In the last two articles on Nalco, we tracked the movement in the company's P&L statements in two periods viz. 1999 to 2003 and 2003 to 2007. Now let us have a look at the standalone balance sheet of the company and how has it changed between the period 1999 and 2003.
Let us first consider the assets side of the balance sheet; the net fixed assets grew at a CAGR of 16%, which can be attribute to major capacity addition. The company almost doubled its alumina and aluminium capacity during the period under consideration. The investments grew at a CAGR of 24% backed by strong profits generated out of operations.
The company showed an exceptional performance on working capital management, (it was reduced from Rs 6.4 bn in FY99 to negative amount in FY02.) This is despite the fact that the topline of the company grew at a CAGR of 16%. The inventory days were reduced from 102 in FY99 to 62 in FY03 and also debtor's days were reduced from 76 in FY99 to 13 in FY03. If we were to exclude cash from the working capital, the performance was even more outstanding.
The company was able to grow its investments at a CAGR of 24% although when its net fixed assets grew at a CAGR of 16%. This can be attributed not only to huge cash generated but also to efficient working capital management that boosted the growth during the period under consideration.
On the liabilities side, the total debt of the company grew at a CAGR of 20% during the period under consideration. The net worth on the other hand grew at a modest CAGR of 4%. Consequently, the debt to equity ratio increased from 0.2 in FY99 to 0.4 in FY03.
To conclude, the company seems to have funded its capex and increase in investments predominantly through debt than equity. This is surprising because the net profits of the company grew at a strong 20% during the period under consideration and would have played a key role in capacity expansion had they been ploughed back into the business, thus enabling the company to rely less on debt. However, the dividend payout ratio of the company increased from 35% (incl dividend tax) in FY99 to a strong 84% in FY03 and hence tying the hands of the company as far as funds for capex are concerned. Little wonder, it had to resort to debt. However, since the company was undercapitalized to a great extent, the debt to equity ratio did not go out of hand even after the expansion.
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