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FINANCIAL STATEMENT ANALYSIS

Paper No. : 203

PROJECT REPORT

On

Analysis of Tea Industry

Submitted to

Dr. V.K.Vasal

By

Priyanshi Gupta

Roll No. 2303

MFC-Part-1

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Acknowledgement

I would like to pay my sincere thanks to Dr. V. K. Vasal, Faculty, University of Delhi, South
Campus for endowing me with the precious insights needed for working out this Project. He
has been very instrumental in communicating the core of this project study and thus without
his direction, the very inception of this work would not have been possible.

Priyanshi Gupta

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Objective
The aim of this work is to analyze the financial statements of the four companies, in the Tea
Industry of India, through a few introductory techniques and hence arrive at some
interpretations about their financial health.

The parameters judged are numerous ranging from a firms short term health to the overall
long term stability.

The analysis has been carried out on the Financial Statements of the respective companies so
as to get appraised of the financial state of the whole group involved in the operations.

Due attempts have been made to standardize the terms, across all the financial statements, so
that the analysis gathers more meaning and yields the best possible results in spirit.

With the conclusion I endeavor to arrive at the optimal determination of the relatively best
company for financial investment considerations.

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Contents

Introduction

Recent Developments

Current Scenario of Indian Tea Industry

Joonktollee Tea & Industries Ltd

Jay Shree Tea & Indutries Ltd.

Mcleod Russel India Ltd.

Rossell Tea Ltd

Financial Statement Analysis

Ratio Analysis
Cross sectional Analysis
Trend Analysis

Segmant Reporting

Road Ahead

References

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Introduction

The tea industry in India is about 172 years old. It occupies an important place and plays a
very useful part in the national economy. The industry combines both agriculture and
industry.
Tea plantations in India are mainly located in rural hills and backward areas of North-eastern
and Southern States. Major tea growing areas of the country are concentrated in Assam, West
Bengal, Tamil Nadu and Kerala. The other areas where tea is grown to a small extent are
Karnataka, Tripura, Himachal Pradesh, Uttaranchal, Arunachal Pradesh, Manipur, Sikkim,
Nagaland, Meghalaya, Mizoram, and Bihar. The competitors to India in tea export are Sri
Lanka, Kenya, China, Indonesia and Vietnam.

There are basically two types of tea sales in India - through Auctions and Private Sales, also
called as ex- garden sales. In Auction sales, tea is auctioned at auction centers through
brokers to buyers who either sell it to wholesalers / retailers or export to overseas markets.

Tea is generally placed in the Restricted category of the EXIM policy. Through special
Import License tea can be imported by paying import duty. Since August 1998, tea is being
freely imported from the SAARC countries. Under the EQU / EPZ units tea can be imported
for re exports after value addition.
The tea plantation industry is strictly guided by various statutory Orders through the Acts of
Parliament like - Tea Act, Essential Commodities Act, Plantation Labour Act, Factories Act,
PFA Act, Standards of Weights and Measures act etc.

Quality control strictly conforms to IS 9723 and Prevention of Food & Adulteration Act
(PFA). Disposal of tea waste is done through the tea waste control of 1959. Many gardens are
now taking quality certifications under ISO 9002:

Some statistical facts about the Indian Tea Industry:

The total turnover of the industry is around Rs. 10,000 crores.


Since independence, tea production has grown over 2505, while land area has grown
by 40%.
Total net foreign exchange earned per annum is around Rs.1847 crores.

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Industry is labour intensive and employs over 1.1 million workers and generates
income for 10 million people indirectly. Women constitute 50% of the workforce.
802 M.Kgs or about 82% of total production of 981 M.Kgs of tea went for domestic
consumption.

Recent developments

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Inspite of its importance, tea industry of India is going through a crisis phase since 1990s.
The industry has witnessed many structural changes during recent years, which include
emergence of small tea growers in place of large plantation and introduction of bought leaf
factories (BLF). The present crisis has led to the closure of many tea estates (e.g., 20 estates
in Kerala, 30 in West Bengal, about 70 in Assam have close down since the late 1990s). In
early 2005 the tea industry witnessed major companies withdrawing from production and
concentrating on the packaging/ retailing sector (e.g. Tata. Tea, HLL etc in India).

In the market, the rising competition at domestic as well as international front has deepened
the crisis of tea industry of India. .

Shift in the composition of demand for tea in the importing countries has had unfavorable
effects on export earnings from tea in India. The international market price of tea has
declined from US $ 2.09 to US $ 2.03 per kg in between 2005 and 2006. Though countries
like Sri Lanka, Kenya and Indonesia are growing fast in their export and higher price
realization, during the same period. Export of tea from India to some of the major importing
countries like Russia, UK, and USA are showing a sharp decline.

Although, per capita consumption of tea in India is amongst the lowest (64 grams), but in
volume terms India is the largest consumer. Since 1970, India has become the largest
absolute consumer of tea after UK. Larger domestic demand has given a new direction to the
tea industry in the recent years.

