KAAV INTERNATIONAL JOURNAL OF ARTS, HUMANITIES & SOCIAL SCIENCES A REFEREED BLIND PEER REVIEW QUARTERLY JOURNAL KIJAHS/JUL-SEP2017/VOL-4/ISS-3/A22 PAGE NO-125-133 ISSN: 2348-4349 IMPACT FACTOR (2017) 7.9183 www.kaavpublications.org FINANCIAL PERFORMANCE ANALYSIS VENTURE CAITALFUND IN INDIA A STUDY OF SBI CAPITAL MARKETS LIMITED AND CANBANK VENTURE CAPITAL FUND LIMITED 1 MRS.MEHDI BANO 1 Associate Professor, Anwarul Uloom Degree College New Mallepally, Hyderabad 2 MR. MD AIJAZ KHAN 2 Research Scholar, Maulana Azad National Urdu University Gachi Bowli, Hyderabad Abstract The concept of Venture Capital fund was born with a fundamental objective to provide initial capital and support in building capital base to the entrepreneurs, having a sound background of professional education, expertise and initiative to launch the business based on task changing technology. Venture Capital is a type of private equity, a form of financing that is provided to small, early, emerging firms that are deemed to have high growth potential or which have demonstrated high growth ( in terms of number of employees, annual revenue or both) Venture capital funds are investment funds that manage money from investors seeking private equity stakes in startup and small and medium size enterprises with strong growth potential. These investments are generally characterized as high risk, high return opportunities.the paper is aimed to give an analysis of financial performance of SBI Capital Markets Limited and Canbank Venture Capital Fund Limited. The present study shows the tremendous growth trend and profitability of the SBI Capital Markets Limited and Canbank Venture Capital Fund Ltd. Every year both the companies are growing and showing very good profits. Study reveals that SBICAP have huge Gross Income, Profits, Net worth and Total Assets. On the basis of that SBICAP is better than CVCFL. SBICAP have good returns also. CVCFL is small company compare to SBICAP but have good returns especially in case of Earnings per Share. Present study shows the future forecasting of the Total Income, Total Expenditure, Profit before Tax and Profit after Tax would be doubled in next ten years. This study is based on secondary data. Key words: Initial Capital, Private Equity, High Risk, High Return INTRODUCTION Business depends on funds. Funds can be acquired from internal sources but usually, depend heavily on outside sources as owners have limitations about availability of funds. In order to secure funding from outside sources, proven track record of successful entrepreneurship and proper security in the form of collateral are essential. If proven track record is missing or in a new technocrat, securing funds and that too without any collateral would be a miracle. However, it is not an easy task to raise 125
finance, no matter what your economic situation. The Indian economy at present is making its position in global economy very fast. For this global economic development, technology change and innovation is the backbone and the capital is the life blood for the development. All these market and institution before providing the fund do a lot of exercise and ask for security just to ensure safety of funds The concept of venture capital fund was born with a fundamental objective to provide initial capital and support in building capital base to the entrepreneurs, having a sound background of professional education, expertise and initiative to launch the business based on task changing technology. Venture Capital is a type of private equity, a form of financing that is provided to small, early, emerging firms that are deemed to have high growth potential or which have demonstrated high growth (in terms of number of employees, annual revenue or both) Venture capital funds are investment funds that manage money from investors seeking private equity stakes in startup and small and medium size enterprises with strong growth potential. These investments are generally characterized as high risk, high return opportunities. Venture capital is not only and injection of funds into a new firm, it is also an input of skills needed to set up the firm, it is also an input of skills needed to set up the firm design its marketing strategy, organize and manage it. Venture capital has also been described as unsecured risk financing. The relatively high risk of venture capital is compensated by the possibility of high returns usually through substantial capital gains in the medium term. Venture capital finance can be at any stage of business or production cycle that is, start up, expansion or to improve a