1.

1INTRODUCTION:

MEANING OF CAPITAL STRUCTURE: Capital structure is a key area

under financial management of a company. The capital structure is made up of debt
and equity securities and refers to permanent financing of a firm. It is composed of
long-term debt, preference share capital and shareholder’s funds.

In simpler terms, capital structure theory refers to a systematic approach to

financing business activities through a combination of equities and liabilities.

Capitalisation VS capital structure:

Capitalisation is a quantitative aspect of financial planning whereas capital structure is

the qualitative aspect. Capitalisation refers to total number of securities issued by the
firm whereas capital structure refers to the kinds of securities and proportionate
amounts that makeup capitalisation.

1.2 Definitions of capital structure:

According to Gerestenbeg “Capital structure of a company refers to the composition

or makeup of its capitalisation and includes all long-term capital resources viz: loans,
reserves, shares, bonds.”

1.3 Need: To understand the capital structure of the blue dart company and study
the impact of the capital structure in the changes of the share value in the market. To
understand the changes in the financial leverage of the company and how it affects
other financial aspects of the business.

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1.4 Scope: This study is related to a cargo company blue dart which is an Indian
logistics company providing courier delivery services headquartered in Mumbai,
Maharashtra. The scope is related to only one company which operates
internationally.

1.5 Objectives:

1- To determine the capital structure of the firm.

2- To assess the earnings per share and debt-equity mix of the cargo company.

3- To highlight the changes in the share price over the years of the cargo company.

4- To understand the debt-equity mix and its effect on the earnings of the shareholders
and share price of the firm by performing correlation.

5 - To analyse the performance of the company by comparing the financial

statements.

6 – To ascertain the impact of capital structure (choice of sourcing the assets) in the
share value of the firm.

1.6 Research Methodology

1.6.1Research Design

A research design is the specification of method and procedure for accruing the
information needs. It is overall operational pattern of framework of project that
stipulates what information is to be collected for source by the procedures.

Descriptive Research design is appropriate for this study.

Descriptive study is used to study the situation. This study helps to describe the
situation. A detailed description about present and past situation can be found out by
the descriptive study.

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1.6.2 DATA SOURCE AND COLLECTION

This research is based on secondary data. This means the data is already available, i.e.
the data which have been already collected and analysed by someone else.

Secondary data is used for the study of ratio analysis of this company and also its
competitors. To collect the data, company annual report, internet websites are used.

Analysing and interpreting the information available in the financial statements and
drawing meaningful conclusions from them.The data required for this project is
collected from secondary sources.

1- Sources of data:

Secondary data - journals and articles, several internet sites

2- Research tests:

 Correlation
 Ratio analysis

1.7 Limitations:

1 -It studies the policies and financial status of only one cargo company and this
cannot be generalized to every cargo company

2 - The study confines only to limited data provided and the entire financial position
of the firm is not studied

3 – The analysis is done only for the past 5 years. Therefore, the research cannot be
generalised for the performance of the company since its inception.

4 – The data is secured from secondary sources and is analysed based on the data
published .The discrepancies from the actual maybe present.

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 REVIEW OF LITERATURE

VIKY MARABE had conducted research entitled “CAPITAL STRUCTURE OF

COCA-COLA” (FALL 2007) found that Capital structure refers to the way a
corporation finances its assets through some combination of equity and debt. A firm's
capital structure is the composition of structure of its liabilities. According to
Modigliani-Miller theorem, in a perfect capital market (no transaction or bankruptcy
costs; perfect information); firms and individuals can borrow at the same interest rate;
no taxes; and investment decisions aren't affected by financing decisions. Modigliani
and Miller made two findings under these conditions. Their first 'proposition' was that
the value of a company is independent of its capital structure. Their second
'proposition' stated that the cost of equity for a leveraged firm is equal to the cost of
equity for an unleveraged firm, plus an added premium for financial risk. Looking at
changes in Coca-cola’s financing strategy over time, the long-term debt to equity ratio
has strongly decreased between 2002 and 2004.especially between 2003 and 2004.
Since then, the ratio has not changed in a significant way. The variations of the long-
term debt to equity ratio can be mainly explained by the significant decrease of long-
term debts over the period. Between 2003 and 2004, Coca-cola has cut its long-term
debts by more than 50 percent. According to Coca-cola, this evolution reflects
improved business results and effective capital management strategies. Even though
there was a significant change in the long-term debt to equity ratio over the period, it
is important to notice that this ratio always stays low. Coca-cola carries a long term
debt burden of less than one year’s current net earnings. In other words, the earnings
for a single year can wipe Coke’s balance sheet squeaky clean. As mention in trade-
off theory with the advantages of issuing debts, we suggest Coca Cola to issue more
debt and issue less equity because of tax benefit. However, Coca Cola also has a
problem with higher cost of debt and this is the problem Coca Cola has to fix in order
to issue more debt. By looking at the life cycle, Coca Cola is in mature growth stage
and is on the way to declining stage. This fact may help explain the underestimation
of its stock price; investors forecast that Coca Cola will decline in the future, and
unwilling to invest. Instead, investors prefer to invest in a potential company which is
in rapid expansion or high growth stage, even though investors cannot get any money
back now. They expect the stock price will increase sharply in the future, and then sell
it to gain more. Under this situation, we recommend that Coca Cola has to introduce

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some innovative products in order to bring it backward to rapid expansion or high
growth stage and attract investors. By doing so, we think Coca Cola has enough free
cash flow (because only companies with enough free cash and do not have big
projects with positive NPV to invest will attempt to pay dividends as substitutes for
debt! and credit to issue debts (the low long-term debt to equity ratio) to invest in this
kind of huge project. Otherwise, Coca Cola will lose its competitiveness in the future.