Major causes of the crisis

Despite Indias historical success with the tea industry, in recent years, the industry has faced
serious competition in the international and national market which has lead to the present
crisis. Tea prices in India are being driven down by many factors:

a) Decline in demand for Indian tea in the global market


b) Defects in auction system
c) Poor price realization
d) Defective market structure
e) Increase in cost of production

Recommendations for improvement

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Despite being the largest producer and consumer of tea, the Indian plantation sector
lacks appropriate mapping of production and consumption levels. Due to absence of
accurate estimates the formulation of long term industry wide action plans have been
affected.
India has concentrated more on building up its large estates and has given less
attention to processing and improving the quality by proper blending and marketing
for higher price realization of their products.
Unlike its key competitors, India does not have any powerful brand to support its
promotion drive in the international market.
Study done by the United Nations Food and Agriculture Organization (FAO, 2001)
has suggested the need for reducing the unit cost of production through productivity
gains, capacity building of small growers, streamlining marketing channels,
improving infrastructure, tailoring marketing activities to individual countrys
demand, propagating health benefits of tea and promotion of organic tea using the tea
mark. This is exactly what the domestic tea companies should do for their long term
survival.
Improvement of supply chain management inside the country and global tea
marketing network.
The tea industry in India has a legacy of corporate farming right from the day of
British rule. The current situation in the sector has given ample reason for a rethink
on whether corporate farming can really boost agriculture
International brands like Liptons, Brooke Bond of HUL and Tetly tea of Tata Tea; etc
are the market leaders and have great power in price determination in both domestic
and international market. This needs to be stopped and proper investigation is needed
to curb the wrong practices in the tea market by introducing new laws to regulate the
price movements.
It has been observed that the actual producer of tea has no direct link with the
ultimate consumer. Therefore, the producers do not understand the market demand /
choice of the customer, it is very important in todays market economy for long term
sustainability of the industry. With the withdrawal of sales restriction, the growers
can directly go to the market by building their own brand. As the margin of profit is
very high at the present domestic retail market, Indian tea growers should invest and
take this opportunity for the promotion of their brand at the retail market.

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Fresh capital inflow is needed right at this moment for the tea industry of India.
Investment in new plantations and production machineries must come immediately to
compete in the international market.
one of the most important steps from the government part shall be to introduce a
stronger competition law to curb the misuse of corporate buying power and promote
social objectives at the garden level.

Current Scenario of the Indian Tea Industry

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Production
Tea is normally classified based on the processing, leaf size and grade. Fermentation is the
major process and creates two major classifications:

(956mkgs)

Green Darjeeling Orthodox CTC


(10.6Pricemkgs)
Trend
(11.7 mkgs) (65.5 mkgs) (868.2mkgs)
Recently tea prices showed bouyancy, which started from 2006, after depressed prices for
almost a decade since 1999.A slump in global output, decline in production due to poor
monsoon rains, steady increase in domestic demand, range-bound export volumes and low
growth in production further drove prices upwards in 2009.

However Indias tea production had picked up in the last quarter of 2009 and initial signs are
pointing to better weather in 2010, signalling a possible change in the price trend. Even if
prices do not retrace too much, producers may have to live with subdued prices during the
year. It does appear that the two-year run of rising tea prices is losing steam.

Chart 1: Trend in Domestic Tea Prices (source: ICRA Research)

Production, consumption and Exports

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A secular increase in domestic consumption on the one hand and muted increase in
production on the other, has been the main factor supporting the increase in tea prices from
2006 onwards. According to ICRAs estimates, while the average growth in production
during the period 2003-07 was just 1.9% or so, domestic consumption would have increased
annually at around 3.5% during the same period. The steady increase in domestic demand,
range-bound export volumes and low ICRA Rating Feature Indian Tea Industry: Outlook
Positive for the Short to Medium Term ICRA Rating Services Page 3 of 8
growth in production absorbed the pipeline stock over the years and left virtually no carry-
forward stock at the end of the 2007 season.
Production and consumption of Tea in India

Particulars 200 200 200 200 200 200 200 200 2009
1 2 3 4 5 6 7 8
PRODUCTION (million 854 838 878 893 946 982 945 981 696.7
Kg) *
CONSUMPTION 673 693 714 735 757 771 786 802 828(E
(million kg) )
* production from January to Sepetmber - Estimated figure

Chart 2: Trend in Indias Production, Consumption and Exports of Tea

Source: ICRA Research

Exports

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Exports play a vital role in maintaining the overall demand-supply balance in the domestic
market. Healthy export realisation is also crucial for domestic realisations as un-remunerative
prices in the export market may lead to exporters dumping the produce in the domestic
market, which in turn would exert a downward pressure on domestic prices. Tea exports from
India have remained range bound over the period 1997-2008 with some year-to-year
fluctuations seen in between.
Export of Tea from India

YEAR QUANTITY (Million Kg) Value (Rs. Crores) UNIT PRICE (Rs/kg)
2005 199.05 1830.98 91.99
2006 218.73 2006.53 91.73
2007 178.75 1810.11 101.26
2008 203.12 2392.91 117.81
2009* 131.2 1777.04 135.42
*Export from January to September

Chart 3: Trend in Indias Tea Exports

Source: ICRA Research


Import of Tea from India
The continuous fall in prices of tea, coupled with high cost of production has adversely
affected the economy of the tea plantations resulting in some tea gardens being abandoned or
under lock out in various states. The teas being imported are not necessarily inferior teas and
the practice of blending with Indian teas often serves the purpose of providing teas as per
customers choice and making them price-competitive in international markets.

