of experience and holistic judgement,based on the relevant quantitative and qualitative factors affecting the credit quality of the issuer. Financial analysis:

61 The term financial analysis is also known as analysis and interpretation of financial statements. It refers to the establishing meaningful relationship between various items of the two financial statements i.e. Income statement and position statement. It determines financial strength and weaknesses of the firm. Analysis of financial statements is an attempt to assess the efficiency and performance of an enterprise. Thus, the analysis and interpretation of financial statements is very essential to measure the efficiency, profitability financial soundness and future prospects of the business units.

3.5.4 In addition Rating Agencies also does sectoral analysis as stated below: Rating agencies has developed a rating methodology for debt issues of long term and short term. The rating procedure is designed to facilitate appropriate credit risk assessment, keeping in view the characteristics of the Indian infrastructure sector. Agencies rating looks at a time horizon over the life of the debt instrument being rated and covers the following areas: Demand analysis, Competition: The viability of the road project is critically dependent on the extent and nature of benefits to the users of the facility and their willingness to pay for the same. Agencies focus in rating toll road debt issues is on traffic demand and potential variation of demand due to economic changes and competition. The linkage of demand to toll pricing and the users willingness to pay is also examined critically. Demand Analysis
Demand analysis involves analysis of the toll road region in terms of economic strength

and diversity. For this, regional wealth indicators like: level of industrialisation, availability of facilitating infrastructure etc. Are examined. A sound and growing local economy assures a high level of commercial and business travel, the mainstay for revenue generation. Demand analysis is crucial as wrong estimation of demand or deterioration in the economic base would result in flat or declining traffic flow, adversely affecting debt servicing. Agencies traffic demand analysis is based on studies carried out by reputed traffic consultants, with adequate experience.

62

In order to comprehend risk, they considers it is essential to study the nature and composition of traffic as well as volatility of traffic due to business cycles, natural factors (floods, landslides, etc.), social unrest and escalation in fuel prices.

While commercial traffic tends to serve as a stabilising force, they would favorably

consider a balance between commercial and private vehicle traffic. Commercial traffic is less sensitive to toll increases than private traffic, since additional cost (tax deductible), can be passed on to customers. As a general rule, a diverse traffic mix cushions the impact of a decline in any one segment.

Focus on demand and potential variation of demand due to economic changes, as the most essential ingredient for commercially viable operation. In such a case, the capital programmes of the appropriate state, regional and

local authorities are examined to factor in any possible competing facility. Covenants in the Concession Agreement (CA) which explicitly prohibit the government from setting up competing facilities upto a stipulated period will reduce the risk of the project. Operating risks Agencies believes that port operations carry unique operating risks which it analyses in detail: Susceptibility to the vagaries of weather and other natural hazards Proportion of firm commitments for cargo movement Ability of the operator to maintain optimum operating conditions Changes in global shipping practices Contract terms with the shipping lines Customer profile and degree of diversification Competition from any other alternative mode Technology Operating risk covers the ability of the project to achieve the performance as envisaged. The evaluation is done by Considering the following factors. (a) Technology

63 (b) Fuel supply arrangements: - dedicated fuel linkages to the power plant; - Proximity of the plant to fuel sources; - Reliability of the transportation system to carry fuel from the source to the plant; - Flexibility of the plant use alternative fuels; and - In case of hydro electric power plants, the variability of rainfall in the catchment area and its impact utilisation. (c) Fuel cost risk arises when the PP is unable to pass on the rising cost of fuel to the purchaser. Toassess such risk, sensitivity analysis is carried out to study the effect of rising cost on the margins on the company. Project implementation risk: The risk associated with the completion of a Greenfield power project on time is quite high, due to the long gestation period and large investments involved. They analyses the following factors to estimate the risks associated with the completion of the project. The extent of tie-up for finance. Capability of the PP to raise additional resources in case of cost overruns. Contractor capability, based on technical and financial strengths as well as past experience. Political risks. Environmental issues. Cushion provided in the financing plan and construction schedule for possible delays. Financial Analysis An in-depth analysis of the projected operations is undertaken to assess the ability of the port operations to service its debt obligations. This would also entail a critical examination of the underlying assumptions in context of the above factors. They would also examine the following as part of its financial evaluation: Adequacy and stability of cash flow Coverage available for debt servicing

64 Financial flexibility Comparison with other sectors Factors which could have a critical impact on the servicing ability They will analyse each of the above factors and their linkages to arrive at the overall assessment of credit quality. The reduction in credit risk due to any credit enhancement provided is carefully evaluated before assigning the final rating. While the methodology encompasses comprehensive technical, financial, commercial, economic and management analysis, the credit rating is awarded by the rating committee on the basis of an overall assessment of all aspects.

CHAPTER-4 OBJECTIVE OF THE STUDY 4.1 PRIMARY OBJECTIVE: To know the credit worthiness of GMR infrastructure among the competitors by using the credit rating methodology 4.2 SECONDARY OBJECTIVE: To know the financial performance of the company. To know the financial position of the concern. To analyse the liquidity solvency position of the firm. To study the working capital management of the firm. To understand the profitability position and cash flow adequacy of the firm. To know the competitive position and managerial capability of the issuer. To understand the credit ratings given by the rating agency.

