Comparative study between two real estate companies (DB and JAYPEE)

Submitted by Hemant Dwivedi Prakash Hajare Ramesh Yadav Farook Khan 10 16 48 49

Submitted to: Prof. Deepa Mam

ABSTRACT The real estate is one of the fast growing paths in India and also other countries. The development in the real estate market encompasses growth in the both commercial residential areas. The Real Estate is a very wide concept and it is highly affected by the macro-economic factors like GDP, FDI, per capital income, Interest rates and employment in the nation. The most important factor in the case of Real Estate is location which affects the value and returns from the Real Estate. This research paper help to understand the financial position of two companies through the financial ratios .This study helps to evaluation the performance of Real Estate Company. It also helps to understand how well the company performs, and also by using financial ratios in order to evaluate companies financial conditions and various types of financial ratios have been devised. The data collection from the annual financial reports of Jaypee & DB construction . Different financial ratio are evaluated such liquidity ratios, profitability ratios, activity analysis, capital structure analysis, capital market analysis, and finally measure the best performance between two companies.

Introduction
Real estate refers Land plus anything permanently fixed to it, including
buildings, sheds and other items attached to the structure. Although, media often refers to the "real estate market" from the perspective of residential living, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial. Examples of real estate include undeveloped land, houses, condominiums, townhomes, office buildings, retail store buildings and factories. This report will provide a financial comparison of two companies real estate companies Jaypee & DB construction. This comparison will be done using a selection of accounting ratios and looking at other relevant data to evaluate the companys performance. Any factors whether it being financial or not that affected the companys performance during the periods under review will be discussed. Ratio analysis is regarded as an extremely useful and powerful tool to interpret financial statements, however this type of financial comparison is subject to a number of

limitations. Some ratios lack in definition and may be defined in more than one way, therefore some of the stakeholders in the company could interpret the ratios differently. This is because figures in the statement of financial position show only a snapshot of the company, which could be misleading when used to compare via ratio analysis; also two companies under review may use different accounting policies, and therefore could have a significant impact when comparing and make it difficult to get a full conclusion of the companies concerned. The financial statements are mirror which reflects the financial position and strengths or weakness of the concern. The analyses of financial statements are useful to: * Management, * Investors, * Creditors, * Bankers, Shareholders, * Government.

History Of Jaypee With a single minded focus in mind, to achieve pioneering myriads of feat in civil engineering Shri. Jai Prakash Gaur, Founder Chairman of Jai Prakash Associates Limited after acquiring a Diploma in Civil Engineering in 1950 from the University of Rookie, had a stint with Govt. of U.P. and with steadfast determination to contribute in nation building, branched off on his own, to start as a civil contractor in 1958, group is the 3rd largest cement producer in the country. The groups cement facilities are located in the Satna Cluster (M.P.), which has one of the highest cement production growth rates in India. 1979 1981 Jai Prakash Associates Pvt Ltd formed and sets foot in Iraq. Commenced Hotel Business with first hotel in Delhi

Siddharth 1982 2010 Hotel Vasant Continental was set up Commissioning of 2.00 MnTPA Jaypee Himachal Cement Grinding and Blending Plant, Bagheri (H.P.). Commissioning of 1.20 MnTPA Jaypee Wanakbori Cement Grinding Unit, Wanakbori, Gujarat. Commissioning of 2.2 MnTPA Bhilai Jaypee Cement Ltd., Satna (Madhya Pradesh) & Bhilai (Chattisgarh). 1.2 million tonnes Jaypee Roorkee Cement Grinding Unit (JRCGU) at Roorkee, Uttarakhand. Jaypee Infratech Limited listed on NSE/BSE. Jaypee Rewa Cement Plant and Jaype Bela Cement Plant in Madhya Pradesh of the Group have been awarded with renowned and most prestigious SWORD OF HONOUR award by the British Safety Council, UK. This is a well acclaimed and celebrated international award in the field of Health and Safety management system. 3.00 MnTPA Rewa and 2.40 MnTPA Bela are the only cement plants to be bestowed with this honour in India. 2011 Amalgamation of Jaypee Karcham Hydro Corporation Limited (JKHCL) and Bina Power Supply Company Limited (BPSCL) with Jaiprakash Power Ventures Limited (JPVL) with effect from April 1, 2010, being the Appointed Date.