Import of tea from India

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YEAR QUANTITY (Million Kg) Value (Rs. Crores) UNIT PRICE (Rs/kg)
2005 16.76 98.51 58.79
2006 23.81 119.41 50.15
2007 15.99 104.60 65.43
2008 20.28 161.97 79.90
2009* 15.82 132.09 83.50
*Export from January to August

Profitability of bulk tea players


An increase of around 28% in tea prices on an average in 2008 has meant considerable
increase in the profitability of bulk tea players in FY2008-09, given that around 65% of their
costs are fixed in nature. Chart 6 brings out the positive impact of increasing tea prices on the
aggregate total income and profitability indicators2 of some of the large bulk tea players in
India3, which shows significant improvement over the past few years.
Chart 4: Trend in Aggregate Income and Profitability Indicators of Bulk Tea
Companies (Source: Bombay Stock Exchange)

Demand-Supply Gap
For the Indian tea industry, the main driver of demand is the domestic market, with domestic
consumption now growing at an estimated 3.5% annually, as against around 2.5% a decade
earlier. At the current growth rate, the domestic market would require an incremental 30 Mkg
or so annually, going forward.

As against that, tea supply has been growing at less than 2% p.a because it is difficult to
improve garden yield of tea even during favourable climatic conditions, and new plantations

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need a long gestation period of at least 4-5 years. Therefore the demand-supply gap in India
is likely to persist at least over the medium term.

Industry Outlook

The tea industry has every reason to look ahead in 2010 with great deal of optimism and
confidence, according to the Tea Market Annual Report published by J Thomas and
Company Private Limited, the world's oldest and largest tea auctioneers.

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With virtually no carry forward stock, and growing domestic demand to act as buffer against
the uncertainties of the global tea trade, price levels are expected to remain attractive, the
report observes.

Early cropping patterns indicate that demand supply equation is likely to be more balance in
2010. Both Kenya and Sri Lanka production is expected to exceed that of 2009 and
indications are that the March crop in North India will be higher than that of the last year
following some much needed rainfall.

While the supply situation may be more comfortable than the previous season, it is likely to
be absorbed by the domestic market where quality produce will continue to be in great
demand, the reports states.

Exports

Indian exports at the end of 2009 stood at 191.5 million kg, compared to 203.1 million kg in
2008, a decline of 11.6 million kgs. The strong domestic demand ensured that the exporters
were often out priced, particularly in first three quarters.

Lower orthodox production in North India was also another factor contributing to the decline
in exports. As a result, exports out of North India at 98.8 million kg recorded a decline of
17.4 million kg while exports out of South India at 92.7 million kg recorded a rise of 5.8
million kg. The per unit value increased from Rs 117.81 in 2008 to Rs 136.64 in 2009, a gain
of Rs 18.83.

Exports to Iraq saw a significant increase during the year with an additional 11.1 million kgs
over 2008. Shipments to Russia grew by 4.2 million kg and to Afghanistan by 1.8 million kg.
Exports to Egypt suffered a setback, the shortfall being 9.6 million kg. Offtake by Iran, UAE,
UK and the Continent also declined during the period.

Companies Overview

1. Joonktollee Tea

Joonktollee Tea Co. Ltd. Was promoted 134 years back to manage the affairs of a small Tea
Estate in Upper Assam. It is today synonymous with premium Black and Green Teas.

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In the year 1954, the House of Bangurs acquired the managing agency and the Company and
brought them under their fold. The name of the Company was changed to JOONKTOLLEE
TEA & INDUSTRIES LIMITED (JTIL). Since then the company has been under the
management of the Bangurs. Over the years, the Company has grown in stature and size and is
a leader in producing quality teas and enjoying one of the best Assam CTC Mark in North
India.Companys Estate now comprises of 1867.98 acres of land with 1202.82 acres under
plantation.

From a leading mark in the Premium Orthodox teas, the Company, changing with the times,
is now regarded as one of the Best Assam CTC mark and does have an unstinted track record
of the business with the brand. Its Green Teas are also one of its kinds.

The performance on the financial front has also been spectacular. The Companys ordinary
capital of Rs.80,000/- has grown to Rs.323.36 Lacs. The Company has an uninterrupted
dividend record for over 50 years.

To have a large capital base and net worth, two South India based Plantation Companies, viz.
The Kalasa Tea Produce Company Limited and Cowcoody Estates Limited belonging to the
House of Bangurs stood merged with this Company w.e.f. 1st April, 2001. The area of
operation of the Company was enlarged and diversified, since apart from tea, the transferor
Companies also deal in other plantation crops, viz., coffee, pepper, cardamom, areca, vanilla.

With a view to consolidate the resources of the Company and to carry out the agro base
activities more conveniently and advantageously with a larger asset base the Company
entered into Scheme of Arrangement w.e.f. 1st October, 2006 under which a subsidiary and
six other Companies merged with the Company and certain assets were transferred to other
subsidiary Companies. The Honble High Courts of judicature at Kolkata, Chennai and
Guwahati sanctioned the Scheme of Arrangement as per the terms consented by the
shareholders and the financial results of 31st March, 2008 were prepared after giving effect
of the aforesaid scheme.

