Euro Ceramics Ltd 1 st June, 2016 TABLE 1 - MARKET DATA (STANDALONE) (As on 31 st May, 2016) NSE Code - EUROCERA NSE Market Price ( ) 2.95 NSE Market Cap. ( Cr.) 10.05 Sector - Ceramic Products Face Value ( ) 10.00 Equity ( Cr.) 33.74 52 week High/Low ( ) 8.25/2.30 Net worth ( Cr.) -173.86 Business Group - Indian Private TTM P/E N.A. Traded Volume (Shares) 22,105 Year of Incorporation - 2002 TTM P/BV N.A. Traded Volume (lacs) 0.65 Source - Capitaline Corporate Office: 208, Sangam Arcade Vallabhbhai Road, Station Road Vile Parle (W), Mumbai 400 056, Maharashtra Company Website: COMPANY BACKGROUND Euro Ceramics Ltd was incorporated as private limited Company under the name 'Euro Ceramics Private Limited'' with certification of incorporation dated 16 th April, 2002. Subsequently the Company became a public limited Company on 16 th November, 2004 under the name The Company is engaged in the business of Vitrified Ceramic Tiles and Aluminium Extruded Sections. After the devastating earthquake of 26 th January, 2001 in Kutch Region of Gujarat, the Company decided to establish manufacturing facilities for Vitrified Ceramic Tiles and Aluminium Extruded Sections at Bhachau, Kutch. The major Plant & Machinery required for manufacturing Vitrified Ceramic Tiles were imported from SACMI, Italy. The first line for manufacturing Vitrified Ceramic Tiles with an installed capacity of 35,880 MTPA commenced operations in October 2003 along with manufacturing of Aluminium Extruded Sections with installed capacity of 1,800 MTPA. During July 2004, considering the growing demand for the products, the Company decided to install a second line for manufacturing Vitrified Ceramic Tiles with an installed capacity of 44,091 MTPA, for which, once again we entered into a contract for supply of major Plant & Machinery with SACMI, Italy. The second line for manufacturing Vitrified Ceramic Tiles commenced operations in December 2005. The manufacturing facility for Vitrified Ceramic Tiles is ISO: 9001 certified. Vitrified Ceramic Tiles have also got the approval from reputed technical Institutions like Veermata Jijabai Technological Institute (VJTI), Mumbai and Applied Consumer Services Inc., Finland, U.S.A. During February 2005, the Company started operations of Jewellery Division. In June 2005, Joint Director General of Foreign Trade, Government of India, accredited the Company as One Star Export House. During November 2005, the Company discontinued the operations of Jewellery Division. On December 30, 2005, Euro Merchandise (India) Limited, became the subsidiary, which is engaged into business of trading of wall and floor tiles, which include varieties like ceramic, glazed porcelain and rustic tiles. During March 2006, the Company commenced a 10 MW lignite based captive power plant and in August 2006, the Company also commenced a Gasifier for generating gas in order to reduce fuel costs and to achieve self Sufficiency for gas. TABLE 2 - PRICE PERFORMANCE 31 st May, 2016 29 th May, 2015 30 th May, 2014 % Change CAGR for 2 2016 vs 2015 2015 vs 2014 years Price ( ) 2.95 5.00 6.05-41.00% -17.36% -30.17% Trading Volume (Shares) (yearly avg.) 60,752 4,504 1,595 1248.69% 182.42% - NSE Market Cap. (in Cr.) 9.95 16.87 20.41-41.02% -17.34% -30.18% Source - Money Control 1 P A G E
TABLE 3 - FINANCIALS ( Cr.) 2015 2014 2013 % Change CAGR for 2 years 2015 vs 2014 2014 vs 2013 Net Worth -161.07-39.69-17.31 N.A. N.A. N.A. Current Assets 96.28 131.73 140.13-26.91% -5.99% -17.11% Non-Current Assets 324.16 413.90 450.94-21.68% -8.21% -15.21% Total Assets 420.45 545.63 591.06-22.94% -7.69% -15.66% Investments 58.67 94.37 95.90-37.83% -1.60% -21.78% Finance Cost 0.70 1.64 49.89-57.32% -96.71% -88.15% Long Term Liabilities 47.46 48.39 387.54-1.92% -87.51% -65.01% Current Liabilities 534.06 536.93 220.83-0.53% 143.14% 55.51% Turnover 49.71 76.63 88.61-35.13% -13.52% -25.10% Profit After Tax (PAT, Cr.) -62.04-34.98-107.00 N.A. N.A. N.A. EPS ( ) -18.00-13.00-34.00 N.A. N.A. N.A. Source - Money Control/Annual Report Discussion as per Company: During the FY 2014-15 the revenue were generated from Sanitaryware and Marble Division of the Company. The Vitrified Tiles and Aluminum Section plants were non-operative during the year due to shortages of working Capital. There was no business from Realty Division. Revenue: Net sales during the financial year 2014-15 was ` 49.71 crores against the previous year s net sales of ` 76.63 crores, showing decrease by ` 26.92 crores on account of low off take of Marble. 