The Group was awarded two contracts relating to construction of the 990 MW Punatsangchhu II Hydroelectric Project, Bhutan. This hydro-electric project will be jointly implemented by the Royal Government of Bhutan and the Government of India. Commissioning of 1.00 MnTPA capacity cement grinding plant at Sikandrabad, Uttar Pradesh. Commissioning of cement grinding plant of 2.10 MnTPA capacity at Bokaro, Jharkhand, set in JV with SAIL (Bokaro Jaypee Cement Ltd.). 1000 MW Karcham-Wangtoo Hydropower Station of JPVL commissioned and begins power generation. Hosted the first Indian Formula OneTM Grand Prix on 30th October at Buddh International

D B Realty Ltd.
Company was originally incorporated as a public limited company in the name of D B Realty Limited, under the Companies Act, on January 8, 2007 and received certificate for commencement of business on February 28, 2007. Company was converted to a private

company and the name was changed to D B Realty Private Limited, pursuant to a shareholders resolution dated May 14, 2007 and received a fresh certificate of incorporation on July 9, 2007. Subsequently, the Company was converted to a public company and the name was change to D B Realty Limited, pursuant to a shareholders resolution dated September 5, 2009 and received a fresh certificate of incorporation on September 23, 2009. Company has been engaged in the business of real estate development and there has been no change in the activities being carried out by the company since its incorporation. Changes in the Registered Office at the time of incorporation, the registered office of our Company was Dynamix House, Gen. A.K. Vaidya Marg, Goregaon (East) Mumbai 400 063. Pursuant to change in the name of the premises where our Companys registered office is situated, the details of the registered office were amended to reflect the present registered office at DB House,

VARIABLES:
Current ratio, quick ratio, cash ratio, market to book , debt/equity ,debt/assets , gross margin , operating margin ,EBIT margin ,NET margin ,asset turnover ratio ,cash conversion ratio ,return on assets ,return on equity ,return on common equity ,profit margin, earning per share ,assets turnover ratio ,account receivable turnover ratios ,inventory turnover ratio ,debt to equity ratio, interest coverage ratio, return on equity, price earnings ratio, market to book ratio, dividend yield, dividend payout ratio,

OBJECTIVE:

To know the strength and weakness of both the companies Jaypee & DB construction through financial ratio analysis.

To evaluate the performance of the company by using ratios as a yardstick to measure the efficiency of the company.

To understand the liquidity, profitability and efficiency positions of the company during the study period.

To evaluate and analysis various facts of the financial performance of the company.

SCOPE
This research paper help to understand the financial position of Jaypee corp. and DB ltd. two real estate companies.

Limitations of the study:

1. 2. 3. 4. 5. 6. 7. Comparison not possible if different firms adopt different accounting policies. Ratio analysis becomes less effective due to price level changes. Ratio may be misleading in the absence of absolute data. Limited use of a single data. Lack of proper standards. False accounting data gives false ratio. Ratios alone are not adequate for proper conclusions.

RESEARCH METHODOLOGY

Secondary Data:-

Most of the calculations are made on the financial statements of the company provided statements

o Data has been collected through internet, companys website, financial books etc.

LITERATURE REVIEW

1.Prospects & Problems of Real Estate in India (Vandna Singh

Head-MBA DepartmentSeth Jai Prakash Mukand Lal Institute of Engeenring &Technology (JMIT) Radaur, Yamunanagar) The Real Estate is a very wide concept and it is highly affected by the macro-economic factors like GDP, FDI, per capital income, Interest rates and employment in the nation. The most important factor in the case of Real Estate is location which affects the value and returns from the Real Estate. the investment in Real Estate in India is a very good investment opportunity. But one should be very careful while taking decision in this direction due to rising inflation and interest rates. Legal issues should also be kept in mind while choosing a property.

2.Dynamic Linkages among Macroeconomic Factors and Returns on the Indian Real Estate Sector (2010) by Vijay Kumar Vishwakarma & Joseph J. French

Overall results indicate the increasing importance of macroeconomic variables in influencing and forecasting the future evolution of the Indian real estate market. For the period of 1996-2000 macroeconomic variables explain 10% of the variations in Indias real estate market, this contribution increases to almost 23% for the period of 2000- 2007. These findings are positive for the continued development of financial sector and we anticipate that the connection between the real estate market and macro variables will increase as the Indian market develops.

