CHAPTER V: DATA ANALYSIS AND INTERPRETATION OF DATA

Transcription

1 CHAPTER V: DATA ANALYSIS AND INTERPRETATION OF DATA 5.1. VARIOUS PARAMETERS USED FOR THE DATA ANALYSIS AND TESTING OF HYPOTHESIS Following are the various parameters re used for the analysis & interpretation of data & testing of hypothesis for both i.e. Metals & metal products and Machinery all sample acquire firms. 5.1.A. LIQUIDITY PARAMETERS Liquidity parameters indicate liquidity position of a manufacturing sector. A manufacturing sector is deemed to be sound if it is in a position to carry on its business smoothly and meet all its obligations both long-term as well as short term without any strain. It is a sound principle of finance that long-term and short term requirements of funds are fulfilled out of long-term funds. The commonly used liquidity parameters are: current ratio and quick ratio, networking capital and diversion of short- term funds. I. Current Ratio: The current ratio is the most commonly used ratio for measuring liquidity position of manufacturing sectors. It is also called working capital ratio. It expresses the relationship between current assets and current liabilities. A higher current ratio shows that the manufacturing company is able to pay its debts maturing within a year. From the management point of view, a higher current ratio is an indication of poor planning since an extensive amount of funds would lie idle. On the contrary, a low ratio would mean inadequacy of working capital, which may later interfere with the smooth functioning of an enterprise. In a sound business, a current ratio of 2:1 is considered an ideal one. In this study, current assets include cash and cash equivalent; inter assets, short- term investments and deposits. The current liabilities include trade creditors, bills payable, accrued expenses, short-term bank loan, income tax liabilities and long term debt. The following formula is applied for calculating current ratio. Current Ratio = Current Assets Current Liabilities 139

2 II. Quick Ratio: The quick ratio is also known as liquid ratio, acid test ratio or near money ratio. It is the ratio between quick or liquid assets and quick liabilities. This ratio is ascertained by comparing the liquid assets (i.e. assets which are immediately convertible to cash without much loss) with current liabilities. The prepaid expenses and investment are not taken as liquid assets. Generally speaking, quick ratio of 1:1 is considered satisfactory since a firm can easily meet all immediate claims. This is expressed as: Quick (or) Liquid Assets Quick Ratio = Liquid Liabilities III. Net Working Capital: The net working capital refers to the difference between current assets and current liabilities. There is always a time gap between the receipt of cash and repayment of loan and working capital is required for this intervening period in order to sustain the activities. In case adequate working capital is not available, the manufacturing company may not be in a position to sustain its activities. The amount of working capital required depends on the length of operating cycle. The operating cycle of manufacturing company refers to time taken for conversion of cash into debtors and vice versa. Net Working Capital = Current Assets Current Liabilities 5.1.B. LEVERAGE PARAMETERS (SOLVENCY) The leverage is the ability of a company to use funds to enhance the returns to its investors. Leverage results from the company employing funds or source of funds, which has a fixed cost (or returns). It should be noted that the fixed cost or the returns is the fulcrum of leverage. If a manufacturing company is not required to pay fixed cost or fixed returns, there will be no leverage. Since fixed cost or returns has to be paid or incurred, such cost or returns may influence the amount of profits available to the shareholders. A high degree of leverage implies that there will be a large change in profits due to a relatively small change in interest. Thus, higher the leverage, higher the risk and higher the expected returns. To know the degree of leverage of 140

3 manufacturing sectors, the ratios used are total debt and equity to total assets, total borrowings and equity to EBITD and interest coverage ratio. IV. Debt-Equity Ratio: Debt to equity ratio indicates the proportionate claims of owners and the outsiders against the firm s assets. The purpose is to get an idea of the cushion available to outsiders on the liquidation of the firm. However, the interpretation of the ratio depends upon the financial and business policy of the company. A ratio of 1:1 is usually considered to be satisfactory ratio although there cannot be rule of thumb or standard norm for all types of businesses. Theoretically if the owners interests are greater than that of creditors, the financial position is highly solvent. In analysis of the long-term financial position it enjoys the same importance as the current ratio in the analysis of the short-term financial position. Total Debts Debt-Equity Ratio = Total Equity V. Total Debt and Equity to Total Assets: The assets represent economic resources that are the valuable possessions owned by a firm. The assets are mainly used to generate earnings. Total assets refer to net fixed assets and current assets. This ratio indicates the extent of coverage of total assets by both total debt and equity. Normally it is expected that the total assets should be more than the total of debt and equity as a result of reserves and surplus. Therefore, this ratio should be less than one. The debt refers to debt while equity includes equity capital alone. Total Debt and Equity Total Debt and Equity to Total Assets = Total Assets VI. Total Borrowings and Equity to PBITDA: The ratio of total borrowings to equity to PBITDA examines the relationship between earnings available before interest, tax, depreciation and amortization expenses to the repaying obligations of a manufacturing sector. This ratio should be positive and higher the ratio, better the manufacturing sectors. 141

