case study

Finance

Case Study Dilemma of Asian Bags
Asia Paper Bag has since 1990 operated as a manufacturer of plastic carrier bags supplying them on a contract-manufacturing basis to well-known supermarket chains, fast-food outlets, pharmacies and department stores. Lately, Asia Paper Bag exports customized plastic carrier bags to Marks n Spencer and Boots Pharmacy in the United Kingdom. During the Asian financial crisis, Asia Paper Bag had difficulties in meeting its term loan repayment, and had to restructure the term loan last year. The term loan was restructured by way of a debt moratorium of 24 months on the principal and an extension of the maturity period from five years to eight years. Currently, Asia Paper Bag‘s turnover is about Rs 3million per month with an average net profit margin of 7%. Lately, with the increase in world oil prices, raw materials for plastic bag production have increased by over 5% to USD1,200 per ton. Asia Paper Bag’s capacity utilization is still low at only 40%, after it expanded rapidly pre-crisis. Asia Paper Bag Sdn Bhd ‘s production capacity increased from 200,000tonnes per annum to 350,000tonnes per annum during the pre-crisis period. This was when the company borrowed a term loan of Rs. 10 million to finance the machinery. The raw materials, PE resins, are purchased mainly from Singapore and Thailand, whilst only 15% is sourced domestically.

Q.1 List the qualitative risks of Asia Paper Bag relation to bank lending .

Q.2 List and explain the appropriate financial ratios to analyze the financial performance (profitability) of Asia Paper Bag Sdn Bhd (Malay equivalent of incorporated).

Q.3 State the motives for using ratio analysis as a credit evaluation tool.

EQUITY RESEARCH Mr. Prashant Gupta is interested in investing in equity shares of Infosys and Hamdard. Infosys Technologies Ltd. (NASDAQ: INFY) which was started in 1981 by seven people with US$ 250. Today, it is a global leader in the "next generation" of IT and consulting with revenues of over US$ 4 billion. It offers span business and technology consulting, application services, systems integration, product engineering, custom software development, maintenance, re-engineering, independent testing and validation services, IT infrastructure services and business process outsourcing. Hamdard (Wakf) Laboratories, India is a famous pharmaceutical company in India known for its Unani and Ayurvedic products. It is the world's largest manufacturer of Unani medicinesSome of its more famous products include Safi, Sharbat Rooh Afza, Cinkara, Roghan Badam Shirin and Pachnol. It is associated with Hamdard Foundation, India. Being conservative in nature, he wants to determine the risk associated with investments. In specific terms, he wants to seek data related to both levered and unlevered beta of these companies. He approaches Nitin Shah, a financial consultant to do the needful. Nitin has collected the relevant information detailed below:
Number
(MONTHS)
INFOSYS*
HAMDARD*
S&P CNX NIFTY**
1
0.1455
0.0432
0.0654
2
0.1291
0.307
0.1536
3
-0.1036
-0.0498
-0.0749
4
-0.0643
-0.0369
0.0473
5
-0.0673
-0.0272
-0.0178
6
0.1361
0.0286
-0.0291
7
-0.0111
-0.1088
-0.1465
8
0.0452
-0.1338
0.0194
9
0.0277
0.0913
0.0663
10
0.0581
0.011
-0.0022
11
0.0313
0.0581
0.0854
12
0.1021
0.1043
0.0127
13
0.1652
0.0876
0.0914
14
-0.0237
0.0617
0.0604
15
-0.0581
0.0877
-0.0099
16
-0.0077
0.14
0.0119
17
-0.0401
--0.0369
-0.008
18
-0.0589
0.0473
-0.0605
19
0.1335
0.1054
0.0746
20
0.0693
0.0249
0.0596
21
-0.0391
0.1082
0.048
22
-0.0086
0.048
0.0378
23
0.0196
0.068
0.0813

(i) Monthly returns on equity shares of Infosys and Hamdard for a period of 2 years (w.e.f. October 2006 to September 2008) along with portfolio of S&P CNX NIFTY.
(ii) Return on 364-days treasury bills issued by Government of India for the period 2007-08 is 5.15 per cent per annum and 0.419 per month. This rate is to be used as a proxy for risk-free rate of return.
(iii) Debt-equity ratio (based on the average of 2004 to 2008) is 1.6 per cent for Wipro and 31.4 per cent for Dabur.
(iv) Corporate tax is 35 per cent.

Q. 1 Compute the Beta and interpret it for Prashant. Examine different circumstances with analysis of data.
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SUBJECT – RISK UNDERWRITING AND CLAIMS (A) Mr. Wilson has a car which is 12 years old. The Market value of which is Rs. 1.00 Lacs. However, Mr. Wilson wishes to insure this car for Rs. 5 lacs due to his sentiments attached to it. (B) Mr. Mathew purchased a ‘Money Back Policy’ from M/s. Supreme Life Insurance’ for a Sum Assured of Rs. 2.00 Lacs for 15 years. The survival Benefit after 5 years accrues @ 25% of Sum Insured. A bonus was accumulated to the maturity. Q.1 Discuss as a Motor Insurance Underwriter, how you would react to this?
Q.2 Calculate the sum payable at the maturity of the Policy.