97% business of the Company is through domestic market during the year, which is almost in the same ratio of previous year. Finance Cost: The Company s finance cost for the financial year 2014-15 was ` 0.70 crores, mainly consist of interest on some of the borrowings, interest on late payment of statutory dues, bank charges etc. Investment: Investment as at 31 st March, 2015 is reduced by ` 1.44 crores due to amount written off and provision made for permanent diminution in the value of investment made in Subsidiaries. Current Assets & Current Liabilities: Current Assets of the Company as on 31 st March, 2015 was ` 96.28 crores reduced by ` 35.45 crores, mainly on account of provision made for diminution in the value of the short term loans and advances made to partnership firm. Current Liabilities of the Company as on 31 st March, 2015 was ` 534.06 crores as against ` 536.93 crores as on 31 st March, 2014, showing decrease of ` 2.87 crores on account of trade payable and other current liabilities. Long Term Borrowings: The long term borrowings is reduced in absolute number by ` 0.93 crores as on 31 st March, 2015 mainly on account of repayment of some of the deposits and loans. 2 P A G E
AUDIT QUALIFICATIONS Audit Qualifications in last 3 years: The Auditors have raised following qualifications in the Annual Report for FY 2014-15 Status of the Audit Qualification(s) and Management Response: I. The financial statement have been prepared on a going concern basis, Inspite the fact that the Company's financial facilities/arrangements have expired and the same are overdue for repayment and the net worth of the Company fully eroded and the lenders and creditors have initiated legal proceedings against the Company for recovery. The Directors would like to state that the Company is operational and Manufacturing Marble and Sanitaryware Products and employed more than 200 manpower. The Company is also making serious efforts in negotiating with the banks and resolving the issues with banks. The management has taken and been taking all diligent steps under legal advice, to defend the Company in all the litigation. Considering the ample opportunities in the market and growth drivers for the industry per say, your Directors are optimistic about the turnaround of the Company with the infusion of the long term funds and with support of the lenders. The Company can derive a comprehensive package under BIFR for the secured and unsecured lenders with potential future earning plans, for resolution of its debts. II. The Company has not provided for interest on financing facilities amounting to 87.58 crores for the year ending March 31, 2015. Had the same been provided, the loss for the year ending March 31, 2015, would have increased by 87.58 crores. The corresponding liabilities would also have increased by 87.58 crores as at March 31, 2015. The Company on the basis of registration filed u/s. 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, before the Hon'ble Board for Industrial & Financial Reconstruction, and the hearings for which are in process for determination of sickness and on the basis of negotiation with the lenders for reduction in interest, rephasement in terms of borrowings etc., has not provided for interest to the tune of 87.58 crores, (calculated based on last sanction letters in hand) on financing facilities, for the year ending March 31, 2015. III. The Company has not provided for impairment or diminishing value of its assets/investment as per 'Accounting Standard 28 Accounting for Impairment of Assets' as notified under the Companies (Accounting Standards) Rules, 2006 read with the General Circular 15/2013 dated September 13, 2013 of the Ministry of Corporate Affairs in respect of Section 133 of the Companies Act, 2013. The effect of such Impairment or diminishing value has not been quantified by the management and hence the same is not ascertainable. The Company has made the provisions for diminution in the value of its investments/assets wherever required. Management has a policy to maintain the assets and keep them in working condition, so that its value does not get affected in long run. The management is optimistic about realizing the value of its Assets / Investments nearest to its carrying value, and there is no further diminution in the value of its assets/investment other than depreciation / amortization provided for. IV. There has been delay in transferring unclaimed dividend amounting to 25,303/- pertaining to financial year 2006-07 into the Investor Education and Protection Fund, by the Company during the year ended March 31, 2015. The management would like to state that the delay in transferring the amounts to the Investor Education and Protection Fund was unintentional and due to oversight. V. In respect of loans, secured or unsecured, granted by the Company to companies, firms or other parties covered in the register maintained under section 189 of the Act, here are no stipulations made regarding repayment of principal amount and interest. Hence we are unable to comment as to regularity of repayments of principal and interest amount. The directors would like to state that the Loans and Advances are given in the normal course of business to a firm where your Company is a partner with majority share. VI. The Company has accumulated losses at the end of the financial year and at the immediately preceding financial year and the Company has defaulted in repayment of loans and interest to the banks. The directors would like to state that the loss is mainly on account of Depreciation and provisions made for diminution in the value of the investment/ assets. However, the Company was able to generate marginal cash profit of ` 2.31 crores during the year under review. The Company had working capital shortages during the year 3 P A G E