On BSE as on 22 April 2010:

Dividend Yield (%) 0.89


Market Cap (Rs Mn) 542.77
P/E 12.84

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EPS (Rs.) 13.07

Face Value (Rs.) 10


Volume 23239

Shareholding pattern:

Description ( As On No of No of % of
December 2009 ) ShareHolders Shares Share Demat

Promoter
27066
Indian Promoter 16 75 83.7 2693455
Total Promoter 16 27066 83.7 2693455

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75
Non Promoter
Institutions
117843
FI/Bank/Insurance 2 3.64
Other 5 593 0.02 0
118436
Total Institutions 7 3.66 117843

Non-Institution
Bodies Corporate 82 45592 1.41 40197

NRIs/OCBs 8 31256 0.97 926


33168
Others 2391 8 10.25 127041
Total Non- 40853
Institution 2481 6 12.63 168164
52697
Total Non Promoter 2488 2 16.3 286007
32336
Grand Total 2504 47 100 2979462

2. Jayshree Tea & Industries Limited

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Incorporated as Jay Shree Tea Gardens in Oct.'45 with two tea estates, the company changed
its name to Jay Shree Tea and Industries (JSTI) in 1960. It was promoted by B K Birla.
Started with an initial paid-up share capital of Rs 7.86 lac, it was raised to Rs 39.05 lac in
1947 and thereafter only a rights equity issue was made during 1960 in the ratio 1:5.
The company manages around 12 tea gardens in Assam, West Bengal, Tamilnadu and
Kerala. It has diversified over the years and manufactures plywood in Andamans and
superphosphates and sulphuric acid in West Bengal; and has interest in shipping, real estate
development, tubes and tyres. The company is packing its tea from different tea estates, in
polypouches and it is sold under brand names -- Sadabahar, Shaandar and Sangam.

JSTI also acquired Maitrayee Tea Project at Chopra near Islampur with 192 acres under tea
plantation to increase its presence in the area.
During 1999-2000, the company established a new factory named 'Aryaman Tea Estate' in
Jalpaiguri Dist, which has commenced production from Sep, 1999. The factory has the
capacity of 7 lac kgs made tea per annum. In June 2000, the B K Birla group's shareholding
in Jay Shree Tea & Industries has gone up to 44.61% from 40.15% following the completion
of the company's buy back offer for 12.30 lakh equity shares.
The company bought back 12.30 lac equity shares of Rs.10/- each at a price of Rs.120/-per
share in 2001-02 and subsequently the total Share Capital as on March 2002 was Rs.10.67
crores. The tea processing factory which is being set up at Ledo,Assam has commenced its
commercial production with a annual capacity of around 6 lac kg.

As the Supreme Court has banned the falling of trees in Andaman & Nicobar Islands,the
company's Plywood Operation is still under suspension. The 100% subsidiary company viz
Shiva's Group Ltd was amalgamated with the company with the prior approval from the
shareholders w.e.f 25.02.2002.

It also proposes to set up an International Outsourced Call centre at Kolkata. The company is
proposing to delist its equity shares from Delhi Stock exchange as there is no transactions.

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On BSE, as on 22 April 2010:

Dividend Yield
(%) 1.01
Market Cap (Rs
Mn) 3312.63
P/E 4.65

EPS (Rs.) 63.72

Face Value (Rs.) 10


Volume 142257

Shareholding Pattern as in September 2009:

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Description ( As On No of No of % of
September 2009 ) ShareHolders Shares Share Demat
Promoter

Indian Promoter 14 4498169 40.25 3685170


Total Promoter 14 4498169 40.25 3685170
Non Promoter
Institutions
Mutual Funds /
UTI 12 717585 6.42 716185

FI/Bank/Insurance 31 381238 3.41

FII 3 200000 1.79 200000


Other 0 200000 1.79 200000
Total Institutions 46 1298823 11.62 1271276
Non-Institution
Bodies Corporate 821 1655678 14.82 1609689
NRIs/OCBs 82 42605 0.38 40195
Others 9658 3679064 32.92 2699777
Total Non-
Institution 10561 5377347 48.12 4349661
Total Non
Promoter 10607 6676170 59.75 5620937
Grand Total 10621 11174339 100 9306107

3. Mcleod Russell

McLeod Russel has been growing tea in India since 1869. It is today the largest tea
producing company in the world.
It manages 47 tea estates in the Assam Valley and 6 tea estates in the Dooars region of West
Bengal. Every year its estates produce over 80 million kilograms of black tea, which is
marketed worldwide under the registered Elephant trade mark.

The company directly employs around 80,000 people, a large number of whom a women.
Mcleod Russel is the worlds largest tea producer.

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As the largest Indian tea exporter we maintain strong connections with buyers in Europe, the
Middle East and North America. We have always enjoyed an excellent reputation for the
quality of our product and the integrity and reliability of our marketing and delivery systems.

McLeod Russel has a number of internationally recognised accreditations and certifications


including Fairtrade, Rainforest Alliance and HACCP. Its modern blending facility provides
the clients with both unique as well as bespoke bulk blended teas.