Data Analysis And Interpretation

1.Current ratio:An indication of a company's ability to meet short-term debt obligations; the higher the ratio, the more liquid the company is. Current ratio is equal to current assets divided by current liabilities. If the current assets of a company are more than twice the current liabilities, then that company is generally considered to have good short-term financial strength. If current liablities exceed current assets, then the company may have problems meeting its short-term obligations.

DB Corp. 2.0639

Jaypee.
1.54

Interpretation: Ratio stands between the range of 1.5 to 3 which indicates that Company has the good shortterm financial strength.

2. Quick Ratio:

The quick ratio is a measure of how well a company can meet its short-term financial liabilities. Also known as the acid-test ratio. An ideal quick ratio is said to be 1:1. If it is more, it is considered to be better. This ratio is a better test of short-term financial position of the company.

DB Corp. 1.6593

Jaypee 1.38 .

Interpretation:

The Ratio is greater than 1:1 which indicates the high liquidity of Company

3. Cash Ratio: Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It is an extreme liquidity ratio since only cash and cash equivalents are compared with the current liabilities. It measures the ability of a business to repay its current liabilities by only using its cash and cash equivalents and nothing else. DB Corp. 0.8816 Jaypee. 0.098

Interpretation: Ratio shows that DB is strong in cash liquidity as compare to jaypee.

4. Net Current Asset Value (NCAV): NCAV equals the companys current assets minus its total liabilities. This gives an additional margin of safety versus book value - on this valuation measure, one is essentially paying nothing for all the fixed assets

DB Corp. -569.22

Jaypee -1241023

Interpretation:

Investors will benefit greatly if they invest in companies where the stock prices are no more than 67% of their NCAV per share.

5. Market to Book: Market/book ratio is a way of measuring the relative value of a company compared to its stock price or market value. Market/book ratio is a useful way of measuring your companys performance and making quick comparisons with competitors. It is an essential figure to potential investors and analysts because it provides a simple way of judging whether a company is under or overvalued. If your business has a low market/book ratio, its considered a good investment opportunity.
DB Corp.

Jaypee. 0.035

Interpretation: The given ratio shows that both the companies have overvalued stock

6. Enterprise Value: Enterprise value (EV), Total enterprise value (TEV), or Firm value (FV) is an economic measure reflecting the market value of a whole business. It is a sum of claims of all the security-holders: debt holders, preferred shareholders, minority interest, common equity holders, and others.

DB Corp.

Jaypee. 26.585 1676307

Interpretation: The enterprise value of Jaypee is much higher than DB Corp. which has lesser value.

7. Debt / Equity: Debt-Equity Ratio is also known as External-Internal Equity Ratio. This ratio is calculated to measure the relative claims of outsiders and owners against the firms assets. The ratio shows the relationship between the external equities (outsiders funds) and internal equities (shareholders funds). Debt-Equity Ratio indicates the extent to which debt financing has been used in business. This ratio shows the level of dependence on the outsiders.

DB Corp.

Jaypee. 2.31

0.18

Interpretation:

This shows the dependency of the company(lower the better)

8. Debt / Assets:

Debt Ratio is a financial ratio that indicates the percentage of a company's assets that are provided via debt. The higher the ratio, the greater risk will be associated with the firm's operation. The debt/asset ratio shows the proportion of a company's assets which are financed through debt. If the ratio is less than 0.5, most of the company's assets are financed through equity. If the ratio is greater than 0.5, most of the
company's assets are financed through debt.

DB.corp 1.05766682

Jaypee 0.7

Interpretation: This shows the lending capacity of the company(higher the better)

9. Net Working Capital Ratio :Working capital is a financial measurement of the operating liquidity available to a business. Positive working capital means that the business is able to pay off its short-term liabilities. Also, a high working capital can be a signal that the company might be able to expand its operations. Negative working capital means that the business currently is unable to meet its short-term liabilities with its current assets.

