FINANCIAL ANALYSIS OF

VOLTAS AND BLUESTAR

Financial Accounting Assignment

Group - 9
SAILESH 1610011
PIYUSH 1610029
MANOJ 1610022
SARAH 1610042
 Page |1

Table of Contents:

S No Topic Page No
1 Introduction Voltas 2
2 Company Profile 2
3 Analysis of Directors Report 3
4 Auditors Report Analysis 3
5 Trends for last five years 4
6 Horizontal Analysis of Balance Sheet 5
7 Vertical Analysis of Balance Sheet 7
8 Horizontal Analysis of P&L 8
9 Vertical Analysis of P&L 10
10 Detailed Analysis 12
11 Ratio Analysis 13
12 Cash Flow Analysis 19
13 Comparison between Voltas and BlueStar 20
14 Stock Analysis of Voltas and BlueStar 23
15 Conclusion 24
16 Graphs 25
17 References 27
 Page |2

Note: We will be taking Voltas as Base Company and will have a thorough analysis of it and
compare it with BlueStar finally

Introduction

In this project report we have done an in-depth study of Voltas Limiteds annual report and the air
conditioner industry which is an integral part of residential/commercial electronics industry. In
any organization, the two important financial statements are the Balance Sheet and Profit & Loss
Account of the business in that particular year. When these financial statements of the last few
years of organizations are studied and analyzed, significant conclusions can be derived regarding
the changes in the financial position, the important policies followed and trends in profit and loss
etc. Along with the financial statements analysis this report also suggests the existing and potential
investors whether to buy, hold or sell the shares of Voltas Ltd. We have also selected Blue Star
Ltd as closest competitor for peer to peer analysis.

Company Profile

Voltas is among India's leading air-conditioning, refrigeration and engineering services

companies. Set up in 1954, its core competencies lie in air conditioning and cooling appliances
and services. The company has ISO 9001-2000 certification and has executed projects in the
Middle East, Southeast Asia, Central Asia, Africa and Europe. Company's Unitary Cooling
Products business, through various strategic marketing and sales promotion activities and launch
of new AC models, sustained its leadership position throughout the year with an increased market
share of 21.1% as compared to 20.8% in 2015. Over the span of the year the major points of
concern for the Global economy revolved around a slowdown in the developing markets, China's
economic re-balancing, lower commodity prices and a gradual exit from the accommodation
monetary conditions in the United States. Commodity price risk and foreign exchange risk are two
of the greatest risk faced by the companies. The company has shown declining trends in FY 13
and FY 14 but in FY15 company operating profit has increased but its too soon for commenting
on the recovery of the company.
 Page |3

Analysis of Directors Report

The Directors seems happy with the current performance of the company as the company is
improving its financial performance after downfall in FY12 and FY13. From directors view on the
operations we can infer that the market is slowing down in the international market but the
domestic market seems promising. The Companys Unitary Cooling Products business is
performing quite well and is expected to perform in that manner. The directors have shown
concerns about the company performance in the Middle East region due to the liquidity position
because of drop in crude oil prices. The drop of crude oil price is cited as one of the factor affecting
the growth of the industry. The company has incurred Research & Development expenditure of
440.03 lakhs for technological developments which will help the company to grow at a faster pace.
This is a good news for the stakeholders but they have also shown concerns about the foreign
exchange in the industry.

Auditors Report Analysis

The Company was audited by Deloitte Haskins & Sells LLP. The auditors have verified most of
the claims made by the company in the standalone financial statement and find it in accordance
with the laws. In opinion of the auditors the maintenance of cost records has been done as specified
by the Central Government under Section 148(1) of the Act. The auditors have reviewed the cost
records maintained by the Company and one the face of it looks fine but they have not made a
detailed examination of the cost records with a view to determine whether they are accurate or
complete. The company follows a good corporate governance practices and has always been
regular in paying all the dues to the concerned authorities and disclosing all the facts as per the
company law. Now coming to the consolidated financial statement the auditors have verified
almost all the claims and the also cross verified the provision The Group and its associate and
jointly controlled entities have made, as required under applicable law or accounting standards for
the material foreseeable losses, for long-term contracts including derivative contracts.
 Page |4

Trends for the last five years

Sales and services If we look at the trend of sales and services (Graph 1) for the last 5 years the
company has an increasing trend till FY12 but the sales and services declined in the FY13 and
FY14 and in FY15 it has shown some improvement so what we can infer that last few years were
really challenging for Voltas. The company is trying hard to improve its performance.