On BSE,as on 22 April 2010:

Dividend Yield
(%) 0.8
Market Cap (Rs
Mn) 27276.37
P/E 10
EPS (Rs.) 24.91
Face Value (Rs.) 5
Volume 174807

Shareholding Pattern as on September 2009:

Description ( As On No of No of % of
December 2009 ) ShareHolders Shares Share Demat

Promoter
Indian Promoter 24 22583056 20.63 22497684

Foreign Promoter 1 27067500 24.73 27067500

Total Promoter 25 49650556 45.36 49565184


Non Promoter
Institutions
Mutual Funds /
UTI 41 8624962 7.88 8621239

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FI/Bank/Insurance 6 4231733 3.87
Govt 1 112

FII 70 27637288 25.25 27637288


Other 97 28011747 25.59 27969054
Total Institutions 215 40868554 37.34 40820326
Non-Institution
Bodies Corporate 1416 4941880 4.51 4854379
NRIs/OCBs 601 360122 0.33 226601
Others 58658 13634623 12.46 10341710
Total Non-
Institution 60675 18936625 17.3 15422690
Total Non
Promoter 60890 59805179 54.64 56243016
Grand Total 60915 109455735 100 105808200

4. Rossell Tea Ltd.

Rossell Tea Ltd. (The Company) espouses the cause of long-term success in all areas of its
business and commits itself to achieve this through excellence in productivity, quality and
performance. The company will continue to evolve, learn and adapt for the common good of
its stakeholders. The Company is further committed to the well being of all employees in
particular and the society at large, in general.

The Company immediately after taking over the management of Dikom, Nokhroy and Borahi
T.Es., took effective steps for upgrading the quality further and at present all the Tea Estates
are well established quality marks in overseas markets. The saleable production at the time of
takeover was 2.7 Million Kgs of Black Tea, which after recent corporate restructuring and
three successive acquisitions is around 5.0 Million Kgs of Black Tea. At present, the
Company owns Dikom, Nokhroy, Nagrijuli, Bokakhat and Romai T.Es., all located in Assam.

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After corporate restructuring, Borahi T.E. was demerged and transferred to another Company
viz. Jyoti Holdings Pvt. Ltd., which Company is no more under the management of Rossell
Tea Limited.

The present Share Capital of Rossell Tea Ltd. is Rs.63.14 Million divided into 6.314 Million
Equity Shares of Rs.10 each. Out of 6.314 Million Equity Shares, 4.653 Million Equity
Shares representing 73.67% of the Equity Share Capital is held by the Holding Company,
BMG Enterprises Ltd., Delhi. The Equity Shares of the Company are quoted at Calcutta and
Guwahati Stock Exchanges
On BSE,as on 22 April 2010:

Dividend Yield (%) 0.57


Market Cap (Rs Mn) 1927.67
P/E 27.69
EPS (Rs.) 9.49
Face Value (Rs.) 10
Volume 141

Shareholding pattern as on September 2009:

Description ( As On No of No of % of
December 2009 ) ShareHolders Shares Share Demat
Promoter
Indian Promoter 6 5494245 74.86 5494245

Total Promoter 6 5494245 74.86 5494245


Non Promoter
Institutions
Mutual Funds /
UTI 2 30002 0.41 30002
FI/Bank/Insurance 16 48263 0.65 29651
Govt 1 30 0 0
FII 2 1025000 13.97 1025000
Other 1 1135000 15.47 1025000
Total Institutions 22 1213295 16.53 1084653

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Non-Institution
Bodies Corporate 72 25579 0.35 5918
NRIs/OCBs 9 240 0 180
Others 5660 605936 8.26 125316
Total Non-
Institution 5741 631755 8.61 131414
Total Non
Promoter 5763 1845050 25.14 1216067
Grand Total 5769 7339295 100 6710312

FINANCIAL STATEMENTS ANALYSIS

Financial Statement analysis means analysis and regrouping of data contained in historical
financial statements. It serves the essential function of converting accounting data contained
in financial statements in to useful information which is always in scarce supply. After
analysis of financial statements, interpretation of analyzed information is done by decision
maker to forecast future profitability, financial strength and liquidity position of the business.

TYPES OF ANALYSIS:

Financial statements are analysed to establish certain crucial relationships which help us to
take sound decisions. Accounts for the year 2003-2004 and 2004-2005 have been studied in
this report.

Analysis consists of :

Financial Ratio Analysis


Common Size Statement
Time Series Analysis

FINANCIAL RATIO ANALYSIS

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Ratio analysis is a very popular tool of financial analysis. Under this system of analysis,
financial statements have been analyzed by computing accounting ratios. Ratios indicate how
a business is performing and provide indications of trends and patterns. They can be
compared to the same ratios in previous years' accounts and the accounts of other businesses
operating in a similar environment. The ratios can be looked at from three perspectives:

- Creditors

- Investors

- Shareholders

There are various parameters upon which various types of different analysis is done. They
include:

1. Liquidity Analysis.

2. Profitability Analysis.

3. Solvency Analysis.

4. Efficiency Analysis.

LIQUIDITY RATIOS

Liquidity is the ability to convert assets into cash or to obtain cash. It is important from the
point of view of meeting the firms short term obligations.

Current Ratio

It is the ratio of the current assets to current liabilities of the company. It is calculated to test
the short term solvency of a business and its ability to meet its short term commitments.
Besides measuring liquidity, it also measures the margin of safety available in case of
uncertainty of flow of funds.

It provides a measure of degree to which current assets cover current liabilities. The excess of
current assets over current liabilities provides a measure of safety margin available against
uncertainty in realization of current assets and flow of funds.

