Prashant Saxena PGP/23/348

Subham Sharma PGP/23/482

CBM Practical-3
WC Analysis – TATA Advanced Materials Limited

Borrower Particulars

TATA Advance Material Limited is a TATA Group Company which was incorporated in Nov 10 th
1989 and commenced operations in June 2003.

Proposal
Nature of Existing Limits Applied Limits now
facility Limits proposed
Cash CC - Rs18 Crores CC-Rs. 29 crores CC-Rs. 29 crores
Credit (ENHANCEMENT (ENHANCEMENT
) )
Non-fund-Based Non-fund-Based
-Rs.77.5 crores -Rs.77.5 crores

Activity
Manufacture and sale of composite products for applications in

 Defence
 Aerospace
 Armour
 Vehicle armours
 Other Industrial Applications
The nature of these activities is such that the company is significantly dependent on large orders from
the Ministry of Defence which can cause certain incorrect future sales projections if an exclusive deal
is bagged by a domestic or foreign competitor. Therefore, the company has ventured into servicing
other possible clients like Para-Military, Police and other OEMs to establish a diversified revenue
stream.

Management
Majority shares are held by the Parent Company (99% of Company’s Share Capital is owned by
TATA Industries Ltd. Which belongs to the TATA Group.)

The scale and size of the parent company TATA will provide financial resources and management to
effectively utilize the existing opportunities and to use its global network to establish strategic
partnerships with other OEMs and Companies working in related sectors.
Prashant Saxena PGP/23/348
Subham Sharma PGP/23/482

Tata’s culture focuses on value creation and mutual trust among consumers, employees, shareholders
and the community. This is preserved and enriched by establishing the high standards of behaviour
expected from existing employees and companies in the future years. The Tata Group represents
Leadership and Trust. Leveraging this quality across its constituent companies will lead to certain
synergy effects which will help these constituent companies in achieving scale and generate a good
return on investment for the shareholders.

Banking Arrangements (Present & Proposed)

The Present arrangement consists of a Cash credit facility of Rs 18 crores. Apart from this, no other
Non-fund-based facility has been availed. Also, it is only our bank which is providing them financing
options.

The option being proposed will lead them to consortium format of lending. This involves having a
NFB facility in addition to the existing FB Facility. The Bank’s Exposure to the loan will be 55% as
stated under the Consortium Arrangement for both FB and NFB Facility. The proposal involves
seeking approval of a Rs. 29 Crore working capital loan from the existing loan of 18 Crores as
currently proposed.

SWOT Analysis

STRENGTH WEAKNESS

 Goodwill of the Tata Group  R&D Investments

 Brand Equity  Intense Competition domestic and
 Investments in R&D international
 NADCAP Accreditation  Low scale of operations

OPPORTUNITY THREAT

 Multiple Governments and Private  Economic Uncertainty

contracts  Long Gestation Period
 Entry into Armour, Aerospace business  High Set-Up Costs

Financials

Despite the increasing sales, there has been a substantial deviation from the projected sales figures,
due to the uncertainty of Orders from the MOD.
Prashant Saxena PGP/23/348
Subham Sharma PGP/23/482

The company is facing loss due to extensive recruitment, expansion and long gestation periods.
However, one key thing to note here is that the Net Working Capital (NWC) and Current Ratio are
below the required benchmark level.

An Un-Secured loan from the parent Co is treated as a current liability. If treated as a Long-term loan,
the NWC will improve to Rs. 14.16 Crore and Current Ratio improves to 1.27

Assessments

Due to the growing scope of the industry, TAML can be said to be on a stable growth path. As seen in
the revised projections of the CMA, we see a robust Current Ratio increase and satisfactory leverage
ratios. The industry has a long gestation period and the critical mass in revenues will be achieved in 3-
4 years. The estimates of net sales for the upcoming years are Rs.90 Crore, Rs.163 Crore, Rs.345
Crore and Rs.508 Crore respectively. And as per the CMA we project a Net Sales figure of around
210.30 Crore for 2011. Similarly, Net Profits are projected to go to 32.3 Crores by 2011.

Recommendations

TAML has recently entered into long term contracts with HUL, ISRO, Boeing, SAAB, FACC, etc. for
a value of Rs.1873 crore. Rs.53 crore will be executed in the upcoming year. The armoured vehicle
sales will cross Rs.600 crore in the next 5 years. Personnel armour division can generate revenues of
about Rs.330 crore in the next year.

Since all the evaluating parameters are found to be satisfactory, the working capital limit of Rs.29
Crore and the non-fund-based limit of Rs.77.5 Crore can be sanctioned by the Bank.