Operating Profit If we look at the trend of operating profit (Graph 2) we will find a very zig
zag curve. The company is a profit making company but the operating profit is not consistent the
profit for FY12 and FY13. The operating profit shown an increasing trend from the FY13. This
variation in the operating profit is mainly because of the variation in the total sales and services.

Net Worth Net worth is the difference between a company's total assets and its total liabilities.
It is also known as shareholder`s equity. The net worth of the company is showing a continuous
growth which is good for the company (Graph 3)

Earnings Per Share The trend in earning per share also follows the same trend as profits the
FY12 FY13 were bad for the company so the share prices were also adversely affected in those
years. (Graph 4) The earning per share is going to follow the same trend as the industry is showing
positive trend with increase in the demands in emerging markets. The share prices of Voltas are
following an increasing curve so the earning per share is expected to increase in next financial
year.

Cash and Bank with Liquid Investments Graph 5 shows the trend of cash and cash equivalents
of the company which shows an increasing trend which is good for the company. The overall cash
position including cash and bank balances and investments in mutual funds / bonds has reached a
new high of 1654 crores as compared to 1281 crores in the last year.

EBITDA, PBT & PAT Graph 6 visually shows how the net profit of the company stand reduced
due to the impact of Interest, Depreciation, and Tax.

Total Asset and Asset Turnover Ratio Total Assets is the sum of all assets, current and fixed.
The asset turnover ratio measures the ability of a company to use its assets to efficiently generate
sales. The higher the ratio indicates that the company is utilizing all its assets efficiently to generate
 Page |5

sales. In Graph 7 we can see the decreasing Asset Turnover Ratio with increasing trend of total
asset for Voltas.

On broadly looking at the trend of the company the company seems to perform well with few
problems but these trends needs to match with the industry trend. We will look into these trends
in detail in this report to get a clear picture of the performance of the company.

Horizontal Analysis of Balance Sheet

As at As at
31-3-2016 31-3-2015 HA
Horizontal Horizontal
in Lakhs in Lakhs Analysis Analysis (%)
I. EQUITY AND LIABILITIES
1. Shareholders funds
(a) Share capital 3307.52 3307.48 0.04 0.0012%
(b) Reserves and surplus 204566.64 180644.14 23922.5 13.24%
207874.16 183951.62 23922.54 13.00%
2. Non-current liabilities
(a) Other long-term liabilities 2634.63 1871.45 763.18 40.78%
(b) Long-term provisions 10313.79 9341.78 972.01 10.40%
12948.42 11213.23 1735.19 15.47%
3. Current liabilities
(a) Short-term borrowings 11948.5 5305.83 6642.67 125.20%
(b) Trade payables
(i) Total outstanding dues of micro
and small enterprises 4604.58 471.81 4132.77 875.94%
(ii) Total outstanding dues of
creditors other than micro and small
enterprises 135889.88 145167.47 -9277.59 -6.39%
(c) Other current liabilities 47404.56 56450.1 -9045.54 -16.02%
 Page |6

(d) Short-term provisions 26268.42 22215.85 4052.57 18.24%

226115.94 229611.06 -3495.12 -1.52%
TOTAL EQUITY AND
LIABILITIES 446938.52 424775.91 22162.61 5.22%

II. ASSETS
1. Non-current assets
(a) Fixed assets
(i) Tangible assets 17428.83 14743.97 2684.86 18.21%
(ii) Intangible assets 776.04 831.88 -55.84 -6.71%
(iii) Capital work-in-progress 108.77 442.17 -333.4 -75.40%
18313.64 16018.02 2295.62 14.33%
(b) Non-current investments 98743.87 75701.79 23042.08 30.44%
(c) Deferred tax assets (net) 5283.6 3673.53 1610.07 43.83%
(d) Long-term loans and advances 12002.19 13487.23 -1485.04 -11.01%
(e) Other non-current assets 8076.6 7474.27 602.33 8.06%
142419.9 116354.84 26065.06 22.40%
2. Current assets
(a) Current investments 66674.07 46698.27 19975.8 42.78%
(b) Inventories 59443.68 69148.82 -9705.14 -14.04%
(c) Trade receivables 101792.22 114957.64 -13165.42 -11.45%
(d) Cash and cash equivalents 13231.44 14839.21 -1607.77 -10.83%
(e) Short-term loans and advances 14267.73 14691.42 -423.69 -2.88%
(f) Other current assets 49109.48 48085.71 1023.77 2.13%
304518.62 308421.07 -3902.45 -1.27%