Kankan Deka in his Capital Structure Analysis of Indian Oil corporation discussed
about Capital Structure of a company refers to the composition of its capitalisation
and it includes all Long term Capital resources i.e. loans, reserves , shares and bond. It
shows a mix of a company’s long – term debt, specific short-term debt, common
equity and preferred equity. The capital structure is how a firm finances its overall
operations and growth by using different sources of funds. In finance, capital structure
refers to the way a corporation finances its assets through some combination of equity
, debt , or hybrid securities . A firm’s capital structure is then composed of its
liabilities. A company’s proportion of long term and short term debt is considered
when analysing capital structure. When people are referring to capital structure they
are most likely referring to a firm’s debt-equity ratio, which provides insight into how
risky a company is. From the above discussion it can be concluded that Indian oil
corporation limited is running with low debt fund. Therefore, they may increase it to
get benefits of low cost capital. It has found that IOCL largely employing
shareholder’s funds in their assets it has crossed even 100% in the first 2 years.
Moreover, EOL is in high degree financial risk. Therefore, they may reduce the debt
capital and employ more equity fund. The study undertaken has brought into light the
following conclusions. According to this project, I came to know that from the
analysis of the capital structure it is clear that IOCL have been doing a satisfactory
job. But the firm has certain areas to ponder upon like capital employment. So the
firm should focus on getting profits in the coming years by taking care internal as well
as external factors. And with regard to resources, the firm is utilising the borrowed
fund in the right place.

Nithin reddy in his research Capital structure analysis of IDBI Federal Life Insurance
explained about the term capital structure refers to the percentage of capital (money)
at work in a business by type. There are two forms of capital: equity capital and debt
capital. Debt includes loans and other types of credit that must be repaid in the future,

5
usually with interest. Equity involves selling a partial interest in the company to
investors, usually in the form of stock. In contrast to debt financing, equity financing
does not involve a direct obligation to repay the funds. Instead, equity investors
become part-owners and partners in the business, and thus earn a return on their
investment as well as exercising some degree of control over how the business is run.
Each has its own benefits and drawbacks. A company's proportion of short and long-
term debt is considered when analysing capital structure. When people refer to capital
structure they are most likely referring to a firm's debt-to-equity ratio, which provides
insight into how risky a company is. Usually a company more heavily financed by
debt poses greater risk, as this firm is relatively highly levered. It is the composition
of long-term liabilities, specific short-term liabilities like bank notes, common equity,
and preferred equity which make up the funds with which a business firm finances its
operations and its growth. The capital structure of a business firm is essentially the
right side of its balance sheet. Companies and small business owners trying to
determine how much of their startup money should come from a bank loan without
endangering the business. This project is done on CAPTIAL STRUCTURE on IDBI
Federal Life Insurance Company Limited with comparison to leading private
companies in India. The project is all about study of comparative analysis of IDBI
FEDERAL LIFE INSURANCE Co. Ltd with different private companies and LIC.
The objective of the project was to check the awareness level of Insurance, position of
company in term of size, Growth, Productivity, Grievance handling in market place
and attitude of the people towards insurance in the current market. The project relates
to the study of the financial analysis and the current performance of the company and
how effective the assets of the company are managed. Financial analysis is done using
ratio analysis and the trend projection graph provides the fluctuations that have
occurred. The study shows how effective the company is able to make use of its funds
and revenues generated. Future growth of the firm is also estimated in the analysis.

C. Rama Krishna in his Project on capital structure in ultra tech cement. The value
of the firm depends upon its expected earnings stream and the rate used to discount
this stream. The rate used to discount earnings stream is the firm’s required rate of
return or the cost of capital. Thus, the capital structure decision can affect the value of
the firm either by changing the expected earnings of the firm, but it can affect the
reside earnings of the shareholders. The effect of leverage on the cost of capital is not

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very clear. Conflicting opinions have been expressed on this issue. In fact, this issue is
one of the most continuous areas in the theory of finance, and perhaps more
theoretical and empirical work has been done on this subject than any other. If
leverage affects the cost of capital and the value of the firm, an optimum capital
structure would be obtained at that combination of debt and equity that maximizes the
total value of the firm or minimizes the weighted average cost of capital. The question
of the existence of optimum use of leverage has been put very succinctly by Ezra
Solomon in the following words. Given that a firm has certain structure of assets,
which offers net operating earnings of given size and quality, and given a certain
structure of rates in the capital markets, is there some specific degree of financial
leverage at which the market value of the firm’s securities will be higher than at other
degrees of leverage? The existence of an optimum capital structure is not accepted by
all. These exist two extreme views and middle position. David Durand identified the
two extreme views the net income and net operating approaches. Effectiveness of
financing decision on EPS and EBIT The overall cost of capita is thus the minimum
required rate of return on the assets of the firm. The above chart is an illustration for
the relation between actual WACC and actual ROA which describes the return on
assets are always more than WACC. So, the expectation of minimum return on assets
are alive.