65

CHAPTER-5 RESEARCH METHODOLOGY 5.1 SCOPE OF THE STUDY: The present study is intended to cover the 3 key competitors of gmr and comparing the financial statements of the year 2010 and also an analysis and study of credit ratings of each competitor along with the GMR Infrastructure ltd. 5.2 SOURCES OF DATA: The project evaluates the credit ratings given by the rating agencies in India and finding the rankings of the companies by using the credit rating methodologies like business analysis and the financial analysis. The data is the first hand information that has to be collected during the period of the research. This data has been gathered through oral conversations with the employees in the finance department. Secondary data studies whole company records and companys balance sheet in which the project work has been done. In addition, a number of reference books, journals and reports are also used to formulate the theoriotical model for the study and some information also drawn from the websites. 5.3 TOOLS FOR THE STUDY: Cross sectional and time-series analysis: Weighted average ranking scale Credit rating methodologies: * financial analysis -comparative financial statements

66 -ratio analysis * business analysis -swot analysis

CHAPTER-6 DATA ANALYSIS AND INTERPRETATION 6.1. Financial analysis using 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, a ratio is used as a benchmark for evaluating the financial position and performance of firm. The absolute accounting figures reported in the financial statement do not provide a meaningful understanding of the performance and financial position of a firm. The relationship between two accounting figures, expressed mathematically is known as a financial ratio. Ratios help to summaries large quantities of financial data and to make qualitative about the firms financial performance. The point to note is that a ratio reflecting a quantitative relationship helps to form a qualitative judgment. Such is the nature of all financial ratios. 6.1.1 Significance of Using Ratios: The significance of a ratio can only truly be appreciated when: 1. It is compared with other ratios in the same set of financial statements. 2. It is compared with the same ratio in previous financial statements (trend analysis). 3. It is compared with a standard of performance (industry average). Such a standard may be either the ratio which represents the typical performance of the trade or industry, or the ratio which represents the target set by management as desirable for the business. 6.1.2 Comparative balance sheet: Comparative balance sheets as on two or more different dates can be used for comparing assets, liabilities, capital and finding out any increase or decrease in those items. In

67 the words of Foulke comparative balance sheet analysis is the study of the trend of the same items, group of items and computed items in two or more balance sheets of the same business enterprise on different dates. Such analysis often yields valuable information as regards progress of business concern

Comparative Balance sheet PARTICULARS sources of funds share holders funds share capital reserves and surplus deferred income preference shares issued by a subsidiary minority interest loan funds secured loans unsecured loans deferred payment liability deferred tax liability Total application of funds fixed assets: gross block less:revaluation reserve less:accumulated depreciation/amortization net block capital work-in-progress expenditure during construction

GMR

JPASSO

LANCO

Rs in Crs GVK

366.74 6300.32 200 1790.15 16229.4 4607.95 333.92 29828. 48

424.93 8075.79

238.547 3106.226

157.97 2998 178.65 250.05 4430.48 15 89.01 8119.1 6

710.819 11358.01 6550.7 956.08 27365. 51 7561.908 799.469 100.303 12517. 272

14889.6 4 2341.58 12548.0 6 10382.8 7 22930. 93 4641.0 5 80.47

12847.1 4 2228.46 10618.6 8 3891.68 14510. 36 5576.2 6 32.83 32.83 1553.63 1356.05 2285.03

6164.39 1086.66 5077.73 1328.08 8 595.641 7001.4 59 2022.8 92

4841.12 892.8 3948.32 1589.17 406.29 5943.7 8 1938.2 0.52 0.52 35.47 67.56

Investments deferred tax asset(net) foreign currency monetary difference account

item

translation 0.53 81 115.92 864.93 0 1626.70 8 2226.99

current assets,loans and advances Inventories projects under development sundry debtors

68
7 962.771 7.429 2180.02 9 7003.9 34 3411.51 99.503 3511.0 13 3492.92 1 12517. 272

cash and bank balances other current assets loans and advances less:current liabilities and provisions Liabilities Provisions

1682.62 161.65 1315.63 4140.7 5 1582.14 383.11 1965.2 5

3879.18 30.38 3994.72 13098. 99 5201.43 651.46 5852.8 9 7246.1 27365. 55

50.81 193.32 93.81 440.97 180.55 23.76 204.31 236.66 8119.1 6

w.c:current assets-current liabilities(net current assets) 2175.5 29828. Total 48

Table:6.1 6.1.3 Comparative profit and loss account: The profit and loss account is having an alternative term as revenue account. It shows the inflows of money from the sale of goods or services and the cost and expenses chargeable against it, over an accounting period and also we can say that profit and loss account is a report of the companys profit on the sale of their goods or the provision of their service over a trading period, normally one year.
COMPARITIVE ACCOUNT PARTICULARS Income PROFIT AND LOSS GMR 5123.42 JPASSO 3540.36 6566.19 82.36 LANCO 8107.556 rs in crs GVK 1786.635 9

sales and operating income Revenue asbestes sheets of sales less:revenue share paid/payable concessionaire grantors other income

to 556.91 4566.51 163.39 1582.87 11671.78 83.1 22.34 75.536 8032.02 183.944 8215.964 29.1825 1815.818 4

net income 4729.9 Expenditure increrase/decrease in stocks and work in progress exice duty on stocks

1054.231

69
2 generation and operating expenses selling and distribution expenses Personnal administration and other expenses interest and finance charges(net) depreciation/amortization 2576.59 5703.62 683.86 665.29 619.35 1055.79 456.06 2382.37 -0.7 2381.67 439.69 233.62 6149.377 23.9935 240.112 217.1 137.1201 1672.566 8 143.2616 24.1585 -9.2 0.2592 4.8052 -0.0142 123.2529 51.6838 -19.0621 155.8746 279.7382

625.61 722.33 612.24

431.148 355.411 347.88 7283.816 932.153 311.027 60.372 82.822 0.417

4536.77 prior period adjustments profit before taxation,minority interest and share of profits/losses of associates 193.13 provision for taxation current tax 70.76 less:MAT credit entitlement -4.41 deferred tax credit -98.56 income tax for earlier years fringe benefit tax profit after taxation and before minority interest/share of profits/(losses) of associates 225.34 share of profits/losses of associates -21.58 minority interest-profits/losses -45.36 net profit after minority interest/share of profits/losses of associates 158.4 surplus brought forward 778.36 debenture redemption reserve no longer required profit available for appropriation 936.76 appropriations: transfer from debenture redemption reserve -16.25 transfer to debenture redemption reserve 24.41 transfer to general reserve transfer of profits on minority on dilutionof interest in subsidiaries 12.68 preference dividend declared by a subsidiary 1.39 dividend distribution tax 0.41 available surplus carried to balance sheet 914.12 earnings per share 0.43 3667354 no of equity shares 392 price value 62.35