TOTAL ASSETS 446938.52 424775.91 22162.61 5.22%

 Page |7

Vertical Analysis of Balance Sheet

As at As at
31-3-2016 31-3-2015 VA
Vertical Vertical
Analysis Analysis
in Lakhs in Lakhs 2K16 (%) 2K15 (%)
I. EQUITY AND LIABILITIES
1. Shareholders funds
(a) Share capital 3307.52 3307.48 0.74% 0.78%
(b) Reserves and surplus 204566.64 180644.14 45.77% 42.53%
207874.16 183951.62 46.51% 43.31%
2. Non-current liabilities
(a) Other long-term liabilities 2634.63 1871.45 0.59% 0.44%
(b) Long-term provisions 10313.79 9341.78 2.31% 2.20%
12948.42 11213.23 2.90% 2.64%
3. Current liabilities
(a) Short-term borrowings 11948.5 5305.83 2.67% 1.25%
(b) Trade payables
(i) Total outstanding dues of micro
and small enterprises 4604.58 471.81 1.03% 0.11%
(ii) Total outstanding dues of
creditors other than micro and small
enterprises 135889.88 145167.47 30.40% 34.18%
(c) Other current liabilities 47404.56 56450.1 10.61% 13.29%
(d) Short-term provisions 26268.42 22215.85 5.88% 5.23%
226115.94 229611.06 50.59% 54.05%
TOTAL EQUITY AND
LIABILITIES 446938.52 424775.91 100.00% 100.00%

II. ASSETS
 Page |8

1. Non-current assets
(a) Fixed assets
(i) Tangible assets 17428.83 14743.97 3.90% 3.47%
(ii) Intangible assets 776.04 831.88 0.17% 0.20%
(iii) Capital work-in-progress 108.77 442.17 0.02% 0.10%
18313.64 16018.02 4.10% 3.77%
(b) Non-current investments 98743.87 75701.79 22.09% 17.82%
(c) Deferred tax assets (net) 5283.6 3673.53 1.18% 0.86%
(d) Long-term loans and advances 12002.19 13487.23 2.69% 3.18%
(e) Other non-current assets 8076.6 7474.27 1.81% 1.76%
142419.9 116354.84 31.87% 27.39%
2. Current assets
(a) Current investments 66674.07 46698.27 14.92% 10.99%
(b) Inventories 59443.68 69148.82 13.30% 16.28%
(c) Trade receivables 101792.22 114957.64 22.78% 27.06%
(d) Cash and cash equivalents 13231.44 14839.21 2.96% 3.49%
(e) Short-term loans and advances 14267.73 14691.42 3.19% 3.46%
(f) Other current assets 49109.48 48085.71 10.99% 11.32%
304518.62 308421.07 68.13% 72.61%

TOTAL ASSETS 446938.52 424775.91 100.00% 100.00%

Horizontal Analysis of P&L Sheet

Year end Year end

31-3-2015 31-3-2015 HA
Horizontal Horizontal
in Lakhs in Lakhs Analysis Analysis (%)
I. Revenue from operations (Gross) 521432.87 519065.87 2367 0.46%
Less: Excise duty 2684.78 2171.01 513.77 23.67%
 Page |9