Ultra tech CEMENTS Industries Ltd. The Funding Mix Particulars 2005-06 2006-
07 2007-08 2008-09 2009-10 Source of funds Share Holder's funds Share capital
(Paid up) 12448.59 12448.59 12448.59 12448.59 12448.71 Reserves and surplus
91378.38 163929.03 257173.32 347592.85 448217.19 Deferred Tax 57700.00
56000.00 54200.00 72300.00 83100.00 Total (A) 161526.97 232377.62 323821.91
432341.44 543765.90 Loan funds Secured Loans 122192.21 115125.39 98266.17
117579.01 85418.77 Unsecured Loans 22990.11 42737.99 75783.75 96583.13
75033.18 Total (B) 145182.32 157863.38 174049.92 214162.14 160451.95 Total
(A+B) 306709.29 390241.00 497871.83 646503.58 704217.85 % of S H funds in total
C.E. 52.66 59.55 65.04 66.87 77.22 % of Loan Fund in total C.E. 47.34 40.45 34.96
33.13 22.78 *C.E. means Capital Employed.

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 Theoretical Framework:

Capital Structure

A mix of a company’s long-term debt, specific short-term debt, common equity and
preferred equity. The capital structure is how a firm finances its overall operations and
growth by using different sources of funds.

Debt comes in the form of bond issues or long-term notes payable, while equity is
classified as common stock, preferred stock or retained earnings. Short-term debt such
as working capital requirements is also considered to be a part of the capital structure.
Components of Capital Structure

Shareholder’s Funds

- Equity capital

- Preference capital

Borrowed Funds

- Debenture

- Term Loan

Optimal capital structure:

“Optimal capital structure may be defined as that combination of debt and equity that
leads to maximum value of the firm”

An optimal capital structure is the objectively best mix of debt, preferred stock, and
common stock that maximizes a company's market value while minimizing its cost of
capital. ... However, too much debt increases the financial risk to shareholders and the
return on equity that they require. Therefore, a perfect balance of debt and equity is
necessary for a firm.

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Importance of capital structure:

Financing the firm’s assets is a very crucial problem in every business and as a
general rule there should be a proper mix of debt and equity capital in financing the
firm’s assets. The use of long-term fixed interest bearing debt and preference share
capital along with equity shares is called financial leverage.

Theories of capital structure:

These theories explain the relation between capital structure, cost of capital and value
of the firm. Some important theories are:

1) Net income approach

2) Net operating income approach

3) The traditional approach

4) Modigliani and miller approach

Factors determining capital structure:

1) Financial leverage

2) Growth and stability of sales

3) Cost of capital

4) Nature and size of the firm

5) Requirements of the investors

6) Capital market conditions

7) Assets structure

8) Purpose of financing

9) Costs of floatation

10) Corporate tax rate.

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COMPANY PROFILE

Blue Dart Express Ltd., South Asia's premier express air and integrated
transportation & distribution company, offers secure and reliable delivery of
consignments to over 35,000 locations in India. As part of the DPDHL Group’s (DHL
Express, DHL Global Forwarding & DHL Supply Chain) Post - E-commerce - Parcel
(PeP) division, Blue Dart accesses the largest and most comprehensive express and
logistics network worldwide, covering over 220 countries and territories and offers an
entire spectrum of distribution services including air express, freight forwarding,
supply chain solutions and customs clearance.

The Blue Dart team drives market leadership through its motivated people force,
dedicated air and ground capacity, cutting-edge technology, wide range of innovative,
vertical specific products and value-added services to deliver unmatched standards of
service quality to its customers. Blue Dart's market leadership is further validated by
numerous awards and recognitions from customers for exhibiting reliability, superior
brand experience and sustainability which include recognition as one of ‘India's Best
Companies to Work For’ by The Great Place to Work® Institute, amongst the Top 25
Best Employers in India 2016 by AON Hewitt, voted as a Superbrand, listed as one of
Fortune 500’s India's Largest Corporations and Forbes India's Super 50 Companies
and voted Reader’s Digest Most Trusted Brand to name a few.

Blue Dart accepts its social responsibility by supporting climate protection

(GoGreen), disaster management (GoHelp) and education (GoTeach).

Our vision is to establish continuing excellence in delivery capabilities focused on the

individual customer. In pursuit of sustainable leadership in quality services, we have
evolved an infrastructure unique in the country today:

State-of-the-art Technology, indigenously developed, for Track and Trace, MIS,

ERP, Customer Service, Space Control and Reservations.

Blue Dart Aviation, dedicated capacity to support our time-definite morning

deliveries through night freighter flight operations.

A countrywide Surface network to complement our air services.

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 Warehouses at 85 locations across the country as well as bonded warehouses at the 7
major metros of Ahmedabad, Bangalore, Chennai, Delhi, Mumbai, Kolkata and
Hyderabad.

ISO 9001:2015 countrywide certification by Lloyd's Register Quality Assurance for

our entire operations, products and services.

E-commerce, B2B and B2C initiatives including partnering with some of the prime
portals in the country.

Competitive Advantage of blue dart express

1) Our vast and unparalleled Domestic Network

Linked by some of the most advanced communications systems and positioned to

offer a consistent, premium, standardized quality of service.