product or process, which are associated with both risk and reward. DEFINITIONS: Venture Capital fund Regulation 1996 by SEBI A fund established in the form of a company or trust which raises money through loans, donations, issue of securities or units as the case may be and makes or proposes to make investments in accordance with its regulations. According to 1995 Finance Bill Venture capital is defined as long term equity investment in novel technology based projects with display potential for significant growth and financial return. MEANING: The term Venture Capital comprises of two words that is Venture and Capital. Venture means a course of processing, outcome which is uncertain which is attended the risk or danger or loss. Capital means resources to start an enterprise. FEATURES OF VENTURE CAPITAL 1. Long term investment 2. Lack of liquidity 3. High risk return 4. Private Equity 5. Wide Scope 6. Equity Participation ADVANTAGES 1. Large sum of equity finance 2. The reward for a venture capitalists is the success of the business and capital gain 3. Because of venture capital, it brings wealth and expertise. 4. Venture capitalists have wide network of contacts. 5. Providing additional funds. DISADVANTAGES 1. Lengthy and complex process 2. At the negotiation stage, one has to pay for legal and accounting fees 3. Investor become part of owners in business (equity) and also faces loss at a pre- incorporation stage of a business, but enjoys autonomy and control. PROBLEMS 1. Expert management team is required 126
2. ROI 3. Longer pay period 4. Uncertainty regarding the success of the product in the market 5. Skills and training 6. Time period 7. Interferences in business SBI CAPITAL MARKETS LTD (SBICAP) (SBICAP) is India s largest domestic Investment Bank, offering the entire gamut of investment banking and corporate advisory services. These services encompass Project Advisory and Loan Syndication, Structured Debt Placement, Capital Markets, Mergers & Acquisitions, Private Equity and Stressed Assets Resolution. They are a complete solutions provider offering diversified financial advisory and investment banking services, innovative ideas and unparalleled execution to their client base across all stages of the business cycle. Their services ranges from venture capital advisory, project advisory, buy and sell-side advisory, accessing financial markets to raise capital and even restructuring advisory in their turn-around phases. Founded in August 1986, SBICAP is a wholly owned subsidiary and the Investment Banking arm of State Bank of India (SBI), the largest commercial bank in India. CANBANK VENTURE CAPITAL FUND LTD. (CVCFL) Canbank Venture Capital Fund Limited is Founded on 21st October, 1989, a wholly owned subsidiary of Canara Bank. The bank is the first public sector bank to set up a venture capital fund that is duly registered with SEBI. Canbank is a premier domestic venture Capital Fund. An experienced fund management company, Canbank Venture believes in adopting a General Fund Philosophy and has a good portfolio of investment in several promising sectors. The funds corpus is contributed by public Sector Banks and financial institutions and Insurance Companies. Over the last 26 years Canbank Venture has invested in several promising companies, partnered progress and posted successful exits. Canbank Venture invest in businesses with an established technological or market positioning edge and good growth potential. IMPORTANCE OF THE STUDY: Entrepreneurs and many other people who come up with bright ideas but lack of the capital they cannot start the business. What these venture capitalists do is facilitate and enable the startup phase. When there is an owner relation between the venture capital providers and receivers, their mutual interest for return will increase the firm s motivation to increase the profit. Venture Capitalists have invested in similar firms and project before and therefore, have more knowledge and experience. This knowledge and experience are the outcome of the experiments through the success and failures from the previous ventures, so they know what works and what does not, and how it works. Therefore, through Venture Capital a portfolio firm can initiate growth, identify problems and find recipes to overcome them. OBJECTIVES OF THE STUDY: 1. To study the Concept of Venture Capital Financing in India. 2. To Study the growth trends of SBI Capital Market Limited and Canbank Venture Capital Fund Limited. 3. To analyze the Profitability position of SBI Capital Market Limited and Canbank Venture Capital Fund Limited. RESEARCH METHODOLOGY: TYPE OF RESEARCH: This study is descriptive in nature. DATA COLLECTION: This study is based on secondary data. SECONDARY DATA: Data was collected from financial reports of respective companies, Ministry of Corporate Affairs, SEBI, books, journals, Magazines, websites of the VCs and other sources. STUDY PERIOD: This study is based on 8 years period from 2007-08 to 2014-15. LIMITATIONS OF THE STUDY: This study is purely depending on secondary data. 127