4 PBITDA Total Borrowings and Equity to PBITDA = Total Borrowing and Equity VII. Interest Coverage Ratio (ICR): The interest coverage ratio indicates the number of times interest is covered by the profits available to pay the interest charges. The long term creditors of manufacturing sector are much interested in knowing the ability of manufacturing sectors to pay interest on long term borrowing. Generally, higher the ratios, safer are the long-term creditors because even if the earnings of the manufacturing sector fall, the companies may be able to meet their commitment of fixed interest charges. But too high a ratio may not be good for the manufacturing sector because it may imply that manufacturing sector is not using debt as a source of finance in order to increase the earnings per share. The interest coverage ratio does not take into consideration the other fixed obligations like payment of preference dividend and repayment of loan installments. EBI Interest Coverage Ratio = Interest 5.1.C. PROFITABILITY PARAMETERS The primary objective of manufacturing companies is to earn profits. Profit earning capacity is considered to be essential for the survival of the manufacturing sector. A manufacturing sector needs profits not only for its existence but also for expansion and diversification. Investors want adequate returns on their investments while the workers want higher wages and the creditors want higher security for their interest and loan. A manufacturing sector can discharge its obligations to the various segments of the society only through earnings of profits. The profit is, thus, a useful measure to examine the overall efficiency of a manufacturing sector. The profit to the management is the test of efficiency and a measurement of control to owners, the measure of worth of their investment to the creditors, the margin of safety to employees as a source of benefits, to Government a measure of tax paying capacity and the basis of legislative action to demand better quality and price cuts and to an enterprise less cumbersome source of finance. Profits are an index of economic 142

5 progress. Hence the profitability ratios are calculated to measure the overall efficiency of the manufacturing sector. The ratios, like operating profit, net profit, ROI and net worth, are used to test the profitability of a manufacturing sector. VIII. Operating Profit: The operating profit or loss is made by a manufacturing sector from its business activities in a given period. This is further reduced or augmented by adding the business overheads and any ancillary investments to arrive at the profit (loss) before interest and tax (PBIT). The net operating income includes net interest income and non-interest income and non- interest expenses. Profit Operating Profit = Income IX. Net Profit (NP): Net profit ratio establishes a relationship between net profit (after tax) and income. It indicates overall efficiency of the manufacturing sector. If the profit is not sufficient, the firm will not be able to achieve satisfactory returns on investment. This ratio also indicates the firms capacity to face adverse economic conditions such as price competition, low demand etc. Obviously, higher the ratio, better the profitability. While interpreting the ratio, it should be kept in mind that the performance of profits must also be seen in relation to investments or capital of the firm: EAT Net Profit = Income X. Operating Profit Margin (OPM): The Operating Profit Margin will illustrate to how efficiently the managers of a firm are using business operations to generate profit. The higher the Operating Profit Margin, the better. This is because a higher Operating Profit Margin shows the company can keep its costs under control (successful cost accounting). A higher Operating Profit Margin can also mean sales are increasing faster than costs, and the firm is in a relatively liquid position. The difference between Gross Profit Margin and Operating Profit Margin is that the gross profit margin accounts for only Cost of Goods sold, but the Operating 143