1708.36

567.87 -17.797 -91.524 458.549 779.553 1238.204

1708.36 1879.68 100 3638.04 117.32 483.44 240

-2.423 19

19.06 2645.03 0.4 2124634 633 150.45

1221.525 2.04 2407804 920 54.15

435.6128 1.02 15321890 62 44.85

Table:6.2 6.1.4 Cash flow statements:

70

Financial statements that reflects the inflow of revenue and outflow of expenses resulting from operating, investing and financing activities during a specific time period. Cash flow statements express a business results or plans in terms of cash in and out of the business, without adjusting for accrued revenues and expenses. It doesnt shows whether the business will be profitable, but it shows cash position of the business.
Rs.in crs. LANC O GVK

Cash flow statements PARTICULARS GMR JPASSO a.cash flow from/(used in) operating activities profit before taxation and minority interest/share profits/(losses) of associates 193.13 2006.79 adjustments for: depreciation/amortization 612.24 492.36 provision for diminution in value of investments 0.07 75.3 liabilities/provisions no longer required,written back -72.77 profit from sale of investments(net) -37.33 -8.49 loss from sale of fixed assets 3.85 0.98 interest on borrowings 1286.38 profit on sale of beneficiary trusts -1316.35 excess provisions/credit balance return back provision for doubtful advances and debts(net) 0.79 employee compensation expenses 211.94 effect of changes in exchange rates on transaltion of subsidiaries/joint ventures -21.97 loss/gain of foreign exchanges bad debts writtenoff 11.45 dividend income -1.58 -7.58 other income -1.99 interest income 256.66 -158.4 mark to market losses on derivative instruments 25.93 interest and finance charges 824.35 operating profit before working capital changes 1283.5 2581.73 adjustments for:

932.15 347.88

143.26 137.12 -1.98

-1.885 -14.61 0.83

-0.78 0.02

-0.62 2.11 57.08 75.53 -72.4 -7.09

0.059 2.66 -13.03

-62.16

-6.76

467.21 1724.6 4

208.47 468.408

71
304.41

(increase)/decrease in inventories increase in projects under development increase in sundry debtors trade and other receivables increase in loans and advances increase in current liabilities and provisions cash generated used in operations direct taxes paid net cash from operating activities b.cash flow from/(used in) investing activities purchase of fixed assets sale/ transfer of fixed asset proceeds from sale fixed assets purchase of investment-long term sale of shares held in trusts miscellanous expenditure refund of share application money proceeds from sale of investments-long term (purchase)/sale of investments-current(net) intercorporate deposites given consideration paid on acquisition of subsidiaries interest received dividend received other income direct taxes paid

15.96 210.86

-343.75 -2652.68 -688.85 6.56 -1175.16 1613.91 -658.23 -356.9 1015.13

2.708

-121.03 1292.0 1 341.98 470.2 314.51 155.61 1538.3 1 3.041 0.008 605.53 38.3 102.84 -1247.1 -35.78 61.48 375.78 -21.99 353.78

-90.74 304.35 18.71 -51.1 1251.1 1 6875.2 9

2.79 456.11

-1810.03 10508.02 8.21 -2958.86 1680.79 -29.95

-813.34

0.37 2718.4 9 185.95 171.85 1.58

37.02 1491.85 628.58 121 37.843 68.96 7.09

0.12 4.26 0.78 30.621 -112.63 9.039 15.308

132.04 7.58 1.19 223.71 9221.55 311

net cash used in investing activities c.cash flow from/(used in)financing activities proceeds on issue of preference shares 300 payment of debenture/share issue expenses -70.81 issue of common stock in consolidated entities 83.91

10059. 25

2840.9 727.3 -14.24

2112.93 705

83.48

72
proceeds from minority interest increase in capital reserve proceeds from ESOP shares(including securities premium) proceeds/repayments of short term borrowings 9143.7 proceeds from borrowings 5 repayments of borrowings 585.52 repayment of share application money interest and finance charges paid 761.51 dividend paid(including dividend distribution tax) 8109.3 net cash from financing activities 2 net increase/(decrease) in cash and cash equivalents 698.82 2466.5 cash and cash equivalents as at april 1 2 cash and cashequivalents on acquisation during the year 29.93 effect of changes in exchange rates on cash and cash equivalent 115.01 1682.6 cash and cash equivalents as at march 31 2 96.24 57 -83.98 0.44

61.81 591.92 15950.93 2864.8 603.37 848.41 2695.9 2 10.61 755.38 947.25 1094.32 -537.96 -0.29 -208.16

-1195.03 -195.27 14800.46 4563.78 3921.41

2004.46 245.49 178.14

8485.19

766

423.63

Table:6.3

6.1.5 Ratio analysis: An integral aspect of fundamental analysis involves performing what many would call ratio analysis. This involves calculating a number of different industry standard ratios and comparing them to various benchmarks. The benchmark can be the ratios of other competitors. Theres no set procedure for performing ratio analysis because it all depends on the type of company youre analyzing certain industries have industry specific ratios.
RATIO ANALYSIS ratios revenue

GMR JPASSO LANCO GVK 4566.51 10188.91 8032.02 1786.635

73
9 468.30

ebitda ebitda margin pat roe eps debt p/e equity D/E roce ebit Price/Book value book value ev mc ev/ebitda current ratio asset efficiency ocf ratio ocm cash ratio basic earning power opm EBITDA/Intetr est

1364.31

2411.35

1451.50

0.30 0.24 0.18 0.26 225.34 1708.36 567.87 123.2529 0.55 0.61 20,8 37.35
10 1.47 18.71 22.96 55.75

