PALLAVI TEXTILES LIMITED

Presentation By Group 5

COMPANY BACKGROUND
A reputed textile firm in South India PTL has grown at an annual growth rate of 18% for the past five years. Major problems faced by the textile industry are: Shortages and increase in price of inputs Low productivity Surplus labour Technological obsolescence Changing preference of consumers

 Sales in 1998 have increased to Rs 300 crore from Rs 200 crore in 1997.

This is because of companys policy of continuous replacement and modernization. An excellent marketing setup also contributed to the companys growth and performance.
They have 12 sales offices all over India.

FINANCIAL CONDITION OF THE COMPANY

The companies financial management is prudent and balanced. It uses both equity and debt The companies current debt equity ratio is 0.45 The company had employed high quality tax experts to take advantage of the all tax and fiscal incentives provided by the government.

PROBLEM FACED BY PALLAVI TEXTILES LTD

The companies dilemma was that the company has rationed capital expenditure for coming two years. They were facing a problem of developing some basis for selecting among 5 investment projects. The total funds available in 1999 for capital expenditures was Rs 12 crore while the 5 investment projects required 20 crores

INVESTMENT CHOICES
In the current year there are 5 investment project proposals before the finance department. Their total expenditure is Rs 20 crores. The companys philosophy in making an investment decision is to give the share holders maximum value for their money. After considering all factors the company considers atleast 15% as the required rate of return from any investment project. The management has decided to put a constraint on the capital spending.

CASH FLOWS OF PROJECTS (IN LAKH RS)

Year Projects A B C D E -200 -500 -500 -300 -500 73 183 117 67 -1000 62 90 113 67 60 52 90 113 67 90 46 76 108 67 100 42 70 34 67 100 36 100 113 67 300 32 65 108 67 650 56 64 103 67 850 0 58 100 67 800 0 122 228 67 1400 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

PROJECT RANKING
Projects A B C NPV RANK IRR(%) RANK

402
588 480 363 673

4
2 3 5 1

21.83
18.58 17.39 18.1 15.79

1
2 4 3 5

D E

OUR SUGGESTION
The company wants that at least 15% has to be required rate of returns , so according to that condition , by the IRR method all the projects are acceptable. i.e. the IRR for all the projects is higher than the opportunity cost. The NPVs of all the projects are positive so all the projects are acceptable by the NPV rule also. The companys aim is to maximize the shareholders value and the NPV method is consistent with that.

CONT..
According to us, we have Rs 12 crore in hand which we can invest in projects B and C. these 2 projects are ranked 2 nd and 3rd by the NPV method.

Since the NPVs of 2 projects can be added:

NPV(B) + NPV(C) = NPV(B+C) 588 + 480 = 1038

So we suggest that the company should go with these 2 projects.

CONT..
Also these 2 projects have got the highest inflows in the initial years, this will be helpful to the recession hit textile industry. VINAY JUST SEE THAT IF WE CAN ALSO ADD PROJECT A I AN NOT SURE, IT WILL USE UP ALL THE 12 CRORES PLUS THE LIFE OF THIS PROJECT IS 2 YEARS LESSER THAN THE OTHER.