6 Profit Margin accounts for both Cost of Goods sold and Administration/Selling expenses. The formula for Operating Profit Margin is: Operating Profit Margin = Earnings before Interest & Taxes / Sales XI. Net Profit Margin (NPM): Net profit margin shows the margin left for the equity and preference shareholders i.e. the owners. Unlike the gross profit which measures the operating efficiency of the business, net profit margin measures the overall efficiency of the business. An adequate margin of net profits will be generated only when most of all the activities are being done efficiently. The activities may be production, administration, selling, financing, pricing or tax management. Even if any of these perform badly, the effect on net profits and their margins can be seen. Also it compares the net income of a firm with total sales achieved. The formula for Net Profit Margin is: Net Profit Margin = Net Income / Sales XII. Net Worth (NW): The term net worth refers to the total share capital and reserves or the difference between the total assets and external liabilities. This is one of the most important ratios used for measuring the overall efficiency of the firm. Greater amount of net worth is good for shareholders as well as management of the manufacturing sector. Net worth = Share Capital + Reserve and Surpluses. Or Net worth = Total Assets External Liabilities. XIII. Returns on Net worth (RONW): It is the ratio of net profit to shareholder's investment. It is the relationship between net profit (after interest and tax) and shareholder's/proprietor's fund. This ratio establishes the profitability from the share holders' point of view. This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. As the primary objective of business is to maximize its earnings, this ratio indicates the extent to which this primary objective of businesses is being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As the ratio reveals how well the resources of the firm are being used, higher the ratio, better are the results. The inter firm comparison of this ratio determines 144

7 whether the investments in the firm are attractive or not as the investors would like to invest only where the return is higher. Return on shareholder's investment 100} = {[Net profit (after interest and tax) / Shareholder's fund] XIV. Returns on Investment (ROI): This ratio is one of the most important ratios used for measuring the overall efficiency of a manufacturing sector. As the primary objective of a manufacturing sector is to maximize its earnings, this ratio indicates the extent to which the primary objective of manufacturing sector is being achieved. This ratio is of great importance to the present and prospective shareholders as well as the management of the manufacturing sector. It reveals how well the resources of a manufacturing sector are being used. Higher the ratio, better the results. The investment is compared with the returns and net investment refers to the returns on investment. Returns on Investment = EBIT / Net Investment XV. Returns on Capital Employed (ROCE): Return on capital employed ratio is considered to be the best measure of profitability in order to assess the overall performance of the business. It indicates how well the management has used the investment made by owners and creditors into the business. It is commonly used as a basis for various managerial decisions. As the primary objective of business is to earn profit, higher the return on capital employed, the more efficient the firm is in using its funds. The ratio can be found for a number of years so as to find a trend as to whether the profitability of the company is improving or otherwise. Net Income Return on Capital Employed = Capital Employed [Capital Employed means average debts liabilities plus average shareholders equity] 145

8 5.1.D. OTHER PARAMETERS XVI. XVII. Capital Formation: Capital formation refers to the aggregate of net fixed assets and the inventory. The analysis of capital formation seeks to find out whether the units have increased their capital formation from the year of mergers. Increased Investment in Fixed Assets: The investment refers to investment of funds in the securities of other companies. They are long-term assets invested in the business of manufacturing sector. The main purpose of such investments is either to earn returns or/ and to control another manufacturing sector. It is usual that investments are shown in the assets side of balance sheet of manufacturing sectors. Further they are shown at market. The investments are made in government securities, assisted companies, subsidiaries/ associated, mutual funds and others. 146

9 5.2 DATA ANALYSIS AND INTERPRETAION OF METALS & METAL PRODUCTS SAMPLE ACQUIRE FIRM [A] LIQUIDITY PARAMETERS CURRENT RATIO Table 5.2.1: Current Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd The results of the comparison of Current Ratio of acquiring firms in pre-merger & post-merger have been presented in above Table It is observed that, J S W Steel Ltd declined from in pre-merger period to 0.5 in post-merger period and difference in current ratio between two period is significant at 5% level (t- = 5.316, p < 0.05). Similarly, for Jai Balaji Industries Ltd declined from in pre period to in post period, t- = , p < 0.05, and also Steel Authority of India Ltd declined from in pre period to in post period, t- = , p < 0.05, between pre & post-merger differs significantly & it declined in the post-merger period. This significant decline in current ratio has revealed that these firms incurred debt after M&A. In simple words, the decreases in Current Ratio after the merger have been due to addition of current liabilities of acquired firms. The other acquiring firms, Hindalco Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Om Metals Infraprojects Ltd, Ramsarup Industries Ltd, Sarda 147