1.37 8.04 17,9 08.71 8,5 00.72 2.11 0.27 7 1,9 55.29 3.76 40.01 45,9 94.66 31,9 65.13 19.07 2.24 0.08 0.17 0.29 1.45 0.15 0.55 2.28

2.03 2.36 8,3 61.38 4,0 55.59 2.06 0.32 1,1 03.62 3.21 16.84 21,1 47.69 13,0 38.26 14.57 1.99 0.02 0.04 0.02 0.22 0.16 0.14 4.08

0.51 0.80 4,4 45.48 3,5 84.67 1.24 1.40 3 31.18 1.92 23.40 11,5 16.59 6,8 71.87 24.59 2.16 0.80 1.73 0.20 2.07 0.75 0.19 2.16

8,6 57.21 2.41 0.35 52.07 2.64 23.61 44,0 10.83 22,8 65.95 32.26 2.11 0.30 0.64 0.24 0.86 0.18 0.15 1.89

Table:6.4

74

1. EBITDA Margin: A measurement of a company's operating profitability. It is equal to earnings before interest, tax, depreciation and amortization (EBITDA) divided by total revenue. Because EBITDA excludes depreciation and amortization, EBITDA margin can provide an investor with a cleaner view of a company's core profitability.EBITDA margin measures the extent to which cash operating expenses use up revenue EBITDA MARGIN= EBITDA Total revenue .

Chart:6.1 Notes:EBITDA Margin is to measure the extent to which cash operating expenses use up revenues. Inference: Comparing the above graph the GMR is having the ratio of 0.30 as well as JPASSO-0.24, LANCO-0.18 and GVK-0.26. Here GMR is highest in its EBITDA margin ratio comparing with

75 the other companies. so GMR is using revenue for their expenses.this is very useful for investors to know the companies profitability position.

2.Return on equity: The amount of net income returned as a percentage of shareholders equity.return on equity measures a corporations profitability by revealing how much profit a company generates with the money shareholders have invested.

ROE is calculated as: Net income Return on equity=______________________ Share holders equity

Chart:6.2 Notes: It shows how well the company uses investment funds to generate earnings growth. Inference:

76 Comparing the above graph GMR is having the return on equity ratio as 0.55 as well as for JPASSO-1.37, LANCO-2.03 and GVK-0.51.Here LANCOs ratio is higher than the other companies. so Lanco uses the investment funds to generate earnings growth

3.Price to earnings ratio: A valuation ratio of a company's current share price compared to its per-share earnings. Calculated as: Price to earnings ratio= Market value per share . Earnings per share

Chart:6.3 Notes:In general,a high P/E suggests that investors are expecting higher earnings growth in future compared to the companies with lower P/E. Inference: By comparing the above graph GMR is having the price to earning ratio as 101.47 as well as for JPASSO is having the ratio as 18.71 and for LANCO and GVK is 22.96 and 55.75 respectively.

77 Here GMR is highest comparing with the other companies.so for GMR investors are expecting higher earnings growth in future period.

4.Debt to equity ratio: A measure of a companys financial leverage calculated by dividing its total liabilities by stock holders equity.It indicates what proportion of equity and debt the company is using to finance its assets. Debt to equity ratio = Total liabilities Shareholders equity A high debt/equity ratio generally means that a company has been aggressive in financing its growth with debt.This can result in volatile earnings and additional growth. .

Chart:6.4 Notes:Debt- equity ratio is that the low ratio of the company is exposing itself to large amount of equity this is betterthan a high ratio of 2 or more. Inference: By comparing the above graph GMR is having the debt to equity ratio as 2.41 ,JPASSO is having 2.11 and for LANCO and GVK are having 2.06 and 1.24 respectively.Here GVK is having the

78 less debt so it is exposing itself to large amount of equity where as GMR is having high ratio so one way to improve their situation would be to issue more debt and use the cash to buy back some of its outstanding shares.

5.Return on capital employed: This is considered to be the best measure of profitability in order to assess the over all performance of the business. As the primary objective business is to earn profit higher the Return On Capital Employed, the more efficient the firm is in using its funds. Return on capital employed= earnings before interest and tax . Net current assets

Chart:6.5 Notes:A ratio indicates the efficiency and profitability of companies capital investments.roce always should be higher than the rate at which the company borrows. Inference: By comparing the above graph GMR is having the ROCE as 0.35,JPASSO is having 0.27 as well as LANCO and GVK are having 0.32 and 1.40 respectively.Here GVK is having the high ratio

79 so that it indicates that GVK has investments. 6.Price to book value: A ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book value per share. Calculated as: Price to book value = Where, Book value = shareholders equity . No. of equity shares stock price Book value . high efficiency and profitability of companies capital

Chart:6.6 Notes:It is used to compare the stock market price to its book value. A lower P/B ratio could mean that the stock is undervalued. However, it could also mean that something is fundamentally wrong with the company. Inference:

80 By comparing the above graph GMR is having the price to book value as 2.64 ,JPASSO is having 3.76,LANCO is 3.21 ratio and GVK is having 1.92.Here JPASSO is having the high ratio than others and remaining all three companies having the lower ratio so that the stock is undervalued and also mean that something is fundamentally wrong with the company. 7.EV/EBITDA: EV/EBITDA is a measure of the cost of a stock which is more frequently valid for Comparisions across companies than the price to earnings ratio.like the P/E ratio, the EV/EBITDA ratio is a measure of how expensive a stock is.it measures the price in the form of enterprise value an investor pays for the benefit of the companys cash flow in the form of EBITDA Calculated as: EV/EBITDA= Enterprise value Earnings before interest and tax depreciation amortization .