DB.corp

Jaypee

0.280652

0.14

Interpretation: This indicates the better performance of the company(higher the better)

10. Gross Margin = Gross Profit / Sales: This ratio measures the margin of profit available on sales. The higher the gross profit ratio, the better it is. No ideal standard is fixed for this ratio, but the gross profit ratio should be adequate enough not only to cover the operating expenses but also to provide for deprecation, interest on loans, dividends and creation of reserves. DB.corp 0.212609697 Jaypee 4.95

Interpretation: This ratio helps to control its production cost.(higher the better)

11. Operating Margin = Operating Profit / Sales Operating Ratio is a measurement of the efficiency and profitability of the business enterprise. The ratio indicates the extent of sales that is absorbed by the cost of goods sold and operating expenses. Lower the operating ratio is better, because it will leave higher margin of profit on sales.

DB.corp 0.2447

Jaypee 0.50

Interpretation: It is a proportion of fund left after deducting direct & overhead cost.

12. EBIT Margin = Earnings before interest and taxes / Sales;A profitability measure equal to EBIT divided by net revenue. This value is useful when comparing multiple companies, especially within a given industry, and also helps evaluate how a company has grown over time. This margin allows investors to understand true business costs of running a company. Lower EBIT Margins indicate lower profitability from a company.

DB.corp 0.20841844

jaypee 0.1

Interpretation: This ratio helps to evaluate how a company has grown over time.

13.NET Margin;This ratio measures the rate of net profit earned on sales. It helps in determining the overall efficiency of the business operations. An increase in the ratio over the previous year shows improvement in the overall efficiency and profitability of the business.

DB.corp 0.14459

Jaypee 0.08

Interpretation: This ratio helps to indicates how efficient a company is and how well it controls its costs

14. Asset Turnover = Sales / Assets: Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue - the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover

DB.corp

jaypee

0.131

0.32

Interpretation: The total asset turnover ratio measures the ability of a company to use its assets to efficiently generate sales. .

15. Return on Assets (ROA):Return on Assets (ROA) is an indicator of how profitable company's assets are in generating profit. Return on Assets ratio gives an idea of how efficient management is at using its assets to generate profit. Higher return on assets is, the better, because the company is earning more money on its assets. A low return on assets compared with the industry average indicates inefficient use of company's assets.

DB.corp Interpretation: 0.5236

jaypee 0.05

This ratio indicates that how efficient management is at using its assets to generate profit. 16. Return on Equity : Return on Equity (ROE) is an indicator of company's profitability by measuring how much profit the company generates with the money invested by common stock owners. Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested.

DB.corp 0.800471585

jaypee 0.17

Interpretation: This ratio indicate how much profit the company generates with the money invested by common stock owners.

17. Return on Common Equity (ROCE) : Return on common equity, is a measure of how well a company uses its investment to generate profits. It tells investors how effectively their capital is being reinvested. A company with high return on equity is more successful in generating cash internally. Investors are always looking for companies with high and growing returns on common equity. However, not all high ROE companies make good investments. The higher the ratio, the better the company.

DB.corp 0.2858 Interpretation:

jaypee 4.83

The return on common equity ratio shows the return to common stockholders after factoring out preferred shares.

18. Profit Margin The net profit margin ratio is the most commonly used profit margin ratio.A low profit margin ratio indicates that low amount of earnings, required to pay fixed costs and profits, are generated

from revenues. A low profit margin ratio indicates that the business is unable to control its production costs. The profit margin ratio provides clues to the company's pricing, cost structure and production efficiency. The profit margin ratio is a good ratio to benchmark against competitors.

DB.corp 1.015988226 Interpretation:

jaypee 0.08

This ratio is a key financial indicator used to assess the profitability of a company.

19. Earnings Per Share (EPS) : EPS simply shows the profitability of the firm per equity share basis. EPS calculation, over the years, indicates how the firms earning power, per share basis, has changed over the years. EPS of the firm is to be compared with the industry and its immediate competing firm to understand the relative performance of the firm. As a profitability index, it is widely used ratio.

DB.corp 11.37 Interpretation:

jaypee 4.83

This ratio tells investors in what stock their investment money should go

20. Assets Turnover Ratio :

DB.corp 1.95 Interpretation:

jaypee 0.64

This ratio measures the ability of a company to use its assets to efficiently generate sales

21. Accounts Receivable turnover: The receivables turnover ratio is an activity ratio, measuring how efficiently a firm uses its assets.