10 Energy & Minerals Ltd and Sujana Metal Products Ltd obtained t and are not significant at required probability level, which indicate that the increase/decrease in Current Ratio between pre & post-merger is quite negligible QUICK RATIO Table 5.2.2: Quick Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd The Quick Ratio of acquired firms during pre & post-merger period is given in Table It is noted that Quick Ratio of Om Metals Infraprojects Ltd increased from in pre period to in post period and the difference in quick ratio between the two period is significant at 5% level (t- = 4.619, p < 0.05). Similarly, the quick ratio of Steel Authority of India Ltd (pre-merger and post-merger , t- = & p < 0.05) between pre & post differs significantly and it increased in post-merger period. The significant increase in quick ratio has further confirmed that these firms have not incurred debt after the M&A. Also these firms are in better position & showing good financial health, which indicate that these firms are having ability to pay their debts as they fall due. On the other part it is inferred that there is decrease in quick ratio of J S W Steel Ltd from in pre period to

11 in post period (t- = & p > 0.05). The decrease in quick ratio might have been due to addition of quick ratio of acquiring firm. For the other acquiring firms (Hindalco Industries Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd), obtained t s are not significant at required probability level, which indicate that the increase/decrease in Quick Ratio between pre & post-merger is quite negligible. In other words, it can be said that the increase/decrease quick ratio is not related to M&As NET WORKING CAPITAL (Rs. Crore) Table 5.2.3: Net Working Capital Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd In the case of J S W Steel Ltd (from in pre & in post period, t- = , p < 0.05) which indicate that there is significant decrease in net working capital in post-merger period might have been due to addition of liabilities of acquired firm. Another side, in case of Steel Authority of India Ltd (from in pre & in post period, t- = , p < 0.05) and Om Metals 149

12 Infraprojects Ltd (from in pre & in post period, t- = , p < 0.05). The increase in net working capital in post-merger period of these two firms might have been due to addition of assets of acquired firms. For other acquiring firms under the study i.e. Hindalco Industries Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd, they obtained t s are not significant at the required probability level, indicating that the increase and decrease in the net working capital between pre and post-merger is quite negligible. In other words, it can be said that the increase / decrease in assets as well as liabilities is not related to mergers and acquisitions. The Table illustrates net working capital of above sample firms during pre and post-merger periods. The average amount of net working capital of 10 sample merged firms during post-merger period is higher than that of pre-merger period. From the analysis, it is understood that the average net working capital of all sample firms had increased after the takeover by the new management. This means that all sample firms did have sufficient current assets to meet current liabilities, which is a sign of turnaround. 150

13 [B] LEVERAGE PARAMETERS DEBT-EQUITY RATIO Table 5.2.4: Debt-Equity Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd The result shown in the above Table of Debt-Equity Ratio for pre & post-merger period of sample merged firms indicating that, Hindalco Industries Ltd ( in pre period & in post-merger period, t- = & p < 0.05) & Om Metals Infraprojects Ltd ( in pre period & in post-merger period, t- = & p < 0.05) debt equity ratio is significantly decreased in post-merger period as to pre-merger period & the decrease is statistically significant. It reveals that majority of assets are financed through debts rather than equity in post-merger period. It means due to merger activity these firms are getting more debts. For Jai Balaji Industries Ltd ( in pre & in post period) and Ramsarup Industries Ltd ( in pre & in post period) indicating that they are able to builds a good reputation to the creditors in the sense that they have the ability to settle such obligation after the merger. Whereas the result of t test for remaining firms (J S W Steel Ltd,, K E C International Ltd, Mahindra Forgings Ltd, Sarda Energy & Minerals Ltd, Steel Authority of India Ltd and Sujana Metal Products Ltd) are insignificant at the required probability level, indicating that the increase/decrease in 151

14 the debt equity ratio between pre & post-merger is quite negligible. In other words, it can be said that the increase/decrease in debts equity ratio is not related to mergers and acquisitions TOTAL DEBTS & EQUITY TO TOTAL ASSETS Table 5.2.5: Total Debts & Equity to Total Assets Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd Total debt and equity to total assets of above merged firms during pre and postmerger period is exhibited in Table The t test clearly shows that, all above firms achieved growth in the ratio of total debt and equity to total assets during the post-merger period than during the pre-merger period, except in the case of J S W Steel Ltd ( in pre-merger & in post-merger period), Jai Balaji Industries Ltd ( in pre-merger & in post-merger period), and Sujana Metal Products Ltd ( in pre-merger & in post-merger period) the ratio of total debt and equity to total assets is lower during pre-merger period than that of postmerger period. The growth of debt and equity to total assets of merged firms is statistically insignificant in above all cases. Fundamentally, this ratio should be less than one but in case of J S W Steel Ltd & Sarda Energy & Minerals Ltd is more than one in one in pre as well in post-merger 152