2) A spectrum of services to provide customized solutions.

We are the only express carrier in the country today which offers an entire range of
services that extend from a document to a charter-load of shipments. Our services are
relentlessly monitored to deliver a net service level of 99.96%.

3) Our Customs and Regulatory expertise

We have a dedicated team of specialists who provide the expertise for customs as well
as regulatory clearances at all States within the country, to support seamless service to
the customer.

4) Our Technology

Designed to enhance the reliability of our operations and process efficiency, and add
value to the customer through time and cost savings.

5) Our Air Network

The only one of its kind in the country today, that is focused on carriage of packages
as its prime business, rather than as a by-product of a passenger airline. A dedicated

11
aviation system to support Blue Dart's services is self-sustaining, with its own bonded
warehouses, ground handling and maintenance capability.

6) Our financial credibility

Fitch Ratings India Pvt. Ltd. has assigned the highest "F1+(ind)" [F one plus (ind)]
rating for our short term debt programme of ₹ 30 crores.

Further, ICRA Ltd. has also assigned the highest "A1+" (pronounced A one plus)
Rating for our Commerical Paper Programme of ₹ 25 crores.

7) Our People force

Committed, diverse and over 11,000+ strong are our most valued asset. All our
achievements have been possible because we have a team who believes in themselves
and their company, a team with a winning attitude. We are a learning organization, we
value self-development, and most of our managers are homegrown.

8) Our Sustainability Initiatives

Blue Dart’s commitment towards the betterment of the environment and communities
has been unwavering since its inception in 1983. Over the years, the company has
been consistently reporting on its corporate responsibility performance, and each year,
expanding its scope to include a higher number of beneficiaries that can be impacted.
As part of its Corporate Social Responsibility, Blue Dart runs various programs for
the upliftment of disadvantaged, vulnerable, underprivileged and marginalized
sections of society. All programs are classified under the 3 pillars of Living
Responsibility – GoTeach, GoGreen and GoHelp. These include students and young
adults from poor financial backgrounds, hearing impaired, women, senior citizens,
etc. in areas of education, preventive healthcare, women empowerment, sanitation,
waste management etc.

Blue Dart has partnered with several non-profit organizations of high repute in
various capacities to run programs that are aligned under the 3 pillars. Blue Dart
works closely with each of its NGO partners to identify the stakeholders and
beneficiaries of each intervention. Blue Dart also extends assistance to various NGOs
by providing free of cost logistics support to them. The company reaches out to help
in the best possible way to support NGOs that work for the elderly, less privileged

12
children, disabled people, those providing relief material in disaster hit areas and
many more noteworthy causes.

As part of DPDHL Group, Blue Dart also celebrates Global Volunteer Day (GVD), an
opportunity to employees, partners, customers and various other stakeholders to
become responsible citizens and conducting initiatives that benefit the environment,
communities and society. In 2017, Global Volunteer Day (GVD) was celebrated from
18th September to 1st October, Great volunteering efforts were witnessed from over
4,209 XBU employees who spent over 10,501 employee hours and came together to
participate in various activities under the GoGreen, GoHelp and GoTeach pillars.
GVD is an opportunity for employees, partners, customers and various other
stakeholders to become responsible citizens by helping those in need. Volunteers
participated in various initiatives which included blood donation drives, planting
saplings, teaching children from marginalized sections of society, cleaning their
schools and volunteering time with senior citizens and underprivileged children in
many old age homes and orphanages.

MARKET SCENERIO

The industry research publication titled 'India Cargo Handling and Transport Industry
Outlook to 2019 - Aided by Infrastructure Development' presents a comprehensive
analysis of market size by volume and value of major segments of cargo including
Road, Rail, Water and Air in India. The report entails the market share analysis and
company profiles of major players in the cargo transport industry. The future analysis
has also been discussed in each sub-industry.

The economy of India has more than doubled since the last decade, which is
supported by growing contribution of foreign trade. Foreign trade represented 20% of
the country's Gross Domestic Product (GDP) in 2000, which increased to 42% in
2012. This development has been accompanied by a phenomenal rise in the volume of
freight traffic movement. Being one of the largest consumer markets in the world,
India's logistics sector is driven by industries such as automobile, pharmaceuticals,
Fast-moving consumer goods (FMCG) and retail. Furthermore, the government of
India lays emphasis on increasing manufacturing and exports, which has made

13
logistics an imperative sector to achieve the desired levels of development foreseen
for the country.

The strong relationship between domestic and international trade and logistics
infrastructure is widely accepted. While growth in trade stimulates the requirement for
supporting infrastructure, availability of infrastructure at competitive rates promotes
trade and improves global competitiveness of a country. In developing countries such
as India, an efficient logistics infrastructure can reduce cost of transportation which in
turn can contribute directly to economic development. However, India lags behind
several other countries in the global setup in terms of logistics infrastructure and
services. Inadequate infrastructure is the major bottleneck impacting the development
of logistics and the efficient movement of cargo in the country.

