Financial Management-I

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Financial Management-I

• Dr. A Vinay Kumar
• Assistant Professor
• IIM Lucknow

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Instructor Profile

• Dr. A Vinay Kumar, PhD
• PhD in Finance from Osmania University (OU), Hyd.
• MBA Finance From OU, Hyd
• Over six years of teaching and two years of
  research experience
• Published Works in Venture Capital and
  Valuation/Executive Compensation

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Learning Ego
Past Achievements
Bubble of Praise
inertia
narcissism
Learning Unlearning
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What do you want to learn?
What do you have to unlearn?
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Interview Bhaskar Bhat Sep-23-2003  MD, Titan
Industries CNBC-TV18

• You are already heavily leveraged. Where are you
  getting the money from and what is your
  bottomline going to look like the next year?
• A Last year was not a year of restructuring but
  securing our future. We dealt with our high head
  count last year. We went into VRS. Then we did
  significant amount of restructuring of cost. In
  the last quarter we signed a long-term wage
  agreements which resulted in lockouts and so on.
  We have dealt with most of our problems, which is
  why the bottomline looked as it did for last
  year. We are looking at growth now. First quarter
  growth was in excess of  20. We should clock
  good growth for the first half and we are looking
  at a significant improvement in the bottomline as
  well as in compressing our cost. In the long-term
  we are looking at Rs 1500 crore turnover for the
  company and a bottomline which is significantly
  higher in about three years time.-

 
     
       

                        
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Interview

• Q When do we start seeing margin improvement and
  cost reduction that you are talking about? You
  will be spending on advertising now. How do you
  get a handle on costs?
• A  We have dealt with our costs. The job is not
  over though. It is an on-going programme. But
  investing in the brand is very different from
  dealing with your costs because the Titan brand
  is one of our most important assets. Continuous
  investment is important and that comes in the
  form of introducing new collections, doing
  something at retail and advertising. Investment
  can get you growth and growths gets your profit.
  We have gone through VRS, which has cost the
  company a lot of money but certainly it gives us
  a long-term cost competitiveness. We have dealt
  with redesigning products. We have dealt with our
  product costs and we have brought our capital
  employed under control. Our biggest problem is
  the capital employed in our European operations.
  No more losses are being incurred, but we need to
  deal with that.

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Identify and capture future opportunities for
growth
Maximize Current Operations Value
Present Future Capital Structure
Management of WC
Capital Budgeting
Governance Purpose
Consolidation / Yin
Growth/Yang
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Titan Industries Philosophy 2002

• The Company believes that it must so govern its
  affairs as to optimise satisfaction among all its
  stakeholders which includes its loyal customers,
  providers of capital, employees, those from whom
  we buy and through whom we sell, the communities
  in which our primary activities take place and
  society at large. The Company attaches equal
  importance to both ends and means - the results
  sought to be secured and the methods used to
  achieve them. The Company believes that, in
  whatever it does, it must contribute to the
  economic and social development of India, a basic
  tenet of the Tata Group to which your Company
  belongs. The Company sees the governance norms
  originating in the institutions of the stock
  market as an integral part of its corporate
  governance philosophy to be respected not just in
  the letter but, more importantly, in spirit. The
  Company realises that it must disseminate
  information pertaining to its affairs so that all
  stakeholders may gain a true understanding of its
  activities and aspirations.
• 
  -Source 2002 annual report

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Titan Industries Past Focus

• The Directors reports (1990-91)highlights that
• The company has performed satisfactorily during
  the year, with income rising from Rs. 74.62
  crores in the previous year to Rs. 106.78 crores
  and profits after tax rising from Rs. 4.33 crores
  to Rs. 9.10 crores.
• Source
  1990-91Annual Report

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What should be the ideal corporate purpose?
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Business ActivitiesAll the Stocks Flows
Capital Markets
The Firm
Debt Holders or Issuers
Share Holders

• - Firm has 3 activities
• Financing
• Operating
• Investing
• - Financial Statements record
• Stocks
• Flows

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The Relationship
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Business ActivitiesAll the Stocks Flows
I Investment in Operating Assets, C Net Cash
from Operations, OR Operating Revenue, OE
Operating Expenses, F Cashflow to debt holders,
d dividends
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(No Transcript)
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Maximize PV

• Maximize NPV
• PV of Costs/ cash outflows-minus
• PV of Cash inflows
• The Stock Price takes care of itself

Wealth NPV Share Price
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Stock Pick
178-126-144
86.5-76-77.5
95-71-72.5
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Agency and the way out

• PSU!  I am not talking about Public Sector Units
  but rather Performance Share Units.  GE announced
  that CEO Jeffrey Immelt will no longer receive
  stock options but rather PSUs.  These units are
  designed to reward executives when the
  shareholders are made better off, but unlike
  options only have value if certain operating
  conditions are met.  Thus they are in some ways a
  hybrid between market based and operating based
  pay.  For example half of Immelts PSUs require
  the firms operating cash flow to increase by 10
  or more while the other half require that GEs
  shareholders total return meet or exceeds the
  broader market.
• http//www.courier-journal.com/business/news2003/0
  9/18/biz-3-GE18-4366.html

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Financial Management
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Capital Structure
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Working Capital Management
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At the end of the course you need to

• Understand Time Value of Money Thoroughly
• Understand Operating Environment of Company from
  a Finance Stand Point
• Assess Cash Needs and Forecast
• Understand Operating Cycle, CCC
• Manage Debtors and Inventory
• Manage Cash in the Money Markets
• Understand Bank Finance available for Company to
  meet short term obligations

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Rules of the Game

• Request you to be seated and be silent when I am
  in the class
• I dont allow any body into the class after I
  enter the class
• I expect you to read the course material before
  coming to the class, no excuses for not reading
  pl.
• I expect you to leave the class, if you are not
  prepared for the class by doing so, contribute to
  the classroom decorum.
• You can contact me on Thursday, Friday and
  Saturday- by appointment.
• There will be more than one quiz in the course,
  it could be about the case, reading material, and
  additional material which will be given to you
  during the course.
• I dont take a re-quiz- so dont ask me for one.
• Submit your assignments in time.
• Grading.