15 period. Hence it clearly shows that these two firms are not able to cover their total debt and equity by total assets. But in case of Sarda Energy & Minerals Ltd, the growth is shown in this ratio i.e in pre to in post-merger period whereas in case of J S W Steel Ltd the ratio declined in post-merger period as compared to pre-merger period TOTAL DEBTS & EQUITY TO PBDITA Table 5.2.6: Total Debts & Equity to PBDITA Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd Table explains total debts and equity to PBITDA of above merged firms during pre and post-merger periods & it has been presented in the above Table. From the Table, it is inferred that, total debts and equity to PBITDA of Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Om Metals Infraprojects Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd shows increase in total debts & equity to PBITDA after merger. It might have been due to addition of assets to the acquiring firms. On the other hand in case of Mahindra Forgings Ltd, Ramsarup Industries Ltd and Steel Authority of India Ltd are showing there is decline in the ratio, which reveals that these firms incurred more debt after mergers and acquisitions. Whereas the result of t test shows that, in above all sample 153

16 firms are insignificant at the required probability level, indicating that the increase/decrease in total debts equity to PBITDA between pre and post-merger is quite negligible. In other words, it can be said that the increase/decrease in PBITD as well as increase / decrease in total borrowings is not related to mergers and acquisitions INTEREST COVERAGE RATIO (in times) Table 5.2.7: Interest Coverage Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd The Interest Coverage Ratio of sample merged firms during pre and post-merger period is exhibited in Table From the analysis of Interest Coverage Ratio (average for three years), it is observed that variation in the growth of Interest Coverage Ratio during post-merger period is lower than that of pre-merger period in the case of the acquired firms (Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, Mahindra Forgings Ltd, Om Metals Infraprojects Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd). In the case of other merged firms i.e. K E C International Ltd & Steel Authority of India Ltd variation during pre-merger period is higher than that of post-merger period. But only in case of Steel Authority of India Ltd, the t test (t-vale = & p < 0.05) 154

17 achieved statistically significant growth of interest coverage ratio after merger. But other firms obtained insignificant t after merger. Hence it is indicating that only Steel Authority of India Ltd is very healthy in pre & post-merger period, and is capable to pay its interest on outstanding debts very easily & also affords to take more debts after the merger than other merged firms. [C] PROFITABILITY PARAMETERS OPERATING PROFIT RATIO Table 5.2.8: Operating Profit Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd The result shown in the above Table of Operating Profit Ratio for pre & postmerger period of sample merged firms indicate that average amount of operating profit after merger is higher for Jai Balaji Industries, Om Metals Infraprojects Ltd, Sarda Energy & Minerals Ltd, & Steel Authority of India Ltd, which shows that in post-merger period the average amount is increased in operating profit after meeting all operating expenses, and lower in case of other firms (Hindalco Industries Ltd, J S W Steel Ltd, K E C International Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd & Sujana Metal Products Ltd), which shows that in post-merger period the average amount is decreased in operating profit after meeting all operating expenses. 155

18 But only in case of Hindalco Industries Ltd ( in pre period & in post period, t- = 7.744, p < 0.05) the variation is higher during pre-merger period & post-merger period, is statistically significant & in other the variation as well as growth of operating profit in post-merger period as compared to pre-merger period is statistically insignificant NET PROFIT RATIO Table 5.2.9: Net Profit Ratio Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd The average Net Profit Ratio of sample merged firms during pre and post-merger period is displayed in Table The analysis of the above Table indicates that the average Net Profit Ratio of sample merged firms after merger is higher for Om Metals Infraprojects Ltd, Sarda Energy & Minerals Ltd and Steel Authority of India Ltd & in other merged firms i.e. Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd & Sujana Metal Products Ltd it has decreased. Also, all 10 cases of merged firms obtained t s are not significant at the required probability level & increase / decrease in ratio is not statistically significant. It seems that, the decrease / increase in Net Profit Ratio might have been due to increase / decrease in operating expenses in 156