The Domestic Cargo Transport Industry in India comprises of several modes

including Roadways, Railways, Inland Waterways, Coastal Shipping and Airways,
whereas transportation of goods to and from foreign territories is largely done through
seaways and airways. The industry has grown manifold both in terms of value and
volume on account of intensifying industrial and manufacturing activities, in addition
to increasing consumption of commodities. Additionally, since the industry is
gradually dealing with and surpassing its shortcomings, it is bound to come closer to
the realization of its potential in the future. The same in turn will not only augment
the competitiveness of the country, but will also create more opportunities for
domestic businesses and foreign enterprises operating in India.

The road freight industry in India is highly unorganized with several small players
operating in the industry. It was estimated that the organized sector accounted for a
~% in the revenue of the road freight industry in India, with INR ~ million generated
as income by the players in the organized segment of the industry. On the other hand,
the INR ~ million domestic air cargo transport industry is composed of Indian carriers
and is largely dominated by private airlines. IndiGo is the market leader with a share
of ~% in FY'2009 and expanded its presence to ~% of the total volume of air cargo
carried by Indian carriers domestically in FY'2014.

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The cargo transport industry of India witnessed the transportation of ~ million tons of
cargo in FY'2014, increasing from ~ million tons in FY'2009, growing at a CAGR of
6.1% during the period. The government of India is likely to enhance investments in
the logistics sector in the form of Dedicated Freight Corridors (DFCs), simplification
of tax structure, development of national highways, expanding the reach of the
railways and port infrastructure development, which will play a central role in the
future of the industry. However, fluctuating fuel prices will continue being an
important determinant of the profitability of the companies operating in the sector.

Air Cargo Logistics play a vital role in the economic development of a nation.
Airlines, Air Cargo terminal operators, Ground Handling service providers, Integrated
Express Service Providers, Forwarders, Domestic Cargo Transport service providers
and Custom House Agents are the key players in the entire Air Cargo supply chain.
Thus the Air Cargo industry presents a wide variety of service providers coming
together to move goods both domestically and internationally with a single minded
purpose of faster and efficient delivery. These business entities in Air Cargo logistics
industry in turn interact with a number of cross-border regulatory agencies the
principal among them is the Customs establishment. Speedier services in the Air
Cargo supply chain facilitate large number of business entities to become more
competitive. Globally, more than one – third of the value of goods traded
internationally is transported by air and therefore Air Cargo industry is considered as
a barometer of Global Economic Health. From the point of view of Airline industry,
Air Cargo Services contribute near about 20% of their revenue. India’s international
Air Trade to GDP ratio has doubled from 4% to 8% in the last twenty years.

15
 DATA ANALYSIS and INTERPRETATION:

Share Capital
45

40

35

30

25 Authorized Capital (Rs. cr)

20 Issued Capital (Rs. cr)

15

10

0
2018 2017 2016 2015 2014 2013

Authorised Capital: The maximum equity capital a company can raise,which is

mentioned in the Memorandum of Association and Articles of Association of the
company. However, share premium is excluded from the definition of authorised
capital.

Issued Capital: Issued capital is the amount of nominal value of share held by the
shareholders. It is the face value of the shares that have been issued to the
shareholders. Issued share capital and share premium represent the amount invested
by the shareholders in the company. It is also known as the subscribed capital or
subscribed share capital.

Analysis: But here, Blue dart express has issued capital in the same ratio as the
authorised capital over the years. Blue dart express has issued limited share capital
compared to the authorised capital over the years.

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Paid up Capital

From To Instrument Shares Face Capital

(nos) Value

2017 2018 Equity Share 23727934 10 23.73

2016 2017 Equity Share 23727934 10 23.73

2015 2016 Equity Share 23727934 10 23.73

2014 2015 Equity Share 23727934 10 23.73

2013 2014 Equity Share 23727934 10 23.73

2012 2013 Equity Share 23727934 10 23.73

The amount of company’s capital that has been funded by shareholders, Paid-up
capital can be less than a company’s total capital because a company may not issue all
of the shares that it has been authorised to sell. Paid-up capital can also reflect how a
company depends on equity financing.Here, from 2013 to 2018, the company’s Paid
up capital remains same. It means Blue dart express collected average funded by
shareholders and they have to issue more share capital to shareholders in future
periods.

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 Total Debt

Blue dart express has two debts:

 Secured loan
 Unsecured loan

Total debt means a combination of both short-term and long-term debt, it includes
debentures, bonds, long-term debts, short-term loan etc. But Blue dart express did not
issue debentures and bonds.

Secured Loan:

Secured loans are those loans that are protected by an asset or collateral of some sort.
The item purchased, such as a home or a car, can be used as collateral, and a lien is
placed on such item. The finance company or bank will hold the deed or title until the
loan has been paid in full, including interest and all applicable fees. Other items such
as stocks, bonds, or personal property can be put up to secure a loan as well.

Secured loans are usually the best way to obtain large amounts of money. A lender is
not likely to loan a large amount with assurance that the money will be repaid. Putting
your home or other property on the line is a fairly safe guarantee that you will do
everything in your power to repay the loan.

Secured loans usually offer lower rates, higher borrowing limits and longer repayment
terms than unsecured loans. As the term implies, a secured loan means you are
providing “security” that your loan will be repaid according to the agreed terms and
conditions. It is important to remember, if you are unavle to repay a secured loan, the
lender has recourse to the collateral you have pledged and may be able to sell it to pay
off the loan.