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Quick ratio

An indicator of a company's short-term liquidity. The quick ratio measures a


company's ability to meet its short-term obligations with its most liquid assets. The higher the
quick ratio, the better the position of the company.

Quick Ratio= (Cash + Marketable securities + accounts receivable)/Current Liabilities

Liquidity Ratios Joonktollee Jayshree Tea McLeod Rossels Tea


tea Ltd. Limited russells Company
Mar- Mar- Mar- Mar- Mar-
09 08 Mar-09 Mar-08 Mar-09 08 09 08
Current
Assets/Current
Liabilities 1.82 6.2 1.76 3.61 1.03 0.84 0.44 0.46
Quick Assets/Current
Liabilities 0.77 4.88 0.71 0.94 0.48 0.36 0.17 0.17
Analysis:

Current Ratio: We notice that in case of Current Ratio Joonktollee Tea and Jay Shree Tea
have a high current ratio whereas McLeod Russels and Rossell have a low ratio.

High ratio indicates that

the company may be high amount of receivable and large amount inventory piled up
which is a bad sign,
whereas it may also suggest that the company receives its payments well before the
expiry of the credit period as such indicating a strong credit policy of the company.

Thus a right proportion of current assets and current liabilities are required and the ideal
ratio is said to be 2:1.

Quick Ratio: Sometimes a company could be carrying heavy inventory as part of its current
assets, which might be obsolete or slow moving. Thus eliminating inventory from current
assets and then doing the liquidity test is measured by this ratio. The ratio is regarded as an
acid test of liquidity for a company. It expresses the true 'working capital' relationship of its
cash, accounts receivables, prepaid and notes receivables available to meet the company's
current obligations. Again when we look at the acid test ratio it indicates the actual indicator

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of the current position. Again here we see that in McLeod Russels and Rossell maximum of
cash is held up in inventory.

PROFITABILITY RATIOS

Profitability ratios are probably the most important ratios studied by any analyst. They are
able to give a good overall picture of a company with respect to its peers. The most important
objectives for the business and, arguably therefore, the most important ratios, are those
concerned with profitability.

Net profit margin

Net profit margin divided by net revenues, often expressed as a percentage. This number is
an indication of how effective a company is at cost control. The higher the net profit margin
is, the more effective the company is at converting revenue into actual profit. The net profit
margin is a good way of comparing companies in the same industry, since such companies
are generally subject to similar business conditions. However, the net profit margins are also
a good way to to compare companies in different industries in order to gauge which
industries are relatively more profitable. also called net margin

Net Profit Profit before Interest and Taxation


Net Profit Margin = =
Turnover Turnover

Return on Capital Employed: Net After Tax Profit divided by Net Worth, this is the 'final
measure' of profitability to evaluate overall return. This ratio measures return relative to
investment in the company. Put another way, Return on Net Worth indicates how well a
company leverages the investment in it. May appear higher for startups and sole
proprietorships due to owner compensation draws accounted as net profit.

Joonktollee tea Jayshree McLeod Rossels Tea


Ltd. Tea Limited russells Company
Mar- Mar- Mar- Mar- Mar-
Mar-09 08 09 08 Mar-09 Mar-08 09 08
Return on Total 0.09
Capital Employed 0.01 0.006 0.055 0.014 0.056 0.013 0.055 1
Return on Assets 0.02
0.002 0.002 0.011 0.003 0.012 0.003 0.014 8
NP Ratio 0.023 0.019 0.042 0.016 0.108 0.032 0.132 0.20

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1

Analysis

Net Profit Margin: The Profit Margin of a company determines its ability to withstand
competition and adverse conditions like rising costs, falling prices or declining sales in the
future. The ratio measures the percentage of profits earned per dollar of sales and thus is a
measure of efficiency of the company. Thus we see to it that Rossell Tea has been able to
withstand maximum competition and thus its income after tax is on a higher proportion than
any other company.

Return on Assets: The Return on Assets of a company determines its ability to utitize the
Assets employed in the company efficiently and effectively to earn a good return. The ratio
measures the percentage of profits earned per dollar of Asset and thus is a measure of
efficiency of the company in generating profits on its Assets. Thus when we compare the
various data we find that the best utilisation of assets is being done by Rossell Tea.

ROCE is almost same Jayshree, McLeod and Rossels

LEVERAGE RATIOS

These ratios determine the financial leverage enjoyed by the firm and also look at the short
term solvency of the firm in terms of its interest paying capacity. Long Term Debt / Equity
ratios provide insight into the extent to which nonequity capital is used to finance the assets
of the firm.

Ratio = long term liabilities/ shareholders equity

The higher is the ratio, the higher the proportion of assets financed by non-shareholder
parties. Which components to include in the numerator or denominator of the ratios depend
on how one defines liabilities and shareholders equity.

Financial Leverage Joonktollee Tea Jayshree Tea McLeod Rossels Tea


ratios Ltd. Limited russells Company

Mar- Mar- Mar- Mar- Mar- Mar- Mar- Mar-


08 07 09 08 09 08 09 08

29
Total Debts to Assets
0.296 0.331 0.581 0.529 0.354 0.026 0.206 0.205
Capitalization Ratio 0.245 0.295 0.482 0.481 0.145 0.176 0.156 0.141
Debt-Equity Ratio 0.325 0.418 0.929 0.926 0.354 0.41 0.184 0.164
Interest Coverage Ratio 1.761 2.033 2.516 2.953 2.564 2.42 5.996 18.178

ANALYSIS:

Rossell Tea Company is the least leveraged company with the lowest debt equity ratio, while
jay Shree Limited would fall on the higher end.