19 post-merger period as compared to post merger period in all 10 cases of merged firms OPERATING PROFIT MARGIN Table : Operating Profit Margin Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd From the analysis of above Table , it is noted that the Om Metals Infraprojects Ltd (from in pre period to in post-merger period), Ramsarup Industries Ltd (from in pre period to in post-merger period), and Sarda Energy & Minerals Ltd (from in pre period to in post-merger period) of these firms mean of Operating Profit Margin is increasing in post-merger period. It means that these firms are able to keep costs under control and also sales are increasing faster that costs, and is in a relatively liquid position after following the merger. Other sample firms (Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Steel Authority of India Ltd and Sujana Metal Products Ltd) are indicating that there is decline in mean of Operating Profit margin after following the merger. 157

20 NET PROFIT MARGIN Table : Net Profit Margin Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd The Net Profit Margin of acquired firms during pre & post-merger period is given in above Table In case of K E C International Ltd ( in pre & in post period), Om Metals Infraprojects Ltd ( in pre & in post period), Sarda Energy & Minerals Ltd ( in pre & in post period), Steel Authority of India Ltd ( in pre & in post period) are showing improvement of mean of Net Profit Margin ratio indicating that these firms are more efficient at converting sales into actual profit but the increase is not significant at required probability level. On the other hand the remaining all sample merged firms (Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd and Sujana Metal Products Ltd) it is noted that the firms mean of net profit margin are declined in post-merger period, the decline is not significant at required probability level which reveals that increase / decrease in net margin ratio between pre & post-merger period is quite negligible. 158

21 NETWORTH (Rs. Crore) Table : Net Worth (Rs. Crore) Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd The Net Worth of sample merged companies during pre and post-merger period is furnished in Table It is noted that the average amount of Net Worth of all 10 sample firms after merger is higher than that of pre-merger period. Among all sample firms have registered positive Net worth after merger. In other words, most of the firms improved their net worth after merger. The variation in amount of Net worth is higher after the merger & subsequently it is found to be statistically significant in case of Hindalco Industries Ltd ( in pre & in post period, t- = & p < 0.05), K E C International Ltd ( in pre & in post period, t- = & p < 0.05),Mahindra Forgings Ltd ( in pre & in post period, t- = & p < 0.05), Om Metals Infraprojects Ltd ( in pre & in post period, t- = & p < 0.05), Sarda Energy & Minerals Ltd ( in pre & in post period, t- = & p < 0.05), Steel Authority of India Ltd ( in pre & in post period, t- = & p < 0.05), Sujana Metal Products Ltd ( in pre & in post period, t- = & p < 0.05). 159

22 RETURN ON NETWORTH Table : Return on Net Worth Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd *K E C International Ltd. Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd * K E C International Ltd data is insufficient for analysis of this parameter. The average Return Net worth of sample merged companies during pre and postmerger period is given in Table It is noted that only in case of Hindalco Industries Ltd ( in pre & in post period, t- = & p < 0.05), variation in average return on net worth is statistically significant. But in all sample of merged firms variation in average returns on net worth is lower in post-merger period as compared to pre merge period. Hence we can conclude that due to merger & acquisition the amount of net worth is significantly increased but then merged firms were not able to get required returns on net worth after the merger. 160

23 RETURNS ON INVESTMENT Table : Returns on Investment Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd *K E C International Ltd. Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority of India Ltd Sujana Metal Products Ltd * K E C International Ltd data is insufficient for analysis of this parameter. Table portrays Returns on Investment of sample merged firms during pre and post-merger periods. It has been observed from the analysis that only Steel Authority of India Ltd earned higher Returns on Investment during post-merger period than during pre-merger period. But other sample firms did not earn higher profit during post-merger period. The analysis indicates that majority of sample companies had lesser and not better ROI after merger. Also in case of J S W Steel Ltd, Jai Balaji Industries Ltd, Mahindra Forgings Ltd, Om Metals Infraprojects Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, Steel Authority of India Ltd and Sujana Metal Products Ltd, greater variation is recorded during pre-merger period. The variation, according to t test, is statistically significant in the case of only Hindalco Industries Ltd ( in pre period & in post period, t- = & p < 0.05) when compared to other sample firms. 161