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Unsecured Loan:

On the other hand, unsecured loans are the opposite of secured loans and include
things like credit card purchases, education loans, or personal loans. Lenders take
more of a risk by making such a loan, with no property or assets to recover in case of
default, which is why the interest rates are considerably higher. If you have been
turned down for unsecured credit, you may still be able to obtain secured loans, as
long as you have something of value or if the purchase you wish to make can be used
as collateral.

When you apply for a loan that is unsecured, the lender believes that you can repay
the loan on the basis of your financial resources. You will be judged based on the five
C’s of credit – Character, Capacity, Collateral, Capital and Conditions- these are all
criteria used to asses a borrower’s creditworthiness. Character, capacity, capital, and
other collateral refer to the borrower’s willingness and ability to repay the debt.
Conditions include the borrower’s situation as well as general economic factors.

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 Secured Loans

Secured Loans
200

180

160

140

120

100 Secured Loans

80

60

40

20

0
2018 2017 2016 2015 2014
in crs. ( 0.00) (173.18) (3.09) (0.00) (0.00)

Analysis: In 2018 the secured loan has dropped significantly from 2017. Blue dart
express has tried to reduce the secured loan because secured loan affects the assets of
the company and it will affect the future. So, Blue dart express is increasingly moving
from secured debt to unsecured debt in order to free their assets.

Secured loans have the largest possible impact on company’s credit when they are
repaid. If company has never taken a secured loan, Company’s credit may be low
despite the good record of repayment. As seen in the above figure secured loans are
taken by blue dart only on 2017 and 2016. Blue dart express tries to vary its capital
structure as it does not want any charge on its assets.

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Unsecured loans

450
Unsecured Loans
400

350

300

250

200

Unsecured Loans
150

100

50

0
2018 2017 2016 2015 2014
Incrs. (406.11) (309.85) (392.19) (332.19) (0.00)

Analysis: The amount of unsecured loan obtained by Blue dart express has been
fluctuating over the years based on its requirements. However, unsecured loans of this
company are always higher than the secured loans.Unsecured loan is better than
secured loan as secured loan affects the assets of the company in the future so the
Blue dart express has been increasing the unsecured loans for reducing the risk of the
company.

In some cases, Blue dart express may be able to reduce unsecured debts by
negotiating with creditors for a lower balance. Either BDE can talk to its creditors on
its own or take the help of credit counselling organisation.

21
 EARNING BEFORE INTEREST AND TAX

Earnings before interest and tax is a measure of earning power from on-going
operations, equal to earnings before deduction of interest payments and income tax.
EBIT excludes income and expenditure from unusual, non-recurring or discontinued
activities. In the case of BDE with minimal depreciation and amortization activities,
EBIT is watched closely by creditors, since it represents the amount of cash that a
company will be able to use to pay off creditors. It is also called operating profit.

As you can rearrange the formula to be calculated as follows:

EBIT=Total revenue – (Cost of goods sold + operating expenses)

Also known as Profit before interest and tax, EBIT equals Net income with interest
and taxes added back to it.

EBIT was the precursor to the EBITDA calculation, which includes depreciation and
amortization expenses.

Financial managers spend a considerable amount of time analysing and understanding

their EBIT. The calculation of EBIT is useful because it provides a look at how
profitable a business is before loan decisions and tax considerations are included to
arrive at net income. If you plan on improving EBIT while holding sales constant,
your only option will be to reduce costs.

22
 EBIT

350

300

250

200
EBIT

150

100

50

0
(In crs) 2018 2017 2016 2015 2014
(237.64) (245.52) (319.53) (204.77) (187.40)

Analysis: In 2018 the operating profit of Blue Dart express is 237.64 crores. At
present Blue Dart Express is earning average operating profit. So, BDE has to try and
reduce the long term borrowed funds and issue more share capital to shareholders in
different areas.

Studying the internal structure of BDE helps in understanding the areas where
operations are centralized. It has to consider introducing new long-term cost saving
technologies for inventory, production and sales. These systems can greatly increase
efficiency, creating cost savings.

23
 EPS

Earnings per share represent a portion of a company’s profit that is allocated to one
share of stock. Therefore, if you were to multiply the EPS by the total number of
shares a company has, you would calculate the company’s net income. EPS is a
calculation that many people who watch the stock market pay attention to.

Net Income – Preferred dividends = Total earnings available to common shareholders

Earnings available to common shareholders / outstanding shares listed in the balance

sheet = EPS

In simple terms, EPS = Net income – preferred dividends / outstanding shares

When calculating, it is more accurate to use a weighted average number of shares

outstanding over the reporting term, because the number of shares outstanding can
change over time. However, data sources sometimes simplify the calculation by using
the number of shares outstanding at the end of the period.

Diluted EPS expands on basic EPS by including the shares of convertibles or warrants
outstanding in the outstanding shares number.

24
Earnings per share of shareholders of Blue dart express from 2014-2018

EPS

90

80

70

60

50
EPS
40

30

20

10

0 2018 2017 2016 2015 2014

In Rs. (59.89) (58.82) (80.07) (53.46) (52.43)

In 2018, the EPS of shareholders is 59.89 which is an increase of 14.22% compared to

that of 2014. The trend observed in the changes of the EPS over the years is more or
less same except for 2016 where there is an increase of 52.71% and this is the year
with the highest EPS. In 2016, EBIT was also observed to be the highest and
unsecured loans were 389.1 crores more than secured loans.