TOOLS USED FOR DATA ANALYSIS: Analysis of data is done with the help of financial analysis techniques and statistical techniques such as Ratio Analysis, Trend percentage, Mean, Standard Deviation and Co-efficient of variance. DATA ANALYSIS: TABLE 1: KEY FINANCIAL ITEMS OF SBI CAP (RS. IN LACS) (Source: Annual Reports of SBI Capital Markets Limited) Table 1 reveals the information of key financial items of SBI Capital Market Limited during the period from 2007-08 to 2014-15. This study is based on 8 Years. GROSS INCOME: During the study period it is found that Average Gross Income of SBI Capital Market Limited is Rs. 47446.25 Lacs. Annual Compound Growth Rate is 20.31% it implies that every year Gross Income Increased by 20.31%. Standard Deviation and Co - Efficient of Variation (CV) is 18787.78 and 39.59% respectively. During the year 2012-13 it is noticed that huge changed in Gross Income i.e. 131.46%. TOTAL EXPENSES: During the study period it is found that Average Total Expenses are 12444.75 Lacs and Annual Compound Growth Rate is 18.54%. Standard Deviation and CV are 5669.04 and 45.55% respectively. During the year 2012-13 to 2013-14 Total Expenses increases by 56.43%. Annual compound growth of Total Income is more than Annual compound growth rate of Total Expenses it is good sign for business. PROFIT BEFORE TAX: During the study period it is noticed that Average PBT is Rs. 35001.25 Lacs and Annual Compound Growth Rate is 21.08%. It means that every year Profit before Tax increased by 21.08%. Standard Deviation and CV are 14434.56 and 41.24% respectively. Annual Compound Growth Rate of Total Income is more than Annual Compound Growth Rate of Total Expenses that resulted Annual compound Growth Rate of Profit before Tax is increased. PROFIT AFTER TAX: During the study period it is noticed that Average PAT is Rs. 24291.5 Lacs and Annual Compound Growth Rate is 19.77 it means that every year PAT increased by 19.77% it is healthy sign for any business. Standard deviation and CV are 9421.36 and 38.78 % respectively. 128
CHART 1: KEY FINANCIAL ITEMS OF SBI CAP TABLE 2: KEY FINANCIAL ITEMS OF CVCFL (RS. IN LACS) (Source: Annual Reports of Canbank Venture Capital Fund Limited) Table 2 depicts the information of key financial items of Canbank Venture Capital Fund Limited during the period from 2007-08 to 2014-15. This study is based on 8 Years. GROSS INCOME: During the study period it is found that Average Gross Income of Canbank Venture Capital Fund Limited is Rs. 724.5 Lacs. Annual Compound Growth Rate is 50.56% it implies that every year Gross Income Increased by 50.56%. Standard Deviation and Co - Efficient of Variation (CV) is 483.80 and 66.78% respectively. During the year 2009-10 to 2010-11Gross Income is increased by 442.11% that is very big change. TOTAL EXPENSES: During the study period it is found that Average Total Expenses are 79.75 Lacs and Annual Compound Growth Rate is 26.58%. Standard Deviation and CV are 36.30 and 45.52% respectively. Every year Total Expenses are change more than 121% except in the year 2009-10 that is 77.19%. Annual compound growth of Total Income is more than Annual compound growth rate of Total Expenses it is good sign for business. 129
PROFIT BEFORE TAX: During the study period it is noticed that Average PBT is Rs. 632.25 Lacs and Annual Compound Growth Rate is 57.02%. It means that every year Profit before Tax increased by at the rate of 57.02%. Standard Deviation and CV are 442.67 and 70.01% respectively. Annual Compound Growth Rate of Total Income is more than Annual Compound Growth Rate of Total Expenses that resulted Annual compound Growth Rate of Profit before Tax is increased. PROFIT AFTER TAX: During the study period it is noticed that Average PAT is Rs. 420.25 Lacs and Annual Compound Growth Rate is 56.71% it means that every year PAT increased by 56.71% it is healthy sign for any business. Standard deviation and CV are 295.72 and 70.36% respectively. CHART 2: KEY FINANCIAL ITEMS OF CVCFL TABLE 3: PROFITABILITY RATIOS OF SBI CAP & CVCFL (PERCENTAGES) (Source: Annual Reports of SBI CAP & Canbank Venture Capital Fund Limited) Table 3 reveals Profitability Ratio of SBI Capital Markets Limited and Canbank Venture Capital Fund Limited during the year from 2007-08 to 2014-15. NET PROFIT: During the study period it is found that Average Net profit Ratio of SBICAP is 51.71 and CVCFL is 54.75% of Total Income respectively. On the basis of Average Net Profit CVCFL is better than SBICAP. Standard Deviation of SBICAP and CVCFL is 4.61 and 7.02% and Co- efficient of Variation is 8.91 and 12.82% respectively 130