and was unable to run all the plants. Further the plants which were operational during the year were also run at lower capacity due to liquidity crunch, despite of the demand of the products in the market. Due to inadequate cashflows from the operations of the Company, there were defaults in the repayment of the loans and interest to the Banks. However, the management is hopeful with the changing economic scenario, of arriving at a comprehensive business restructuring along with the debt realignment proposal with the lenders under BIFR. VII. The Company has given the guarantee for loans taken by its subsidiary from bank. The terms and conditions of the same are not prejudicial to the interest of the Company. The said subsidiary has been continuously incurring losses and its net worth has been fully eroded and there is substantial doubt whether the said subsidiary would be able to repay its liabilities or realize its assets. The directors would like to state that the management of the subsidiary Company is hopeful of reviving its business with the changing economic scenario and is negotiating with the lender for amicable settlement of its dues. VIII. No provision for depletion in the value of the investment and loans and advances made/given by the Company to its wholly owned subsidiary company M/s. Euro Merchandise (India) Ltd. The directors would like to state that the said investment is strategic and long term in nature. The management is hopeful of turning around of business of the subsidiary company and recovery of the loans and advances given to the subsidiary. Hence in the opinion of the management, no provision is necessary for the depletion in the value of the investment. IX. All the directors are disqualified as on March 31, 2014 from being appointed as a Director in terms of clause (g) of sub-section (1) of section 274 of the Act. The directors would like to state that disqualification was on account of the default in repayment of deposit and interest there on due to liquidity crisis in the Company. X. Non-compliance in respect of the deposits accepted within the meaning of section 58Aof the Companies Act, 1956. Due to liquidity crunch and urgent requirements of working capital, the Company has paid higher interest rate then the prescribed rate under the Companies (Acceptance of Deposits) Rules, 1975 to some of the depositors. The Company has implemented the Corporate Debt Restructuring Scheme during the previous year but the operations of the Company are under stress due to various internal and external factors including liquidity crunch, adverse market conditions, economic slowdown and fixed cost burden due to low capacity utilization. Under such situation, the Company could not maintain the liquid asset ratio as required under the said rules. XI. Accumulated losses, cash loss during the year, erosion of net worth and default in payment to banks for instalment and interest dues. The Company was passing through severe liquidity crunch during the year. The capacity utilization in all the divisions was very low due to non-availability of working capital, delay in implementation of CDR package, delay in release of additional working capital by banks, adverse market conditions and price competition. The cost of production was also high due to low capacity utilization, increasing fuel prices and unabsorbed fixed cost. In the course of time the Company incurred cash losses and there has been default in repayment of instalments and interest dues to banks. The Directors of the Company are hopeful of turnaround of the business of the Company and to rectify all above in the years to come. Response Frequency of Qualifications - Comment The Auditors have raised qualifications since FY 2013-13 Have the Auditors made any adverse remark in last 3 years? No - Are the material accounts audited by the Principal Auditors? Yes - Do the financial statements include material unaudited financial statements? No - 4 P A G E