Though EPS is fairly high compared to previous years, BDE can increase its EPS by
increasing earnings or decreasing the number of shares. In order to increase earnings,
a business has to increase the revenue generating operations and cut down the
expenses. For decreasing the number of shares, it can do a share buyback from its
shareholders.

25
Leverage

The degree to which an investor or business is utilising its borrowed money.

Companies that are highly leveraged may be at risk of bankruptcy if they are unable
to make payments on their debt; they may also be unable to find new lenders in
future. Leverage is not always bad, however; it can increase the shareholder’s return
on investment and often there are tax advantages associated with borrowing.

Financial Leverage:

Financial leverage is a leverage created with the help of debt component in the capital
structure of a company. Higher the debt, higher would be the financial leverage
because with higher debt comes the higher amount of interest that needs to be paid.
Leverage can be both good and bad for a business depending on the situation. If a
firm is able to generate a higher return on investment(ROI) than the interest rate it’s
paying, leverage will have its positive effect on shareholder’s return. The darker side
is that if the said situation is opposite, higher leverage can take a business to a worst
situation like bankruptcy. The degree of financial leverage can be calculated as
follows:

DFL = %change in EPS / %change in EBIT

Where EPS is Earnings per share and EBIT is Earnings before interest and tax

The Financial leverage of a company is the debt and equity mix.

Each industry has different debt to equity ratio benchmarks, as some industries tend to
use more debt financing than others. A debt ratio of .5 means that there are half as
many liabilities than there is equity. In other words, the assets of the company are
funded 2-to-1 by investors to creditors. This means that investors own 66.6 cents of
every dollar of company assets while creditors only own 33.3 cents on the dollar.

26
A debt to equity ratio of 1 would mean that investors and creditors have an equal
stake in the business assets.

A lower debt to equity ratio usually implies a more financially stable business.
Companies with a higher debt to equity ratio are considered more risky to creditors
and investors than companies with a lower ratio. Unlike equity financing, debt must
be repaid to the lender. Since debt financing also requires debt servicing or regular
interest payments, debt can be a far more expensive form of financing than equity
financing. Companies leveraging large amounts of debt might not be able to make the
payments.

Creditors view a higher debt to equity ratio as risky because it shows that the
investors haven’t funded the operations as much as creditors have. In other words,
investors don’t have as much skin in the game as the creditors do. This could mean
that investors don’t want to fund the business operations because the company isn’t
performing well. Lack of performance might also be the reason why the company is
seeking out extra debt financing.

27
 Debt Equity
1.2

0.8

0.6
Debt Equity

0.4

0.2

0
Ratio 2018 2017 2016 2015 2014
(0.76) (1.12) (1.04) (1.08) (0.00)

On an average the debt-equity ratio of Blue Dart express has been more than one
which means that the outsiders or creditors have more say in its operations than the
actual owners. However, the ratio has decreased in the year 2018 which is a
remarkable sign of progress for the company.

The optimal debt-equity mix of the firm would be by comparing the average debt-
equity mix of the industry with the firm.

28
The average debt-equity mix of the transport and logistics sector is as follows:

2018-0.37

2017-0.37

2016-0.37

2015-0.4

2014-0.37

By comparing the debt-equity mix of the industry with the firm shows that the
company is trying to move to the industry average over the years and in 2018 it has
been the closest to the average.

The debt-equity mix not only affects the creditors from whom the outside liabilities
are taken but also the equity shareholders. The debt-equity mix determines the
financial position of the firm i.e. the market value and the ability of the company to
repay its debts. Therefore, the debt-equity mix of a company affects the market value
of the shares i.e. share price and also determines the EPS of its shareholders as the
company has to pay the shareholders after paying the outsiders.

share price of blue dart

8000

7000

6000

5000

4000
share price of blue dart
3000

2000

1000

0
2018 2017 2016 2015 2014
in rs (3768.75) (5203.5) (6133.85) (7135.3) (3535.95)

29
Relation Between debt-equity and the share price:

The share price over the years of the Blue dart express is affected by the debt-equity
mix of the company.

To prove the relation between the share price and debt-equity mix, a correlation test is
performed and the results are analysed as follows:

Correlation: Correlation is a statistical measure that indicates the extent to which two
or more variables fluctuate together. A positive correlation indicates the extent to
which those variables increase or decrease in parallel; a negative correlation indicates
the extent to which one variable increases as the other decreases.

There are three types of correlation: positive, negative, and none (no correlation).

Positive Correlation: as one variable increases so does the other. ...

Negative Correlation: as one variable increases, the other decreases. ...

No Correlation: there is no apparent relationship between the variables.

Importance of correlation :(i) Correlation helps us in determining the degree of

relationship between variables. It enables us to make our decision for the future
course of actions. (ii) Correlation analysis helps us in understanding the nature and
degree of relationship which can be used for future planning and forecasting.

The whole purpose of using correlations in research is to figure out which variables
are connected.

Correlation is a technique for investigating the relationship between two quantitative,

continuous variables, for example, age and blood pressure. Pearson's correlation

30
coefficient (r) is a measure of the strength of the association between the two
variables.