DB.corp 58.93843764 year.

jaypee 9.15

This ratio measures the number of times receivables are collected, on average, during the fiscal

22. Inventory Turnover Ratio : Inventory turnover ratio shows the velocity of stocks. A higher ratio is an indication that the firm is moving the stocks better so profitability, in such a situation, would be more. However, a very high ratio may show that the firm has been maintaining only fast moving stocks. The firm may not be maintaining the total range of inventory and so may be missing business opportunities, which may otherwise be available.

DB.corp 0.1218 Interpretation:

jaypee 3.31

This ratio measures the number of times, on average, the inventory is sold and replaced during the fiscal year.

23. Interest Coverage Ratio This ratio indicates how many times the interest charges are covered by the profits available to pay interest charges. This ratio measures the margin of safety for long-term lenders. This higher the ratio, more secure the lenders is in respect of payment of interest regularly. If profit just equals interest, it is an unsafe position for the lender as well as for the company also, as nothing will be left for shareholders. An interest coverage ratio of 6 or 7 times is considered appropriate.

DB.corp NIL Interpretation:

Jaypee 1.86

This ratio helps to measure the number of times a company would be able to make the interest payments on its debt using its EBIT.

24.

Price Earnings (PE) Ratio:

This is the ratio that establishes the relationship between the market price of a share and its EPS. This ratio indicates the number of times the earnings per share is covered by its market price. Price-earning ratio helps the investor in deciding whether to buy the shares of a company, at a particular market price, or book profit by selling at that rate.

DB.corp 20.36

Jaypee 10.42

Interpretation:

This ratio helps to calculate the company's current share price compared to its per-share earnings.

25.

Market to Book Ratio:

This ratio indicates market price of the share to the book value of the share, this is calculated to know the right price means to know the higher price which an investor is ready to spend for the particular share of the company

DB.corp Interpretation:

Jaypee 25.18

This ratio helps to measure the relative value of a company compared to its stock price or market value.

26.

Dividend Yield:

Shareholders are the true owners, interested in the earnings distributed and paid to them as dividend. Therefore, dividend yield ratio is calculated to evaluate the relationship between the dividends paid per share and the market value of the share. DB.corp 2.08 Jaypee 0.01

Interpretation: This ratio helps to measure how much cash flow you are getting for each dollar invested in an equity position

27.

Dividend Payout Ratio

Dividend pay-out ratio is calculated to find out the proportion of dividend distributed out of earnings per share. Dividend per equity share is calculated by dividing the profits, after tax, by the number of equity shares outstanding.

DB.corp 0.347579119

Jaypee 0.12

Interpretation:

The dividend payout ratio is a company's dividends paid to shareholders expressed as a percentage of total earnings.

28. ROE ROE indicates how well the firm has used the resources of owners. Earning a satisfactory return is the most desirable objective of a business. This ratio is of greatest interest to the management as it is their responsibility to maximize the owners welfare. This ratio is more meaningful to

equity shareholders as they are interested to know their return. Interpretation of this ratio is similar to return on investments. Higher the ratio, better it is to equity shareholders. DB.corp 11.03 Jaypee 0.08

Interpretation: This ratio indicate how much profit the company generates with the money invested by common stock owners.

Conclusion:
From the above data analysis we come to known that both companies has good short term financial strength .DB has strong cash liquidity as compare to Jaypee cont. Net current assets value of DB is greater than Jaypee which indicates that performance of DB is better than the Jaypee. The gross margin of Jaypee is higher than the DB, which helps to control its production cost. The enterprise value of Jaypee is much higher than DB Corp. which has lesser value.. Both the companies are performing well in the market however on the basis of the analysis we can conclude that Jaypee, a mature real estate company is not performing as expected while DB, on the other hand, is a promising company having good faith from the investors as well as performing well in the market. At the last we conclude by saying that both the companies are

expanding their branches overall and coming up with new infrastructure, ideas and technology to sustain in this competitive world.

References:

Vijay Kumar Vishwakarma & Joseph J. French (2010) Dynamic Linkages among macroeconomic Factors and Returns on the Indian Real Estate Sector, International Research Journal of Finance and Economics, http://www.eurojournals.com/finance.htm

Vandana Singh & Komal (2009) , International Research Journal of Finance and Economics, http://www.eurojournals.com/finance.htm

Dr. N Kathirvel & John .V. Sugumaran (March 2012) Emerging trend in Real Estate Investment in India, International journal of Social Science & Interdisciplinary Research,