Chart:6.7 Notes:It is a measure of how expensive a stock is.it measures the price an investor pays for the benefit of the companies cashflow. Inference: From the above graph the GMR is having the EV/EBITDA as 32.26,JPASSO as 19.07 ,LANCO is having 14.57 and GVK as 24.59.by comparing all the four companies GMR is having high

81 ratio with 32.36 so GMR stock is expensive than other companies and investors will pay the price for the benefit of the companies cashflows

8.Operating cash flow: A measure of how well current liabilities are covered by the cash flow generated from the companys operations. Formula: OCF Ratio = cash flow from operations Current liabilities The operating cash flow ratio can gauge a company's liquidity in the short term. Using cash flow as opposed to income is sometimes a better indication of liquidity simply because, as we know, cash is how bills are normally paid off. .

Chart:6.8 Notes:It is to measure how well the current liabilities are covered by the cashflow generated from the companys operations. Inference:

82 From the above graph GMR is having the operating cashflow ratio as 0.64,JPASSO as 0.17,LANCO as 0.04 and GVK is having the ratio as 1.73.by comparing all the four companies GVK is having the highest ratio.so that the current liabilities are covered by the cashflow generated from the companys operations. 9.Current ratio: The current ratio is the ratio of total current assets to total current liabilities. It is calculated by dividing current assets by current liabilities: Current assets Current Ratio = ________________ Current liabilities

Chart:6.9 Notes:This ratio measures the ability to pay its current liabilities.the ideal current ratio is 2:1 i.e,current asset must be twice current liabilities.if the current ratio is less ,the short term financial position is not supposed to be very sound. Inference: From the above graph GMR is having the current ratio as 2.11,JPASSO as 2.24,LANCO is having the ratio as 1.99 and the GVK as 2.16.by comparing all the four ratios JPASSO is having the high raio so that the company is having ability to pay its current liabilities and LANCO is

83 having the less ratio so that the short term financial position is not supposed to be very sound.Individually all the four companies are having the ability to pay its current liabilities.

10.Cash ratio: The ratio of a company's total cash and cash equivalents to its current liabilities. The cash ratio is most commonly used as a measure of company liquidity. It can therefore determine if, and how quickly, the company can repay its short-term debt. A strong cash ratio is useful to creditors when deciding how much debt, if any, they would be willing to extend to the asking party. Formula: cash ratio = total cash and cash equivalents Current liabilities .

Chart:6.10 Notes: This ratio is to find the liquidity position of the firm and also finds how quickly the company can repay its short term debt. Inference:

84 From the above graph GMR is having the cas ratio as 0.86 ,JPASSO as 1.45,LANCO as 0.22 and GVK as 2.07.by comparing all the four companies we have GVK with high ratio so the liquidity position of the firm is high and also the company can repay its short term debt very quickly.

11.Asset efficiency ratio: The asset efficiency ratio provides an indication of how well the assets of a company are utilized to generate a cash flow return. Formula: asset efficiency ratio = cash flow from operations. Total assets

Chart:6.11 Notes: The cfo and finance area must continually look at the companies efficiency.it is to know how well the company is using the assets and liabilities internally. Inference: From the above graph GMR is having the asset efficiency ratio as 0.30,JPASSO as 0.08,LANCO as 0.02 and GVK is having the ratio as 0.80.by comparing the ratios the GVK is having high ratio so that the company is using assets and liabilities internally.

85

12.Operating cash margin: The operating cash margin ratio highlights the timing of cash flows with respect to the timing of sales. Formula: Operating cash margin = cash flow from operations . Sales

Chart:6.12 Notes:This ratio is to evaluate the cash management performance as well as credit granting policies and receivable collection. Inference: From the above graph GMR is having the operating cash margin ratio as 0.24,JPASSO as 0.29,LANCO as 0.02 and GVK is having ratio as 0.20.By comparing all the four ratios JPASSO is having the high ratio so that the cash management performance is going well.

86

13.Operating profit margin: Company is used to measure a companys pricing strategy and operating efficiency Calculated as: Operating profit margin = earnings before interest and tax . Net sales Operating profit margin is a measurement of what proportion of a company's revenue is left over after paying for variable costs of production such as wages, raw materials, etc.

Chart:6.13 Notes:It indicates how effective a company is at controlling the costs and expenses associated with their normal business operations.

87 Inference: From the above graph GMR is having the operating profit margin as 0.15,JPASSO as 0.55 ,LANCO as 0.14 and the GVK is having the ratio as 0.19.by comparing all the four ratios JPASSO is having higher ratio with 0.55 so the company is very effective at controlling the costs and expenses associated with their normal business operations 14.Basic earning power: The basic earning power ratio compares earnings apart from the influence of taxes or financial leverage,to the assets of the company. Formula: Basic earning power = earnings before tax and interests . Total assets The ratio indicates basic probability of assets and is useful in comparing firms with different degree of leverage.

Chart:6.14

88 Notes:A business ability to generate profit from conducting its operations.earning power is to analyze stocks to assess whether the underlying company is worthy of investment. Inference:From the above graph GMR is having the basic earning ratio as 0.18,JPASSO as 0.15,LANCO as 0.16 and GVK is having the ratio as 0.75.by comparing the all companies GVK is having the high ratio with 0.75 so the company is having ability to generate profit from conducting operations so this is worthy of investment 15.EBITDA to interest coverage ratio: The ratio that is used to assess a companys financial durability by examining whether it is at least profitably enough to pay off its interest expenses. Formula: EBITDA to interest coverage ratio= EBITDA Interest payments A ratio greater than 1 indicates that the company has morethan enough interest coverage to pay off its interest expenses. .