Formula of correlation(r) =

Here, X variable is the debt-equity ratio and the Y variable is the share price of the
company over the years

X variable Y variable

2018 0.76 3768.75

2017 1.12 5203.5

2016 1.04 6133.85

2015 1.08 7135.3

2014 0.00 3535.95

After applying the statistical tools in excel, the correlation value turns out to be

r=0.748493.

This shows that both the debt-equity ratio and the share price are positively correlated.
So, the correlation between debt-equity and share price is r= 0.748493. So, we can
say that r for Pearson’s (r) equals 0.75. Now, that indicates a very strong correlation
between the variables.

31
Relation between EPS and debt-equity:

The degree of impact of one variable on the other can be measured by performing a
correlation test.

Here, the two variables EPS and Debt equity are analysed :

Variable X Variable Y

2018 0.76 59.89

2017 1.12 58.82

2016 1.04 80.07

2015 1.08 53.46

2014 0.00 52.43

After performing the correlation test the result is r=0.41328. This shows that both the
variables are positively correlated. In simple terms, the change in Variable X (debt-
equity) results in a change in the value of variable Y (EPS).

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Relation between EBIT and Debt-equity:

Here, EBIT and Debt-Equity are analysed:

Variable X Variable Y

2018 0.76 237.64

2017 1.12 245.52

2016 1.04 319.53

2015 1.08 204.77

2014 0.00 187.4

The correlation results are, r=0.55693. This explains the correlation between the EBIT
and Debt-Equity.

The choice of funding from debt or equity is correlated to the EBIT, EPS, Share price.

The choice of choosing the appropriate way of funding the assets of the company
impacts the profit, earnings of the shareholders, and the overall share price of the firm
in the stock market.

33
Findings

1- Blue dart express has issued less share capital to the shareholders constantly
from 2010 to 2014. The issued capital is constant over the years and it’s far
below the authorised capital.
2- The secured loans and unsecured loans taken by the company are the highest
in 2017. The secured loans are very less compared to the unsecured loans.
Though the total debt is highest in 2017, the company has maintained a
constant flow of investment from unsecured loans.
3- The company had the highest EBIT rate in 2016. Apart from 2016 the
company has been earning a moderate rate of EBIT over the years.
4- EBIT of the company is constantly increasing as compared to 2014. There has
never been a fall below the average earnings of the company.
5- EBIT and EPS of the company are in strong correlation with each other
r=0.976.
6- EPS of the company is highest in 2016 and has remained moderate over the
years. The earnings per share of the investors have been in an increasing path
from 2014.
7- The debt-equity ratio of the company has been largely fluctuating between 1-
1.5. The debt equity analysis shows that the company is evenly financed by
shareholders and outsiders.
8- In 2018, the ratio of debt and equity has reduced below 1 for the first time in
many years for the company.
9- The share price of the company was the highest in 2015. Since 2015 the share
price has gradually declined.

34
 Conclusion

BLUEDART’s 25.53% ROCE (Return on capital employed) means that for

every 100 you invest, the company creates 25.5. This shows Blue Dart
Express provides a great return on capital employed that is well above the
15% ROCE that is typically considered to be a strong benchmark. As a result,
if BLUEDART is clever with their reinvestments or dividend payments,
investors can grow their capital at an enviable rate over time.
BLUEDART is efficient with the use of capital, but this is only the case if
BLUEDART continues to maintain the presently healthy ROCE, which will
change if the company either earns less or requires more capital to create
earnings. So it is important for investors to understand what is going on under
the hood and look at how these variables have been behaving. Looking three
years in the past, it is evident that BLUEDART’s ROCE has deteriorated from
29.56%, indicating the company’s capital returns have declined. We can see
that earnings have actually increased from 1.96b to 2.20b but capital employed
has grown by a relatively larger volume as a result of a hike in the level of
total assets, which suggests investor’s ROCE has fallen because the company
requires more capital to create earnings despite the previous growth in EBT.
Although Blue Dart Express’s ROCE has decreased over the past few years,
the company still remains an attractive candidate that is capable of producing
solid capital returns and a potentially strong return on investment. It is
important to know that ROCE does not dictate returns alone, so you need to
consider other fundamentals in the business such as future prospects and
valuation.

35
 Suggestions

1 - The company should utilize the debt funds more efficiently to maximise
shareholder’s return.

2 –To free its assets the company has preferred unsecured debt to secured
debt. However, too much unsecured debt may be dangerous for the future of
the company.

3 - As the loans are unsecured the creditors will charge high interest rate and
the company ends up paying higher amounts than it actually would have paid.
This might affect the profitability and return of the investors

4 – To avoid huge interest rates, the company can issue more shares as it’s
issuing less than the authorised capital. The share price is less compared to
previous years so issuing more shares would maximise its capital.

5 – The company should try to increase the profit before interest and tax as the
investors would prefer to invest more in a company which is more profitable.

6 – BDE, needs to minimize its financial leverage which could hinder its
future growth

7 - The company can invest more in marketable securities to improve its cash
position.

8 – The company can maintain a balance between secured loans and unsecured
loans in financing its assets because both the extremes have their downsides.

36
BIBLIOGRAPHY

Website references:

- Moneycontrol.com
- Csimarket.com
- Myaccountingcourse.com
- Simplywall.st

Book Reference:

Financial management by R.K Sharma

Research methodology

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