TURNOVER RATIOS

Fixed asset turnover is the ratio of sales (on the Profit and loss account) to the value of fixed
assets (on the balance sheet). It indicates how well the business is using its fixed assets to
generate sales.

Generally speaking, the higher the ratio, the better, because a high ratio indicates the business
has less money tied up in fixed assets for each dollar of sales revenue. A declining ratio may
indicate that the business is over-invested in plant, equipment, or other fixed assets.

Efficiency Ratio Joonktolle tea Jayshree Tea McLeod Russel Rossels Tea
Limited Company
Mar- Mar-08 Mar-09 Mar-08 Mar-09 Mar-08 Mar-09 Mar-08
09
Cash Turnover 44.93 2.08 143.48 10.49 26.98 136.08 72.81 140
Total Assets Turnover 0.38 0.29 0.98 0.73 0.43 0.35 0.39 0.42
Accounts Receivable
Turnover 14.55 13.88 6.09 9.5 32.46 23.16 104.58 60.45

Analysis:

Rossell Tea has the highest debtor turnover ratio indicating less chances of bad debt and more
liquid the nature of asset (debtor). This ratio is least in case of Jay Shree Tea which is also
below the industry average; this inefficiency increases the chance of default by the debtors.

30
Inventory turnover ratio of both Biocon & Cipla are below the industry average. This
indicates low inventory liquidity and high inventory carry cost. This may also indicate that
the company might have over bought or the value of the stock is overstated.

CROSS SECTIONAL ANALYSIS

In this analysis, the different financial variables of different companies have been compared
over a period of time of two years viz. 2006-2007 and 2007-2008. As such, it helps us to get
some sort of trend of various financial factors in the financial statements of a company.

Common Size Profit and Loss Account

Joonktollee Tea Jayshree Tea McLeod russells Rossels Tea


Ltd. Limited Company
Year Mar-09 Mar- Mar- Mar- Mar- Mar-08 Mar- Mar-
08 09 08 09 09 08
% % % % % % % %
Share Capital 3.67 3.45 3.54 3.47 3.45 3.48 5.31 5.36
Reserves & Surplus
71.78 67.06 48.29 48.45 70.39 67.42 79.14 80.57
Net Worth 75.45 70.52 51.83 51.92 73.84 70.9 84.45 85.92
Secured Loans 21.7 20.9 41.19 39.63 24.27 19.55 11.94 4.92
Unsecured Loans 2.84 8.58 6.98 8.45 1.89 9.55 3.61 9.15
Total Debt 24.55 29.48 48.17 48.08 26.16 29.1 15.55 14.08
Total Liabilities
100 100 100 100 100 100 100 100

Gross Block 41.69 38.93 76.49 72.69 114.75 113.91 85.95 98.4
Less: Accum.
Depreciation 18.76 16.59 26.76 25.72 24.38 22.95 7.79 7.93
Net Block
22.93 22.34 49.74 46.97 90.37 90.96 78.16 90.47

31
Capital Work in
Progress 1.01 0.36 0.84 0.64 0.87 0.52 0.36 0.42
Investments 64.5 48.79 31.91 30.77 12.92 12.44 16.44 6.66
Current Assets,
Loans & Advances 0 0
Inventories 5.01 4.61 16.09 12.17 4.02 2.8 1.55 1.83
Sundry Debtors 2.81 2.22 21.59 9.15 1.6 1.8 0.4 0.75
Cash and Bank
Balance 0.91 14.81 0.92 8.28 1.93 0.31 0.57 0.32
Loans and Advances 10.28 12.3 11.3 8.84 8.28 8.77 8.72 6.44
Less: Current Liab.
& Prov. 0 0
Current Liabilities 4.8 3.49 21.9 8.2 7.34 5.84 5.02 6.76
Provisions 2.59 1.94 7.71 7.01 9.35 8.6 1.32 1.26
Net Current Assets 11.62 28.51 20.29 23.23 -0.86 -0.77 4.89 1.31
Miscellaneous
Expenses not w/o 0 0 0 0 0 0 0 0
Total Assets 100 100 100 100 100 100 100 100

Analysis

The percentage of debt to total assets for Rossell Tea. is lowest (15.55%) as compared to
other companies. On the other hand, JayShree Tea has the highest debt percentage in its
capital structure i.e.48.17% as the company is in expansion mode, so its been raising debt
from the market.
The net current assets for McLeod Russel is the in negative because of which the company
can have problems in meeting its short term obligations.Hence this company is not a good a
bet for short term creditors.

For Jay Shree Tea the inventory as a percentage of total assets is highest among all the
companies which shows cautious and conservative approach.