Net Revenue from operations 518748.09 516894.86 1853.23 0.36%

II. Other Income 16508.96 14911.44 1597.52 10.71%
III. Total Revenue (I + II) 535257.05 531806.3 3450.75 0.65%

IV. Expenses
(a) Consumption of raw materials,
cost of jobs and services 176178.08 161980.81 14197.27 8.76%
(b) Purchase of traded goods 210496.83 226011.29 -15514.46 -6.86%
(c) (Increase) / Decrease in niche
goods, work-in-progress a stock-in-
trade 9769.88 1481.53 8288.35 559.45%
(d) Employee benefits expense 41461.96 46785.37 -5323.41 -11.38%
(e) Finance costs 806.46 1625.22 -818.76 -50.38%
(f) Depreciation and amortization
expenses 1913.83 2245.45 -331.62 -14.77%
(g) Other expenses 51089.26 50142.54 946.72 1.89%
Total Expenses (IV) 491716.3 490272.21 1444.09 0.29%

V. Profit before exceptional items

and tax (III - IV) 43540.75 41534.09 2006.66 4.83%

VI. Exceptional Items 3275.81 1818.33 1457.48 80.15%

VII. Profit before tax (V + VI) 46816.56 43352.42 3464.14 7.99%

VIII. Tax Expense

(1) Current tax
(i) Current tax 15157.82 11254.44 3903.38 34.68%
(ii) Provision for taxation of earlier
years written back -20.1 -20.38 0.28 -1.37%
 P a g e | 10

(2) Deferred tax -1610.07 -805.12 -804.95 99.98%

Total tax expense 13527.65 10428.94 3098.71 29.71%

IX. Profit after tax (VII - VIII) 33288.9 32923.48 365.42 1.11%

X. Earnings per share:

Earnings Per Share (Rs) - Basic and
Diluted (Face value of 1 per share) 10.06 9.95 0.11 1.11%

Vertical Analysis of P&L Sheet

Year ended Year ended

31-3-2015 31-3-2015 VA
Vertical Vertical
Analysis Analysis
in Lakhs in Lakhs 2K16 (%) 2K15 (%)
I. Revenue from operations
(Gross) 521432.87 519065.87 100.52% 100.42%
Less: Excise duty 2684.78 2171.01 0.52% 0.42%
Net Revenue from operations 518748.09 516894.86 100.00% 100.00%
II. Other Income 16508.96 14911.44 3.18% 2.88%
III. Total Revenue (I + II) 535257.05 531806.3

IV. Expenses
(a) Consumption of raw materials,
cost of jobs and services 176178.08 161980.81 33.96% 31.34%
(b) Purchase of traded goods 210496.83 226011.29 40.58% 43.72%
(c) (Increase) / Decrease in niche
goods, work-in-progress a stock-in-
trade 9769.88 1481.53 1.88% 0.29%
 P a g e | 11

(d) Employee benefits expense 41461.96 46785.37 7.99% 9.05%

(e) Finance costs 806.46 1625.22 0.16% 0.31%
(f) Depreciation and amortization
expenses 1913.83 2245.45 0.37% 0.43%
(g) Other expenses 51089.26 50142.54 9.85% 9.70%
Total Expenses (IV) 491716.3 490272.21 94.79% 94.85%

V. Prot before exceptional items

and tax (III - IV) 43540.75 41534.09 8.39% 8.04%

VI. Exceptional Items 3275.81 1818.33 0.63% 0.35%

VII. Prot before tax (V + VI) 46816.56 43352.42 9.02% 8.39%

VIII. Tax Expense

(1) Current tax
(i) Current tax 15157.82 11254.44 2.92% 2.18%
(ii) Provision for taxation of earlier
years written back -20.1 -20.38 -0.0039% -0.0039%
(2) Deferred tax -1610.07 -805.12 -0.31% -0.16%
Total tax expense 13527.65 10428.94 2.61% 2.02%

IX. Prot after tax (VII - VIII) 33288.9 32923.48 6.42% 6.37%

X. Earnings per share:

Earnings Per Share (Rs) - Basic and
Diluted (Face value of 1 per share) 10.06 9.95 0.0019% 0.0019%
 P a g e | 12

Horizontal Analysis of Balance Sheet and P&L:

By looking at the horizontal analysis of Balance sheet we can infer that there is not much change
in Share capital (0.00012 %) and Reserves and surplus (13.24%) at the same time if we look at the
Liabilities of the company the Short-term borrowings (125.20%) and Total outstanding dues of
Micro, Small and Medium Enterprises (875.94%) has shown a drastic increase which shows the
debt the company is facing at the same time the asset has shown increase in investments and fixed
asset only rest all under asset has shown a downfall. The company is heavily investing in the equity
of its subsidiary company. On the first look at the horizontal analysis of the profit and loss
statement the net sales, total profit and the earning per shares has shown decent improvement but
as the same time the exceptional item has also shown high percentage increase so we need to look
deeper to get a clear picture of this trend.