Table:6.15

89 Notes: it examines whether it is atleast profitably enough to pay off its interest expenses.a ratio greaterthan 1 indicates that the company has morethan enough interest coverage to pay off its interest expenses. Inference: From th above graph GMR is having the EBITDA to Interest coverage ratio 1.89,JPASSO as 2.28,LANCO as 4.08 and GVK is having the ratio as 2.16.by comparing all the four companies LANCO is having the best ratio so that the company profitably enough to pay off its interest expenses.but individually all the companys are profitably enough to payoff their interest expenses. RATING SCALE: Constructed a rating scale based on a few key parameters to arrive at rankings for each of the companies under coverage Key parameters for rating:
EBIT DA MAR EBIT EB BE G DA IT P IN MA DA RGIN / 0.1 IN 8 0.3 T 0.3 2 4 7 0.34 1 2 0.1 6 0.18 4 1 0.8 2 0.27 3 3 EBI T DA / OP IN OP M T M 1.8 9 2.23 8 1 4.0 8 4 2.1 6 2 0.1 5 1.3 8 0.1 4 0.2

Com p Com anie p s anie s

EV/ EBI P D/ P/B EV RO D/ P/B T E E V / E PE E V DA EB IT 101. 2.4 2.6 32.2 DA GMR 5 1 4 6 JPASS 18.7 GMR 1 1 2.1 33.7 111.73 O 1 1 6 4 JPASS 4 2 1 4 2 LANC 22.9 2.0 3.2 14.5 O O 6 6 1 7 LANC 3 3 2 3 1 55.7 1.2 1.9 23.1 O GVK 5 4 2 5 GVK 2 4 4 2 4

CU CAS R H RO CU OC ASS OC CAS BE RO RO RE OC ASS OC FLO CE RR F ET M H P E CE NT F ET M W ENT FLO W 0.5 2.1 0. 0.3 0.2 5 0.35 1 64 0 4 0.86 1.3 3 3 2.22 0. 20.0 2 0.2 3 3 7 0.48 4 17 8 9 1.45 2 1 3 3 1 2 2 2.0 1.9 0. 0.0 0.0 3 0.32 9 04 2 2 0.22 4 4 4 4 4 4 4 0.5 2.1 1. 0.8 1 6.08 6 73 0 0.2 2.07 1 2 1 1 3 1 1

Table:6.5 Rank based on above parameters Table:6.6 Final rank of companies based on the above parameters
COMPANI ES Weighted average ranking Final ranking

90
GMR 2.40 2 JPASSO 2.07 4 LANCO 3.27 1 GVK 2.27 3 GMRINF JPASSOCIA Sectors RA T LANCO AIRPORTS N N POWER ROADS URBANINFRA N EPC N CEMENT N N IT N N SPORTS N N

GVKPIL N N N N

Table:6These are the final rankings given to all the companies by using ratio analysis and weighted average ranking scale methods . Sectors Involved in Infrastructure Ltd

Table:6.8 For my study I have refered three credit rating agencies in India. They are 1.Credit Rating and Information Services of India Limited(CRISIL). 2. Investment Information and Credit Rating Agency of India Limited (ICRA) . 3. Credit Analysis and Research Limited (CARE) Now we are looking at the ratings given to the companies concern: Rating GMR JPASSOCIAT LANCO GVK agencies ICRA N N N CRISIL N N N CARE Table:6.11 From the above table we have care rating as common for all the companies so we have choosen that to analyze

91

CARE RATINGS COMPAN RATIN IES GS GMRINFR A A(SO) JPASSOCI AT A+ LANCO GVKPIL APR2+

AMOUNT(rs.cr ores) 132 500 100 125

INSTRUMENTS secured non-convertible debenture long term bank facilities long term non-convertible debenture short term bank facilities

Table:6.12

92 . GMR Rating given by care Care has retained A(SO) rating to secured nonconvertible debenture issue for an outstanding amount of rs.132 Rating defines Instruments carrying this rating are judged to be of high quality by all standards. They also classified as high investment grade. They are rated lower than A+ Strengths: It established track record in terms of identification of strong operating assets, efficient project partners and project execution skills JPASSOCIAT Care has retained A+ rating to longterm bank facilities issue for an outstanding amount of rs.500 Debt instrument carrying the rating are considered to be of the best quality, carrying negligible investment risk. debt service payments are protected by stable cash flows with good margin. The rating draws comfort from the market dominance, expertise in hydro power project construction business, successful track record, satisfactory order book position and consistent profitability Increase in competition with construction, cement industries and inherent risk and cyclicality associated with real estate business, impact of increasing funding requirements on the capital structure, ability to infuse funds through alternative sources and consistency in profitability margin LANCO Care has retained a Arating to the long-term non-convertible debenture issue for an outstanding amount of rs.100 Instruments with this rating are considered upper medium instrument and have many favorable investment attributes. Safety for principal and interest are considered adequate. The experienced and resourceful promoters with established track record in engineering and construction business, order book position , comfortable profitability margins and low gearing levels. Project execution risk given the large size of projects under development, substantial funding requirements and sectorial concentration of the current order book are the key rating sensitivities. GVK Care has retained a PR2+ rating to short term bank facilities issue for an outstanding amount of rs.125 Instruments would have strong capacity for repayment of short term promissory obligations .issuer would have most of the characteristics as for those with PR-1 instruments but to a lesser degree. The experienced management, track record of successful execution of projects, well diversified portfolio of assets under operation and construction, financial flexibility, growth prospects in infrastructure sector Any delay in the financial closure of projects will bring additional financial risks and ability of the company to meet its investment commitments without much change in its financial flexibility along with access to relatively low cost funds for its projects under execution are the key rating sensitivities

Constrains: Corporate guarantees extended towards loans raised by its subsidiaries and group companies, limited experienced in hydro projects, elevated gearing, high term debt to gross cash accruals and moderate interest and large debt funded expansion plans mainly in energy sectors. table:6.13