Trading Ratios Solvency Ratios Liquidity Ratios Return Ratios Turnover Ratios STAKEHOLDERS EMPOWERMENT SERVICES TABLE 4: BOARD PROFILE (As on 31 st March, 2015) Regulatory Norms Company % of Independent Directors on the Board 50% 67% % of Promoter Directors on the Board - 33% Number of Women Directors on the Board Atleast 1 1 Executive Promoter - Classification of Chairman of the Board Director Is the post of Chairman and MD/CEO held by the same person? - Yes Average attendance of Directors in the Board meetings (%) - 100% Source - Money Control/Annual Report Composition of Board: As per Regulation 17(i)(b) of the Listing Regulations, 2015, the Company should have at least 50% Independent Directors as the Chairman of the Board is an Executive Promoter Director. The Company as on 31 st march, 2015 has 67% of Independent Directors on the Board and hence, it meets the regulatory requirements. Board Diversity: The Company has 6 directors out of which 5 are male and 1 is female. Holding of position of MD/ CEO & Chairman by same person: The Company has appointed Mr. Nenshi L. Shah as the Chairman and Managing Director of the Company. Appointment of a single person as the Chairman and Managing Director of the Company is not a good governance practice as this may lead to concentration of power in a single person. TABLE 5 - FINANCIAL RATIOS Ratios 2015 2014 2013 % Change 2015 vs 2014 2014 vs 2013 Inventory Turnover 1.55 2.39 2.21-35.19% 8.06% Debtors Turnover 3.79 5.18 4.35-26.87% 19.31% Fixed asset Turnover 0.15 0.19 0.20-17.17% -5.78% Current Asset Turnover 0.52 0.58 0.63-11.24% -8.01% Operating Profit Margin -53.33% -45.67% -120.75% N.A. N.A. Net Profit Margin -124.80% -45.65% -120.75% N.A. N.A. Return on Assets (ROA) -14.76% -6.41% -18.10% N.A. N.A. Return on Equity (ROE) N.A. N.A. N.A. N.A. N.A. Return on Capital Employed (ROCE) N.A. N.A. N.A. N.A. N.A. Current Ratio 0.18 0.25 0.63-26.52% -61.34% Quick Ratio 0.12 0.19 0.45-35.25% -59.04% Cash Ratio 0.10 0.16 0.36-39.50% -56.18% Working Capital Turnover ratio N.A. N.A. N.A. N.A. N.A. Debt to equity ratio N.A. N.A. N.A. N.A. N.A. Interest Coverage Ratio N.A. N.A. N.A. N.A. N.A. Market Cap / Sales 0.22 0.14 0.12 54.15% 15.63% Market Cap/ Net Worth N.A. N.A. N.A. N.A. N.A. Market Cap/PAT N.A. N.A. N.A. N.A. N.A. Market Cap/EBITDA 5.41 N.A. N.A. N.A. N.A. Trading Volume (shares) (avg. of 1 year) 53,844 4,559 1,323 1,080.95% 244.63% Trading Volume (shares) (high in 1 year) 21,19,672 59,459 9,784 3,464.93% 507.72% Trading Volume (shares) (low in 1 year) 3.00 1.00 3.00 200.00% -66.67% Ratio - High/low trading volume 7,06,557 59,459 3,261 1,088.31% 1,723.15% Ratio - High/average trading volume 39.37 13.04 7.40 201.87% 76.34% Source - Money Control 5 P A G E
Shareholding STAKEHOLDERS EMPOWERMENT SERVICES TABLE 6 (A): OWNERSHIP & MANAGEMENT RISKS Mar' 2016 Mar' 2015 Mar' 2014 Comments Promoter shareholding 10.50% 22.24% 22.33% Public - Institutional shareholding 13.91% 29.47% 30.11% Public - Others shareholding 75.59% 48.28% 47.56% Non Promoter Non Public Shareholding TABLE 6 (B): OWNERSHIP & MANAGEMENT RISKS Market Activity of Promoters Preferential issue to promoters Preferential issue to others GDRs issued by the Company Issue of ESOPs/Issue of shares other than Preferential allotment Source - Annual Report - - - The promoter shareholding decreased from 22.33% in Mar 2014 to 10.50% in Mar 2016 due to invocation of pledged shares. The shareholding of public institution decreased from 30.11% in Mar 2014 to 13.91% in Mar 2016 and that of public others increased from 47.56% in Mar 2014 to 75.59% in Mar 2016. The promoters have pledged 99.99% of their shareholding and 10.50% of Total shareholding. The Promoters of the Company have sold their shares in the secondary market in last two years. No preferential issue of shares was made to the promoters in last three years During the FY 2013-14 the Company has issued and allotted 51,59,705 Equity Shares of ` 10/- each at a price of ` 24.42/- per share (including premium of ` 14.42/- per share) upon conversion of even number of Compulsorily Convertible Debentures which were issued as per the terms of Letter of Approval (LOA) issued by Corporate Debt Restructuring (CDR) cell, dated 29 th October, 2011 on preferential basis. The Company did not issue any GDRs in last three years The Company does not have any ESOP Scheme. 6 P A G E