Vertical Analysis of Balance Sheet and P&L:

By looking at the vertical analysis of the Balance sheet we cannot infer much about the
Shareholders fund but coming to the liabilities of the company dues of creditors other than micro
and small enterprises holds the highest percentage in the total liability of the company which has
shown a decrease in the horizontal analysis which means the company is trying to pay off the debt
from the creditors but the dues of Micro, Small and Medium Enterprises has shown increase it can
also means that the company is just lending money to pay the debt of other lenders and this is not
a good thing. Company should pay his debt by the profits earned by operations lending money to
pay debts can make the go into a vicious debt cycle which will only harm the company in the long
run. Now coming to the vertical analysis of profit and loss statement the profit has shown a very
slight increase at the same time if we look at the expenses Consumption of raw materials, cost of
jobs and services and Purchase of traded goods are two of the main source of expense for the
company this is because of the increase in the Cost of jobs and services. Exceptional item has
shown an increase as compared to last year.
 P a g e | 13

Profitability Ratios

Amounts in Rs. Lakhs

Ratio Formula 2016-2015 2015-2014

Return on Assets / PAT 31146.78 31723.20

7.15% 7.59%
Return on Investment Total Assets 435857.22 417869.025

Profit Margin / PAT 31146.78 31723.20037

6.00% 6.14%
Return on Sales Sales 518748.09 516894.86

NOPAT 20878.60 22952.97

Net Operating Margin 4.02% 4.44%
Sales 518748.09 516894.86

Sales 518748.09 516894.86

Assets Turnover ratio 1.190 1.237
Assets 435857.22 417869.025

PAT 31146.78 31723.20

Return on Equity 15.90% 18.46%
Avg total Equity 195912.89 171873.27

Avg total Assets 435857.22 417869.03

Leverage 2.225 2.431
Avg total Equity 195912.89 171873.27

Profitability Ratio Analysis:

Profit Margin which is also known as Return of Sales indicates the net profit earned from each
rupee of revenue. But as per the ratio values mentioned above the Profit Margin has decreased in
2015-16 which shouldnt be the case. Though it includes the items like Other income and
exceptional items generally Profit Margin has to be high.

Asset Turnover indicates how much the company utilize the assets to generate the sales. This
one has slightly decreased in the recent year which is again not a good sign. The value has to
 P a g e | 14

increase to indicate the companys growth, if the Asset Turnover is low it indicates the higher the
assets than the business needs for its operations.

Return on Assets also known as Return on Investment indicates the measure of Profitability of
the company which has slightly decreased again and this is because the Profit Margin and Asset
Turnover has taken a slight beating in 2015-16 when compared to 2014-15.

Return on Equity is the product of Return of Assets and Leverage as suppose which are on
decreasing trend when compared to 2014-15 so the Return on Equity also decreased which is not
a good trend.

Liquidity Ratios

Amounts in Rs. Lakhs

Ratio Formula 2015-2016 2014-2015

Total current assets 304518.62 308421.07

Current Ratio 1.347 1.343
Total current liabilities 226115.94 229611.06

Current Assets less

245074.94 239272.25
Quick Ratio inventory 1.084 1.042
Current liabilities 226115.94 229611.06

Receivables turnover Sales 518748.09 516894.86

4.787 4.681
ratio Average receivables 108374.93 110431.965

Total no. of days in a

365 365
Receivables collection year
76.248 77.980
period Receivables turnover
4.79 4.681
ratio
 P a g e | 15

Inventory turnover COGS 486427.32 485037.86

7.565 6.896
ratio Average inventory 64296.25 70340.745

Total no. of days in a

365 365
Inventory collection year
48.249 52.929
period Inventory turnover
7.57 6.896
ratio

Receivables collection
Operating cycle period + Inventory 124.497 130.910
collection period

Liquidity Ratios Analysis:

Ability of the firm to repay its short term obligations is the Current Ratio which is around 1.34
to 1.35 with a slight increase. This indicates that the company maintains the value in past two years
and value above 1 indicates the company is good in paying any short term obligations. (>1 is
current assets are greater than current liabilities)

Moreover, if the Quick Ratio is greater than 1, company is good in paying any short term
obligations without relying on Inventory which is even better.