EXPENSES RATIO: During the period Average Expenses Ratio of SBICAP and CVCFL is 26.42 and 32.05% of Total Income respectively. Here average expenses ratio of CVCFL is more than SBICAP. Standard Deviation of SBICAP and CVCFL is 5.35 and 23.67% and CV is 20.25 and 73.87% respectively. On the basis of variation CVCFL is more varied compared to SBICAP. RETURN ON EQUITY RATIO: It is observed that in table 3 Average Return on Equity Ratio of SBICAP and CVCFL is 33.42 and 30.37% respectively. On the basis of Average Return on Equity SBICAP have good returns compared to CVCFL. Standard Deviation of SBICAP and CVCFL is 10.06 and 12.15% respectively and CV is 30.10 and 40.01% respectively. On the basis of dispersion SBICAP is less dispersed compared to CVCFL. RETURN ON ASSETS RATIO: Table 3 shows the Average Return on Assets Ratio of SBICAP and CVCFL is 29.30 and 22.26% respectively. On the basis of Average Return on Assets SBICAP is better than CVCFL. Standard Deviation of both the companies is 9.29 and 7.77% respectively and CV is 31.71 and 34.89% respectively. On the basis of variation SBICAP have more consistency compared to CVCFL. EARNINGS PER SHARE: In case of Average Earnings per Share of SBICAP and CVCFL are 41.86 and 168.24 Rupees. On the basis of Average Earnings per Share CVCFL have more earnings compared to SBICAP. Shareholders point view CVCFL is better than SBICAP. Standard Deviation of SBICAP and CVCFL is 16.23 and 118.34% and CV of both the companies is 38.78 and 70.34%. On the basis of variation SBICML is less varied. TABLE 4: FORECASTING OF VARIOUS FINANCIAL ITEMS IN SBI CAP (RS. IN LACS) Year Gross Income Total Expenses Profit Before Tax Profit after Tax 2015-16 77562.71 22466.14 55096.54 37033.68 2016-17 83892.64 25178.36 58714.45 39383.88 2017-18 89164.42 27700.2 61464.68 41071.95 2018-19 91326.7 30292.35 61034.88 40509.26 2019-20 101373.8 32954.6 68419.65 45219.52 2020-21 107774.5 35432.32 72342.81 47540.2 2021-22 113878.6 37161.44 76717.87 50473.2 2022-23 118965.6 40014.67 78951.84 51853.38 Table 4 shows the future forecasting of Total Income, Total expenses, Profit before Tax and Profit after Tax of SBI Capital Markets Limited. The forecast volume for the year 2022-23 would be Rs. 118965.6, 40014.67, 78951.84 and 51853.38 Lacs respectively. CHART 3: FORECASTING OF KEY FINANCIAL ITEMS IN SBI CAP 131
TABLE 5: FORECASTING OF KEY FINANCIAL ITEMS IN CVCFL (RS. IN LACS) Year Gross Income Total Expenses Profit Before Tax Profit after Tax 2015-16 1537.214 142.9643 1355.286 897.5714 2016-17 1717.845 157.0119 1515.988 1003.643 2017-18 1898.476 171.0595 1676.69 1109.714 2018-19 2079.107 185.1071 1837.393 1215.786 2019-20 2259.738 199.1548 1998.095 1321.857 2020-21 2440.369 213.2024 2158.798 1427.929 2021-22 2621 227.25 2319.5 1534 2022-23 2801.631 241.2976 2480.202 1640.071 Table 5 shows the future forecasting of Total Income, Total expenses, Profit before Tax and Profit after Tax of Canbank Venture Capital Fund Limited. The forecast volume for the year 2022-23 would be Rs. 2801.631, 241.2976, 2480.202 and 1640.071 Lacs respectively. CHART 4: FORECASTING OF KEY FINANCIAL ITEMS IN CVCFL CONCLUSION: Venture Capital is a type of private equity, a form of financing that is provided to small, early, emerging firms that are deemed to have high growth potential or which have demonstrated high growth in terms of number of employees, annual revenue or both. Venture capital finance can be at any stage of business or production cycle that is, start up, expansion or to improve a product or process, which are associated with both risk and reward. The study reveals that SBICML have huge amount of Total Income, Total Expenses, Profit before Tax and Profit after Tax Compare to CVCFL. During the study period it is found that both the companies are growing rapidly. SBICML have good Returns compared to CVCFL and Shareholders point of view CVCFL has very good earnings. Overall both the companies have good returns and performed well during the study period. SBICML emerged as big company on the basis of Total Incomes, Profits Net worth and Total Assets. 132
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