lso from the auditor's report, they have reported that the company has used funds raised on short-term basis for long-term investment. The company has purchased certain fixed assests aggregating Rs. Rs.43Cr by availing of short term loans in the year 2008. The company has been doing this in the previous financial years also.
Purchasing fixed assets by way of short term loans is not a good financing method. But the company has claimed that it maintains a centralized treasury. All the term loans and other borrowings in addition to the cash generated from operations are pooled through common bank accounts to optimally use funds and reduce the interest cost to the company.
The company also gets loans from banks which inherently permit it to be used interchangeably for long term and short term purposes. Under this arrangement, the company has obtained a long term working capital loan of four year tenure to help fund the long term resources of the company. A part of this was subsequently used for long term investments.
Table 3 Term Loans of HAPL
|
(All in Thousands of Rupees)
|
2008
|
2007
|
2006
|
2005
|
|
Term Loans from Banks
|
554,967
|
385,409
|
589,518
|
411,117
|
Seeing the trend above in Table 3, the term loans had been the major source of the long term debt financing for the company. HAPL maintains a debt equity ratio 2.6 on an average in the last three years. There is no considerable change in this ratio but the company has improved its times interest earned ratio from 4 to 6 times in the last three years. This indicates the company has not increased its debts considerably but has increased its sales revenue through the previously invested capital expenditure.
In addition to this if we further look into the segment wise liabilities of HAPL, HAPL segments can be grouped into two main lines. Milk & milk products and Ice cream are the two segments. Were in the last three years the liabilities in the milk & milk products segment has been around 88% of the total segments liability. The major source of revenue for HAPL is also from this segment and hence the liability is more in this segment.
The bankers for the company are primarily State bank of India, ICICI Bank, Standard Charted Bank, Axis bank, Yes Bank, Lakshmi Vilas Bank and South Indian Bank. Also Punjab national bank and Rajasthan Bank are one of its bankers. The company along with SBI came up with loan facilities for identified farmers who will source milk to the company. Here the company will provide guarantee to the loans of the farmers identified, to establish contract farming.
From the above analysis, the long term debt position of the company is only through loans and the company is trying to propose other securities like preference shares to augment its expansion plans. The company is planning to set-up subsidiaries in Western Asian market, like Dubai. Hence debt financing will play a major role in future for the company in funding its ventures.
The long term debts of Hatsun Agro Product Limited can be analyzed based on first having a look at the capital structure of the firm. As in Table 1, it can be seen in the last five years the company major source of funds is through secured and unsecured loans. An average of 75% of the source of fund is through loans and where the rest of the money is sourced through reserves and surplus and equity. There had been a change in the share capital of the firm only once in the year 2006 from Rs.6Cr to Rs.11Cr. During this year the company issued preference shares worth Rs.5Cr to one of the Non-Executive director of the company.
Table 1 HAPL Capital Structure - Sources of funds
|
(All in Thousands of Rupees)
|
2008
|
2007
|
2006
|
2005
|
|
Share Capital
|
118,721
|
118,721
|
118,721
|
67,921
|
|
Reserves and Surplus
|
362,855
|
242,010
|
186,907
|
162,182
|
|
Shareholder's Funds
|
481,576
|
360,731
|
305,628
|
230,103
|
|
Secured Loans
|
837,156
|
523,582
|
702,485
|
692,510
|
|
Un Secured Loans
|
443,981
|
350,217
|
213,346
|
214,994
|
|
Total Loan Funds
|
1,281,137
|
873,799
|
915,831
|
907,504
|
|
Equity + Surplus
|
27%
|
29%
|
25%
|
20%
|
|
Debts
|
73%
|
71%
|
75%
|
80%
|
Hatsun Agro Product Limited, now being one of the leading private dairy companies is in the mode of expanding its business by way of diversifying its products. From milk processing and ice-cream segments, the company has entered into milk based product categories. In order to augment the long term resources of the company, it has been proposing offer other forms of securities as a source of money.
As on date, the company does not have any publicly traded debt instruments. As per the annexure to auditor's report in the annual report of the company for the financial year, the company did not have any outstanding debentures as on 31st March 2008.Also, the company has not issued any bonds, warranties, and commercial Papers.
Preference Shares
Other than equity shares, the company has authorized Rs.20Cr worth 8% Non-Convertible Cumulative Redeemable Preference Shares of Rs.100 each. Of the authorized preference shares, there is a 5Cr worth paid-up preference shares which was issued during the financial year 2006.The company has paid the preference dividend in the last two years.
The said preference shares are redeemable at par in the end of the 48th, 54th and 60th month from the date of allotment in equal installments and should be redeemed in full at the end of five years. The first installment is falling due on 5th October, 2009. Also HAPL reserves the right to exercise call option to redeem the entire preference shares.
Also the company proposed to offer, issue and allot 14Lakh - 12% Non-Convertible Non-Cumulative Redeemable Preference Shares of Rs.100 each on a preferential basis to Promoters and their Associates. This was proposed by the company last year and not yet approved by the share holders of the company. The proposed issue will not be listed on any of the Stock Exchanges like the existing preference shares.
The Company has also proposed, in May 2008 to allot on preferential basis maximum of 1200000 Zero Percent Compulsorily Convertible Preference Shares of Rs.100 each amounting to Rs.120000. This is also not yet approved by the share holders.
This indicates the company is looking for alternate sources to fund its expansion plans. As of now the company has not opted for debentures or bonds as a source of money. The above proposals clearly indicate the company is sourcing money from the promoters and associates only instead of public debt instruments.
Long Term Loans
Table 2 Secured Loans
|
Secured Loans (All in Thousands of Rupees)
|
FY 2008
|
|
Term Loans from Banks
(Secured by a charge on the fixed assets and movable assets of the Company)
|
554,967
|
|
Working Capital loans from banks
(Secured by charge on the entire current assets of the Company)
|
157,524
|
|
Finance Lease Obligations
(Secured by assets acquired on lease)
|
18,852
|
|
Assets refinance obligation
(Secured by assets refinanced)
|
105,813
|
|
Total
|
837,156
|
From the above table, secured loans are primarily sourced through the term loans from the banks. The maturity date and interest rates of the term loans are not available. But Chairman & Managing Director has given personal guarantee by pledge of equity shares of Hatsun Agro Product Limited. Also some fixed assets are pledged in the term loans. We can infer from this information that the loans would have been acquired at a lower interest rates.
The unsecured loans of Rs.44Cr of the company are comprises of short term loans from banks, public deposits and inter corporate deposits. The unsecured loans are major source for short term debt financing of the company.