When it comes to Receivable Turnover ratio, its the ability of the company to convert the
receivables to cash (no of times) and it is hovering around 4.7 which is not so great, in turn Average
Collection period which is inverse of Receivable Turnover indicates that the Receivable
collection period is 76 days and is decreasing mode when compared to last year which is a good
sign

For Inventory Turnover ratio which is 7.5 compared to 6.8 of last year indicates that the Inventory
turning to sales is increasing and the reciprocal of it Inventory Collection Period has decreased
to less than 50 which indicates lesser Inventory holding period. Less Inventory period indicates
less cost utilization in holding the inventory
 P a g e | 16

On the similar lines for Operating cycle, the number of days in a cycle has also decreased in 2015-
16 when compared to 2014-15 (130 to 124 days) which results in saving in interest, storage and
other expenses

Finally, in the Liquidity ratios left one is Payable Turnover ratio which is the ratio of Purchases
and Trade Payables which is 2.75 for 2015-16 and 2.66 in 2014-15 and the inverse of it is
Payable days which are 132 and 137 days respectively. Cash Collection cycle is -8 days
in for 2015-16 and -7 for 2014-15.

Negative Cash cycle indicates that they dont put money, they earn interest from Suppliers.

Solvency Ratios

Amounts in Rs. Lakhs

Ratio Formula 2015-2016 2014-2015

Total borrowings 25995.00 12167.00

Debt to Equity Ratio 0.133 0.071
Total equity 195912.89 171873.27

Liabilities to Equity Total liabilities 251025.63 252902.64

1.281 1.471
Ratio Total Equity 195912.89 171873.27

PBIT 47623.02 44977.64

Interest coverage Ratio 59.052 27.675
Interest expense 806.46 1625.22

Total Assets 435857.22 417869.03

Leverage 2.225 2.431
Total liabilities 195912.89 171873.270

Solvency Ratio Analysis:

Debt to Equity ratio indicates the use of Financial leverage and less ratio for both the years
indicates the Small degree of Leverage. It might also indicate that the company is too conservative
but less value of the ratio is less risky for Creditors.
 P a g e | 17

Liabilities to Equity ratio indicates the company dependence on liabilities which is decreased
from the previous year. It can be worse where the liabilities generally have to be paid are either of
interest free or less interest when compared to Equity.

Next is the Interest Coverage ratio which is 59 in 2015-16 and 28 in 2014-15. Generally anything
greater than 4 is good for the company as it indicates minimal debt for the company

Leverage is ratio of Total Assets to Total liabilities which has decreased a bit in last year when
compared to the previous one but still the ratio is greater than 2 which is a positive note

Capital Market Ratios

Amounts in Rs. Lakhs

Ratio Formula 2015-2016 2014-2015

Market price 276.95 279.40

Price Earnings Ratio 27.530 28.080
Earnings per share 10.06 9.950

Equity per share/ Total equity 195912.89 171873.27

59.233 51.965
Book value No of shares 3307.52 3307.48

Earnings per share 10.060 9.950

Market price 276.95 279.40

Price to Book ratio 4.676 5.377
Book value 59.23 51.965

Dividend per share 2.60 2.25

Dividend yield ratio 0.94% 0.81%
Market price 276.95 279.396
 P a g e | 18

Capital Market Ratio Analysis:

Price Earnings ratio shows the confidence of the Stock Market in the companys future earnings
growth. As per that Price Earnings ratio has decreased a bit in 2015-16 when compared to 2014-
15 indicating the slight fall in the confidence level.

Equity per Share also known as Book Value indicates the value of Equity for each share taken
which has increased in the recent year

Price to Book ratio has decreased in the recent year when compared to previous year. Decrease in
the ratio indicates the undervaluation of the stock and also as the ratio is greater than 1, on general
norms market expects the company to do better and higher than the required rate

Dividend yield ratio indicates the percent of dividend paid per share when compared to the Market
value of the share. In recent year, we see that the ratio has increased even though the Market price
has decreased slightly when compared to the previous year.