93

Now we have to do the business analysis by using the swot analysis: Swot analysis of GMR: STRENGTH: WEAKNESS: 1.The rating given by the credit rating agency 1.The debt to equity ratio for GMR is high so is A and this is judged to be of high quality in one way to improve their situation would be to all standards and also classified as high issue more debt and use the cash to buy back investment grade highest earning growth in the group. some of its outstanding shares. future.so the sound so it has to improve investment 2.By the analysis the investors are expecting 2.Short term financial position is not very investors are having a good will on GMR 3.Earning power of GMR is not very worthy of 3. the EV/EBITDA is high so that the investors 4. EBITDA to interest is morethan 1 so the will pay the price for the benefit of the company is profitably enough to payoff their companies cashflows. identification of strong operating assets, interest but by comparing the GMR has to 4. It established track record in terms of improve. efficient project partners and project execution skills. OPPORTUNITIES: THREATS:

1.Earning power of GMR is not very worthy of 1.ROCE should be higher than the rate at investment but it is having the opportunity which the company borrows where as the roce from the investors who are going to invest in to is moderate the company by looking in to the future of 2. The GMR has to complete their projects GMR. 2.Get debt in lower interest rate( repayment on time both principle+interest and good Debt Service) Table:6.14 with in time.

94

Swot analysis for lanco: Strengths: Weakness:

1. The rating draws comfort from the market 1.Lanco uses only less revenue for their dominance, expertise in hydro power project expenses. construction business, successful track record, 2.The financial ,profitability position are not satisfactory order book position and consistent very sound. profitability generate the earnings growth 3.The company is not at all worthy for an 4.The cash management performance is very 2.The company uses its investment funds to investment 3.LANCO is having the high EBITDA to low. interest ratio so that the company is profitably 5.The company doesnt know to control the enough to payoff their interest expenses Opportunities: costs and expenses associated with their operations. Threats:

1.Price/book value is to compare the stock 1.The debt/equity is at high so that it would market value to the book value it is moderate expose the company to risk such as interest rate for lanco increases and creditor nervousness. 2.There is a chance to investors to expect 2.Corporate efficiency is not yet present in the earnings growth in the future. And stock value company Project execution risk given the large should be moderate. size of projects under development, substantial funding requirements and sectorial concentration of the current order book are the key rating sensitivities Table:6.15

95

SWOT analysis for GVK: Strengths: its rate at which the companies borrowed the cash flow generated by the company Weakness: means that stock is undervalued and the company

1.Return on capital employed is very high than 1.The price/book value ratio is very low it 2.Current liabilities are very well covered by something is fundamentally wrong with the 3.Business is having ability to generate profit 2.The company doesnt uses the investment from conducting its operations so the company funds properly to generate the earnings growth. is worthy of investment 4.Corporation efficiency and liquidity position is very good in the company 5.debt/equity ratio is very low so the industry risk is also very low Opportunities: Threats:

1.The company is very good at efficiency and 1.The main problem is that the company is liquidity position it is having a chance to having something fundamentally wrong. improve the profitability position also 2 Any delay in the financial closure of projects 2.The investors is having the moderate view on will bring additional financial risks and ability the company and the stock value is also of the company to meet its investment moderate.and the investors are having commitments without much change in its financial flexibility. expectation on the companies earning growth Table:6.16

96

SWOT analysis for JPASSO: Strengths: Weakness: 1.The rating given by the credit rating agency 1.By the analysis the investors are not is A+ and this is judged to be of high quality in expecting highest earning growth in the future. all standards than the A rank . book value very clearly. 3.The profitability position,liquidity position and the cash management performance is at good position. 4.The company is very effective in controlling the cost and expenses associated with their business operations. 5.ROCE is relatively high than the rate of the company borrows Opportunities: corporate efficiency coming future Threats: the company. is not very worthy to invest 3. Increase in competition with construction, cement industries and inherent risk and cyclicality associated with real estate business, impact of increasing funding requirements on the capital structure Table:6.17 Comparision of GMR and the JPASSOCIAT: 2.The EV/EBITDA is low so that the investors companies cashflows 2.They compare the stock market value to the will not pay the price for the benefit of the

1.They might get an chance to improve the 1.The investors are not having good view on 2.They have to reduce debt obligations in the 2.Stock value is very low so that the company

97 GMR JAYPEE 1.The credit rating retained by the care agency 1. Care has retained A+ rating to longterm is A(SO) rating to secured non-convertible bank facilities issue for an outstanding amount debenture issue for an outstanding amount of of rs.500 rs.132 2. Instruments carrying this rating are judged 2. Debt instrument carrying the rating are to be of high quality by all standards. They considered to be of the best quality, carrying also classified as high investment grade. They negligible are rated lower than A+ investment risk. debt service payments are protected by stable cash flows

with good margin. 3.comparatively EBITDA to interest ratio is 3.EBITDA to interest ratio is high these are low enough to payoff their interest 4.for GMR the investors are expecting more 4.relatively for JPASSO the investors are not earnings growth in the future expecting more earnings growth in the future 5.stock value is going to very expensive 5.stock value is going to be very cheap 6.the profitability position,liquidity position 6.The profitability position,liquidity position and cash management performance are in and cash management performance are in very moderate position good position 7.it is not very much effective to controlthe 7.it is very effective to control the costs and the costs and expenses associated with the normal expenses associated with the normal operations operations. 8.earning power is very low so that it is not 8.earning power is relatively high so it is worthy of investment 9.the debt/equity ratio is high Table:6.18 moderatly worthy of investment 9.the debt/equity ratio is relatively low so the company is having a less amount of risk

Comparision of GMR and LANCO: GMR LANCO 1. The credit rating retained by the care agency 1. Care has retained a A- rating to the longis A(SO) rating to secured non-convertible term non-convertible debenture issue for an