Glossary Equity: The equity shares capital of the Company Net Worth: The amount by which the Assets exceeds the liabilities excluding shareholders funds of the Company Turnover: The revenue earned from the operations of the Company EPS: Earning Per Share is net profit earned by the Company per share EPS = Profit After Tax Number of outstanding shares P/E ratio: It is the ratio of the Company s share price to earnings per share of the Company P/E ratio = Price of each share Earnings per share Current Assets: Cash and other assets that are expected to be converted to cash in one year Fixed Assets: assets which are purchased for long-term use and are not likely to be converted quickly into cash, such as land, buildings, and equipment Total Assets: Current Assets + Fixed Assets Investments: An investment is an asset or item that is purchased with the hope that it will generate income or appreciate in the future. Finance Cost: The Financing Cost (FC), also known as the Cost of Finances (COF), is the cost and interest and other charges incurred during the year in relation to borrowed money. Long Term Liabilities: Long-term liabilities are liabilities with a maturity period of over one year. Current Liabilities: A company's debts or obligations that are due within one year. Inventory Turnover ratio: Inventory Turnover is a ratio showing how many times a company's inventory is sold and replaced over a period. Inventory Turnover ratio = Inventory Debtors Turnover: Accounts receivable turnover is an efficiency ratio or activity ratio that measures how many times a business can turn its accounts receivable into cash during a period Debtors Turnover ratio = Accounts recievables Fixed Asset Turnover: The fixed-asset turnover ratio is a financial ratio of net sales to fixed assets Fixed Asset Turnover ratio = Fixed Assets Current Asset Turnover: The current-asset turnover ratio is a financial ratio of net sales to fixed assets Current Asset Turnover ratio = Current Assets 7 P A G E
Operating Profit Margin: Operating margin is a measurement of what proportion of a Company s revenue is left over after paying for variable costs of production such as wages, raw materials etc. It can be calculated by dividing a Company s operating income (also known as operating profit ) during a given period by its sales during the same period. Operating Profit Margin = Operating profit Net Profit Margin: Net profit margin is the percentage of revenue left after all expenses have been deducted from sales Net Profit Margin = Net profit Return on Assets: ROA tells you what earnings were generated from invested capital (assets) Return on Assets = Net profit Total Assets Return on equity/net worth: return on equity (ROE) is the amount of net income returned as a percentage of shareholders equity. Return on Equity = Net profit Net worth Return on Capital Employed: Return on capital employed (ROCE) is a financial ratio that measures a company's profitability and the efficiency with which its capital is employed. Return on Capital Employed = Net profit Total Debt + Equity share capital Current ratio: The current ratio is a financial ratio that measures whether or not a firm has enough resources to pay its debts over the next 12 months. It compares a firm's current assets to its current liabilities. Current ratio = Current Assets Current Liabilities Quick ratio: The quick ratio is a measure of how well a Company can meet its short term financial liabilities. Quick ratio = Current Assets Inventories Current Liabilities Cash ratio: The ratio of the liquid assets of a Company to its current liabilities. Quick ratio = Current Assets Inventories Account Recievables Current Liabilities Working Capital Turnover ratio: The working capital turnover ratio is also referred to as net sales to working capital. It indicates a Company's effectiveness in using its working capital. Working Capital Turnover ratio = Current Assets Current Liabilities Debt to Equity ratio: The debt-to-equity ratio (D/E) is a financial ratio indicating the relative proportion of shareholders' equity and debt used to finance a company's assets. Debt to Equity ratio = Short Term Debt + Long Term Debt Net Worth Interest Coverage ratio: The Interest coverage ratio is a debt ratio and profitability ratio used to determine how easily a Company can pay interest on outstanding debt. Interest Coverage Ratio = Earning Before Interest and Tax Finance Cost 8 P A G E
Market Cap/Sales ratio: Market Cap/sales ratio, Price sales ratio, P/S ratio, or PSR, is a valuation metric for stocks. It is calculated by dividing the company's market cap by the revenue in the most recent year; or, equivalently, divide the per-share stock price by the per-share revenue. Market Cap Market Cap/Sales ratio = Market Cap/ Net Worth ratio: It is a valuation ratio calculated by dividing Company s market cap to net worth. Market Cap Market Cap/Networth ratio = Networth Market Cap/ PAT ratio: It is a valuation ratio calculated by dividing Company s market cap to net profit. Market Cap Market Cap/PAT ratio = net profit Market Cap/ EBITDA ratio: It is a valuation ratio calculated by dividing Company s market cap to EBITDA. Market Cap/EBITDA ratio = Market Cap EBITDA Trading Volume (shares) (avg. of 1 year): Average number of shares/day traded in 1 year Trading volume (shares) (high in 1 year): Highest number of shares/day traded in 1 year Trading volume (shares) (minimum in 1 year): Lowest number of shares traded on any one day in 1 year 9 P A G E
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