NOPAT Ratios

NOPAT
2015-16 2014-15 2013-14
Profit After Tax 33288.90 32923.48
Exceptional Items net of tax 2142.12 1200.28
Profit adjusted for exceptional items 31146.78 31723.20

Financial cost net of tax 527.36 1072.81

Other income net of tax 10795.54 9843.04

NOPAT 20878.60 22952.97

Shareholder's funds

(a) Share capital 3307.52 3307.48 3307.48

(b) Reserves and surplus 204566.64 180644.14 156487.44
 P a g e | 19

207874.16 183951.62 159794.92

NOPAT is a measure of how well the company's core operations did. It takes into account only
the operating income - the income before taking the interest payments into account.

Voltas operating income decreased from 22952.97 in 2014-15 to 20878.6 in 2015-16. This
happened mainly because of two reasons.

- Interest expense on borrowings and delayed payment of taxes almost halved when
compared to that of previous year.
- Expense on exceptional items nearly doubled compared to the previous year

Cash Flow Analysis of Voltas (In Crores)

Net Cash Flow from Operating Activities 307.62

Net Cash Used in Investing Activities -304.84
Net Cash Used from Financing Activities -19.69
Net Inc./Dec in Cash and Cash Equivalents -16.91
Cash and Cash Equivalents Begin of Year 144.25
Cash and Cash Equivalents End of Year 127.34

Net Profit before tax for the year 468.16

Net Profit after tax for the year 332.88

Voltas net cash flow from operations of 307.62 Cr is less than the total profit of 332.88 Cr, showing
that the profit has not been fully realized in cash because of accruals. Thus the companys earning
cannot be said to be of high quality.

Free cash Flow = Cash from operations + Cash for Investing

Free Cash flow = 307.62 + (-304.84) = 2.78 Cr
 P a g e | 20

The free cash flow is positive but the value is very small this means that the net cash generated
from operations is more than what a firm can use in investing in new asset but this value is very
small so its not a good indicator.

Note: Ratios for BlueStar are attached in a separate excel.

Comparison between Voltas and Blue Star

Profitability ratios:

Return on Assets:

Blue Star: 5.17% Voltas: 7.1%

The comparison of ROA shows that Voltas is more effectively managing its resources to
produce greater profits

Profit Margin:

Blue Star: 3.4% Voltas: 6%

Profit margin of Voltas is almost double when compared to that of Blue Star which indicates
that Voltas can convert sales into net income more effectively when compared to that of Blue
Star. This ratio is very important for the investors since they want to make sure that profits are
high enough to distribute dividends.

Asset turnover ratio:

Blue Star: 1.489 Voltas: 1.19

The ratios indicate that Blue Star uses and manages its sales slightly better when compared to
Voltas to produce products and sales. For every one dollar in assets, Blue Star is producing
1.489 dollars whereas Voltas is producing only 1.19 dollars.

Return on Equity:

Blue Star: 0.182 Voltas: 0.159

 P a g e | 21

This is a profitability ratio from the investors point of view. Shareholders saw a 18% return
on investment this year for Blue Star whereas for Voltas it was just 16%.

Liquidity ratios:

Quick ratio:

Blue Star: 0.733 Voltas: 1.084

Voltas has more quick assets than current liabilities and will be able to pay off its obligations
without having to sell that capital assets or long term assets. Whereas Blue Star wont be able
to convert its assets into cash to pay off the current liabilities

Current ratio:

Blue Star: 1.033 Voltas: 1.347

Voltas will be able to make current debt payments more easily when compared to Voltas, since
Voltas has more current assets than current liabilities when compared to Blue Star

Receivables turnover ratio:

Blue Star: 5.2 Voltas: 4.7

Blue Star is more efficient in collecting the credit sales from its customers when compared to
Voltas, which will in turn help Blue Star to pay off its debts and obligations sooner

Inventory turnover ratio:

Blue Star: 6.9 Voltas: 7.5

This measurement shows the investors how liquid the inventory of the company is. So the
comparison of ratios show that Voltas can convert its inventory into cash more effectively than
Blue Star.