24 RETURNS ON CAPITAL EMPLOYED Table : Returns on Capital Employed Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd * K E C International Ltd. Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd * K E C International Ltd data is insufficient for analysis of this parameter. The Return on Capital Employed of sample merged firms during pre and post-merger period is exhibited in Table From the analysis of above table it is observed that, average return on capital employed of sample firms has declined in post-merger period as compared to pre-merger period. In case of Hindalco Industries Ltd (from in pre period to in post period, t- = 6.136, & p < 0.05) is showing decrease in return on capital employed after the merger & the decline is statistically significant. It seems that this firm after the merger has shown inefficiency in using its funds & also reveals that management has shown inefficiency in using the investment and creditors into the business. In similar cases (J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Mahindra Forgings Ltd, Om Metals Infraprojects Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, Steel Authority of India Ltd and Sujana Metal Products Ltd) firms obtained t s are not significant at the required probability level & increase / decrease in ratio is not statistically significant. 162

25 [D] OTHER PARAMETERS CAPITAL FORMATION (Rs. Crore) Table : Capital Formation (Rs. Crore) Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd Ramsarup Industries Ltd Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd Table gives capital formation of merged firms during pre and post-merger period. The remarkable feature is that the average amount of capital formation by merged firms in all cases is higher during post-merger period as compared to their pre-merger period. But only in case of Mahindra Forgings Ltd, Ramsarup Industries Ltd, and Steel Authority of India Ltd, the increased in capital formation is not significant at required probability level. The comparison of capital formation of Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Om Metals Infraprojects Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd during pre and post-merger period reveals the fact that they obtain t vaule at required probability level i.e p < 0.05 which shows significant increase in their capital formation after merger. This is a good sign because sample companies after merger improved their capacity. 163

26 INCREASED INVESTMENT IN FIXED ASSETS (Rs. Crore) Table : Increased Investment in Fixed Assets (Rs. Crore) Hindalco Industries Ltd J S W Steel Ltd Jai Balaji Industries Ltd K E C International Ltd Mahindra Forgings Ltd Om Metals Infraprojects Ltd *Ramsarup Industries Ltd. Sarda Energy & Minerals Ltd Steel Authority Of India Ltd Sujana Metal Products Ltd *Ramsarup Industries Ltd data is insufficient for analysis of this parameter. The increased investment in fixed assets by merged firms is provided in above Table From the analysis, it is inferred that, the average amount of increased investment in fixed assets by merged firms is greater during post-merger period than that of pre-merger period. But in case of K E C International Ltd (41.12 in pre period & 6.62 in post period) & Sujana Metal Products Ltd (21.45 in pre period & 7.36 in post period, t- = & p < 0.05) are showing significant decline in the average amount of increased investment in fixed assets. The Hindalco Industries Ltd (t- = & p < 0.05), Jai Balaji Industries Ltd (t- = & p < 0.05), Mahindra Forgings Ltd (t- = & p < 0.05), and Om Metals Infraprojects Ltd (t- = & p < 0.05) are obtaining t- at required probability level & increase in post-merger period is significant. It is a clear proof that, those firms have undertaken expansion or modernization through increasing their investment in fixed assets and further their attempt after merger turn around positively. But in case of J S W Steel Ltd, K E C International Ltd, Sarda Energy & Minerals Ltd, & Steel Authority Of India Ltd have not obtained t- at required probability level. 164

27 5.3 TESTING OF HYPOTHESES OF METALS & METAL PRODUCTS SAMPLE ACQUIRE FIRM H1: The merged manufacturing companies did not improve liquidity, solvency and improve profitability after merger. [a] Liquidity Parameters: Current Ratio (Table No ), Quick Ratio (Table No ), and Net Working Capital (Table No ). The following Table No shows the increase or decrease in post-merger period. Table No.5.3.1: Increased or Decreased in Post-merger period in Liquidity Parameters CR QR NWC Hindalco Industries Ltd. J S W Steel Ltd. Jai Balaji Industries Ltd. K E C International Ltd. Mahindra Forgings Ltd. Om Metals Infraprojects Ltd. Ramsarup Industries Ltd. Sarda Energy & Minerals Ltd. Steel Authority Of India Ltd. Sujana Metal Products Ltd. It is evidenced from the analysis that the null hypothesis The merged manufacturing companies did not improve liquidity after merger is accepted because of the 07 out of 10 sample firms (Hindalco Industries Ltd, J S W Steel Ltd, K E C International Ltd, Mahindra Forgings Ltd, Ramsarup Industries Ltd, Sarda Energy & Minerals Ltd, and Sujana Metal Products Ltd) did not achieve better liquidity in post-merger period as compared to premerger period in all respects. On the other hand, remaining three sample firms i.e. Jai Balaji Industries Ltd, Om Metals Infraprojects Ltd, and Steel Authority 165