98 debenture issue for an outstanding amount of outstanding amount of rs.100 rs.132 2. Instruments carrying this rating are judged 2.Instruments with this rating are considered to be of high quality by all standards. They upper medium instrument and have many also classified as high investment grade. They favorable investment attributes. Safety for are rated lower than A+ principal and interest are considered adequate. Assumptions that do not materialize may have a 3.comparatively the EBITDA to interest is low greater impact as compared to the instruments rated higher. 3.here EBITDA to interest is very high thats

means it wil payoff their interests very quickly 4.it is to measure the extent to which cash 4.where as lanco uses only less revenue for operating expenses use up revenues their expenses 5.for gmr the investors are expecting higher 5.for lanco the investors are expecting lower earning growths in the future 6.debt-equity ratio is high earnings growth in the future. 6.debt-equitty ratio is very low so that the

company is not having risk 7.the shortterm financial position is supposed 7.the short-term financial position is relatively to be very sound 8.the profitability not very sound position,corporation 8.the profitability position, corporation

efficiency and cash management performance efficiency and cash management performance are moderate are very low 9.it is moderatly effective to controll the cost 9.the company is not effective to control the and expenses in associated with the normal costs and expenses in associated with the operations Table:6.19 Comparision of GMR and GVK: GMR GVK 1. The credit rating retained by the care agency 1.Care has retained a PR2+ rating to short term is A(SO) rating to secured non-convertible bank facilities issue for an outstanding amount debenture issue for an outstanding amount of of rs.125 rs.132 2. Instruments carrying this rating are judged 2. Instruments would have strong capacity for to be of high quality by all standards. They repayment of short term promissory obligations companys operations

99 also classified as high investment grade. They .issuer would have most of the characteristics are rated lower than A+ as for those with PR-1 instruments but to a lesser degree. 3. it is to measure the extent to which cash 3.where as gvk uses the revenue for their operating expenses use up revenues expenses were relatively low 4.the company uses the investment funds 4.the company uses the investment funds moderatly to generate earnings growth relatively low to generate earning growth 5. for gmr the investors are expecting higher 5.for gvk the investors are expecting moderate earning growths in the future earning growth in the future 6.debt-equity ratio is relatively low so that the 6.debt-equity ratio is very high so it is having risk involved less amount of equity and there is risk involved 7.price-book value ratio is high so that the 7.where as the ratio is very low so that the company fundamentals are going right stock is undervalued and something is fundamentally wrong in the company 8.profitability position and cash mangement 8.profitabilitty position and cash management performance are high 9.gmr stock is very expensive Table:6.20 performance are relatively low 9.gvk stock is moderatly expensive

CHAPTER-7 FINDINGS OF THE STUDY 1. The GMR credit worthiness is 2 when compared along with all the three competitors by doing the analysis and by comparing with ratings given by the agencies. 2. The GMR is uses moderate revenue for their expenses. 3. The GMR is not using more investment funds to generate earnings growth. 4. Price-earnings ratio is very high in GMR.so it means that investors are expecting higher earnings growth in the future.

100 5. Debt-equity ratio is high so, GMR is exposing itself to large amount of equity so that, the company is not having risk. 6. Stock is very expensive it means that the price an investors pays to the benefit of the companys cash flow. 7. The profitability position of the GMR is moderate among the competitors. 8. The GMR is not very worthy of investment because there is no ability to generate profits from conducting its operations. 9. The corporations efficiency is good at GMR because they are using its assets and liabilities internally. 10. The liquidity position of the company is moderate and short term financial position is not very sound. it indicates of working capital. 11. The cash management performance, credit granting policies, receivable collections are in the 2nd position by comparing with the competitors. 12. The asset efficiency and basic earnings are moderate. 13. The competitive position of GMR is good compared with the competitors concern 14. The managerial capability of issuer is very good at GMR.

CHAPTER-8 SUGGESTIONS, RECOMMENDATIONS AND CONCLUSION 8.1 Suggestions and recommendations: 1. The liquidity position of the company can be utilized in a better or other effective manner. 2. The company can be utilized the investment funds to increase their earnings growth.

101 3. The debt equity is not very effective. So to improve that situation would be to issue more debt and uses the cash to buy back some of its outstanding shares. 4. Efforts should be taken to increase the overall efficiency in return on capital employed by making used of the available resource effectively. 5. The company can increase its sources of funds to make effective research and Development system for more profits for the coming years.

8.2 CONCLUSION: The study is made on the topic comparative analysis and study of GMR Infrastructure ltd credit rating along with the competitors The current and liquid ratio indicates the short term financial position of GMR Infrastructure Ltd.whereas debt equity and proprietary ratios shows the long term financial position. Similarly, profitability ratios are helpful in evaluating the efficiency of performance in GMR Infrastructure ltd. The financial performance of the GMR has been analyzed and proved that the company is financially sound and also its credit worthiness of corporation is good CHAPTER-9 LIMITATIONS AND SCOPE FOR FURTHER STUDY

9.1 LIMITATIONS OF THE STUDY: The figures in a financial statement are likely to be last several months out of date, and so might not give a proper indication of the companys current financial position. The rankings given to the financial analysis alone we have to look at the business analysis also. In this study we analyzed the business analysis by using the financial analysis but we didnt consider entire business performance of the company.

102 This study need to be interpreted carefully.while doing ratios the formulas may differ from others

9.2 SCOPE FOR FURTHER STUDY: Financial performance covers the liquidity , leverage and profitability position of GMR Infrastructure ltd. It helps to the investors for decision making by the credit rating given to the company by the credit rating agencies. This study further includes the interior business projects and the analysis of each project of that company

BIBLIOGRAPHY BOOKS: M Y Khan and P K Jain Financial Management Fourth Edition-2006, Tata McGrew Hill publishing company limited, New Delhi. A.Murthy Management Accounting First Edition, S.Viswanathan (printers & publishers) private limited.

103 WEBSITES: WWW.NSEINDIA.COM WWW.MONEYCONTROL.COM WWW.INVESTOPEDIA.COM WWW.GMRGROUP.CO.IN WWW.JAYPEEGROUP.COM WWW.LANCOGROUP.COM WWW.GVKGROUP.COM