Solvency Ratios:

Debt to Equity ratio:

 P a g e | 22

Blue Star: 0 Voltas: 0.133

Blue Star does not have any borrowings where Voltas is using some creditor financing, though
only a small proportion when compared to that of investor financing.

Liabilities to Equity ratio:

Blue Star: 1.28 Voltas: 2.5

Voltas is having 2.5 times liabilities when compared to assets whereas the proportion is less
for Blue Star.

Interest coverage ratio:

Blue Star: 3.31 Voltas: 59.052

Investors uses this ratio to compute the profitability and risk of a company. Voltas is in a
position to pay its interests along with the principal payments when compared to that of Blue
Star. Voltas is making 59 times more earnings when comparing to its current interest payments.

Leverage:

Blue Star: 1.98 Voltas: 2.225

The comparison shows that both Blue Star and Voltas has nearly double number of assets when
compared to that of liabilities, though the ratio is slightly higher for Voltas.

Market Ratios

Price earnings ratio:

Blue Star: 27.27 Voltas: 27.53

This ratio shows the positive future performance and how much investors are willing to pay
for the companys shares. It is seen that investors are willing to pay almost 10 dollars for every
dollar of earnings for both the companies.

Book value:

Blue Star: 7.066 Voltas: 59.233

Book value of Voltas is much higher when compared to that of Blue Star.
 P a g e | 23

Earnings per share:

Blue Star: 12.88 Voltas: 10.06

Blue Star is a more profitable company on a shareholder basis when compared to that of Voltas.

Price to Book ratio:

Blue Star: 0.919 Voltas: 4.67

Ratios show that Blue Star is undervalued whereas Voltas is overvalued. Investors are willing
to pay almost 4.6 times more for the assets of Voltas than they are worth whereas it is less than
1 for Blue Star.

Dividend Yield ratio:

Blue Star: 1.85 Voltas: 0.9

Investors use this ratio the return on investment in stocks. Investors are getting highly
compensating for their investments, more than double, by Blue Star when compared to that of
Voltas.

Stock Analysis

Blue Star and Voltas Ltd. both are public company listed on the Bombay Stock Exchange (BSE)
and National Stock Exchange (NSE) of India. The Voltas Ltd. Shares are priced at 379 after an
increase of 2.39% whereas Blue Star has shown an increase of 0.72%. Both of the companies are
performing quite well in recent times.
 P a g e | 24

Conclusion

We feel both the companies are doing reasonably well in the industry but we believe Blue Star is
a better pick than Voltas. It is the season of smaller companies outperforming larger ones across
sectors. The trend is visible in the air conditioning (AC) space as well. While Voltas (with market
capitalization of ~12,490 crore) has delivered better returns compared to BSE Sensex (17 per cent
versus 10 per cent this year, respectively), Blue Star, with smaller market capitalization of ~5,000
crore has delivered far superior gains (up 33 per cent this year). So we believe outperformance of
Blue Star over Voltas may continue, given the strong fundamentals and growth rates of BlueStar.

On the financial front, with the help of above calculated ratios we expect Blue Star to outperform
Voltas. Blue Star's operating profit margin in room AC segment or unitary products category stood
at 13.8 per cent and analysts expect margin to increase 100-150 basis points in FY17 with
introduction of new models so with profit expected to grow at a fast pace, Blue Star's stock will
be our pick.
 P a g e | 25

Appendix

Graphs

Graph 1 Voltas Sales Trend

Graph 2 Voltas Operating Profit

Graph 3 Voltas Net Worth

 P a g e | 26

Graph 4 Voltas Earnings per Share

Graph 5 Voltas Cash and Bank with Liquid Investments

Graph 6 Voltas EBITDA, PBT and PAT

 P a g e | 27

Graph 7 Voltas Asset Turnover Ratio wrt to Total Assets

References:

All the data and information has been taken from the below mentioned

http://www.voltas.com/ - Voltas Annual Report

https://www.bluestarindia.com/ - BlueStar Annual Report

http://www.indiainfoline.com/ - India Infoline Database

http://www.capitaline.com/ - Capitaline Database