28 of India Ltd improve better liquidity in post-merger period as compared to premerger period in all respects. [b] Solvency (Leverage) Parameters: Total Debt and Equity to Total Assets (Table No ), Total Debts and Equity of PBITDA (Table No ) and Interest Coverage Ratio (Table No ). It is evidenced from the analysis that the null hypothesis The merged companies did not improve better solvency after merger is accepted. Only in the case of K E C International Ltd. & Steel Authority of India Ltd achieved better solvency in all respects in post-merger period. But all other sample firms did not improve better solvency in post-merger period. The following Table No shows the increase or decrease in post-merger period. Table No : Increased or Decreased in Post-merger period in Solvency Parameters TDETA TDEPBITDA ICR Hindalco Industries Ltd. J S W Steel Ltd. Jai Balaji Industries Ltd. K E C International Ltd. Mahindra Forgings Ltd. Om Metals Infraprojects Ltd. Ramsarup Industries Ltd. Sarda Energy & Minerals Ltd. Steel Authority Of India Ltd. Sujana Metal Products Ltd. 166

29 [c] Profitability Parameters: Operating profit (Table No ), Operating Profit Margin (Table No ), Net profit (Table No ), Net Profit Margin (Table No ), Net worth (Table No ), Return on Net worth (Table No ), ROI (Table No ), Return on Capital Employed (Table No ) and Debt-equity Ratio (Table No ). The following Table No shows the increase or decrease in post-merger period. Table No : Increased or Decreased in Post-merger period in Profitability Parameters OPR OPM NPR NPM NW RONW ROI ROCE DER Hindalco Industries Ltd. J S W Steel Ltd. Jai Balaji Industries Ltd. K E C International Ltd Mahindra Forgings Ltd. Om Metals Infraprojects Ltd. Ramsarup Industries Ltd. Sarda Energy & Minerals Ltd. Steel Authority Of India Ltd. Sujana Metal Products Ltd. 167

30 It is evidenced from the analysis that the null hypothesis The merged manufacturing companies did not improve profitability after merger is accepted (06 out of 10 sample firms) by Hindalco Industries Ltd, J S W Steel Ltd, Jai Balaji Industries Ltd, K E C International Ltd, Ramsarup Industries Ltd, and Sujana Metal Products Ltd due to they are failed to achieve better and improved profitability after merger. Whereas, the firms like Mahindra Forgings Ltd, Om Metals Infraprojects Ltd, Sarda Energy & Minerals Ltd, and Steel Authority of India Ltd had achieved better and improved profitability after merger. 168

31 5.3.2 H2: The merged manufacturing companies did not expand their business activities after merger. Parameters: Capital Formation (Table No ) & Increased Investment in Fixed Asset (Table No ). From the above analysis of ratio of capital formation and increased investment in fixed assets, it is evident that, this hypothesis, The merged companies did not expand their business activities after merger is rejected. Because the average amount of capital formation as well as the average amount of increased investment in fixed assets by merged firms is greater during post-merger period than that of premerger period. It is a clear proof that, there is good sign of improvement in their capacity; for this reason those firms have undertaken expansion or modernization through increasing their investment in fixed assets, further their attempt after merger turn around positively. The following Table No shows the increase or decrease in post-merger period. Table No.5.3.4: Increased or Decreased in Post-merger period in CF & IIFA CF IIFA Hindalco Industries Ltd. J S W Steel Ltd. Jai Balaji Industries Ltd. K E C International Ltd. Mahindra Forgings Ltd. Om Metals Infraprojects Ltd. Ramsarup Industries Ltd. - Sarda Energy & Minerals Ltd. Steel Authority Of India Ltd. Sujana Metal Products Ltd. 169