COMMON SIZE INCOME STATEMENT

Joonktolle Tea Jayshree Tea McLeod russells Rossels Tea


& Ltd Limited Company

32
Year Mar- Mar- Mar-09 Mar- Mar-09 Mar-08 Mar-09 Mar-08
09 08 08
% % % % % % % %
INCOME :
Sales Turnover 100 100 100 100 100 100 100 100
Excise Duty 0.28 0.35 1.67 2.25 0.28 0.35 0 0
Other Income 3.47 7.98 3.95 8.4 4.09 9.37 3.98 28.57
Stock Adjustments -0.92 -2.14 3.8 -0.67 0.55 -0.54 -0.03 -0.9
Total Income 102.28 105.49 106.07 105.48 104.36 108.47 103.95 127.67
EXPENDITURE :
Raw Materials 22.97 20.75 44.73 32.3 5.24 4.25 0.3 1.47
Power & Fuel Cost 6.83 7.77 5.79 7.52 10.71 12.95 6.87 7.88
Other Mfgr Expenses 31.02 33.7 22.76 30.76 38.39 44.63 37.66 40.24
Employee Cost 9.13 11.74 7.45 9.28 10.41 12.85 16.36 11.43
Selling & Admn 7.27 10.22 11.85 12.81 10.87 11.77
Expenses 9.79 11.4
Miscellaneous Expenses 5.33 3.35 8.41 5.31 2.01 1.82 8.03 2.95
PBDIT 9.65 10.1 25.74 19.16 23.87 51.94
17.2 16.78
Interest & Financial 3.84 3.42 10.04 7.92 3.98 2.86
Charges 9.77 8.25
Depreciation 4.58 5.87 1.6 2.53 3.14 3.33 2.38 2.56
Profit Before Tax 2.86 2.66 4.21 4.14 12.56 7.91 17.51 46.52
Tax 0.33 0.14 0.02 0.22 1.22 0.23 3.22 3.85
Fringe benefit tax 0.17 0.17 0 0 0.27 0.19 0.23 0.17
Deferred Tax 0.14 0 0.9 -0.26 0.36 0.29 1.96 3.06
Extra ordinary items -0.11 0.48 -0.83 2.6 -0.1 4.03 -1.13 19.38
Profit after tax 2.33 1.86 4.12 1.58 10.81 3.17 13.23 20.06

Analysis

The selling and administration expenses for McLeod Russel, though they are lower than the
previous year.

The net profit is the highest for Rossell Ltd. as compared to others in the Industry. The
depreciation charged is also highest for Joonktolle tea (4.58%) followed by McLeod Russel
(3.14% of Net Sales). The relative tax expense is highest for Rossell Ltd. for the 2008-09 and
lowest for Jay Shree Ltd.

33
Trend Analysis

This is a time series analysis whereby a study is done in order to interpret what has changed
in the company over a year. This can be done by comparing the balancesheet and profit and
loss statement of the company for two years.

Balance Sheet

Joonktolle Jayshree McLeod Rossell


Tea & Ltd Tea Ltd. Russel
% % % %
SOURCES OF FUNDS:
Share Capital -0.003 0.047 0 16.323
Reserves Total 0.004 0.022 5.536 15.342

34
Total Shareholders Funds 0.003 0.024 5.264 15.404
Secured Loans -0.026 0.066 25.516 184.828
Unsecured Loans -0.689 -0.153 -80 -53.711
Total Debt -0.219 0.028 -9.116 29.735
Total Liabilities -0.062 0.026 1.08 17.421
APPLICATION OF FUNDS :
Gross Block 0.004 0.079 1.827 2.571
Less : Accumulated Depreciation 0.06 0.067 7.353 15.418
Net Block -0.037 0.086 0.432 1.445
Capital Work in Progress 1.618 0.352 68.659 0
Investments 0.24 0.064 4.948 189.682
Current Assets, Loans & Advances
Inventories 0.021 0.356 45.268 -0.465
Sundry Debtors 0.188 1.421 -9.716 -37.5
Cash and Bank -0.942 -0.887 538.125 107.895
Loans and Advances -0.217 0.312 -4.54 59.103
Less : Current Liabilities and
Provisions
Current Liabilities 0.291 1.74 27.042 -12.688
Provisions 0.253 0.128 9.978 22.819
Net Current Assets -0.618 -0.104 12.676 338.961
Miscellaneous Expenses not
written off
Total Assets -0.062 0.026 1.08 17.421

Income Statement

35
Diana Tea Jayshree McLeod Rossell
Company Tea Russel
Limited
% % % %
INCOME :
Sales Turnover 24.448 54.197 26.45 8.12
Excise Duty 0 14.797 0.866
Other Income -45.887 -27.502 -44.747 -84.934
Stock Adjustments -46.774 -970.652 -227.247 -95.833
Total Income 20.655 55.066 21.657 -11.97
EXPENDITURE :
Raw Materials 37.77 113.514 55.994 -78.205
Power & Fuel Cost 9.333 18.823 4.534 -5.728
Employee Cost 14.549 14.123 8.775 1.168
Other Manufacturing Expenses -3.235 23.789 2.458 54.77
Selling and Administration 16.982 -0.16
Expenses 6.97 9.696
Miscellaneous Expenses 97.938 144.521 39.816 194.268
Operating Profit 27.572 47.447 69.894 -50.308
Interest 47.28 73.048 60.378 50.658
Depreciation -2.941 -2.453 19.34 0.735
Profit Before Tax 33.766 56.84 100.675 -59.313
Tax 200 -83.333 563.399 -9.756
Fringe Benefit tax 73.228 44.444
Deferred Tax -626.389 58.824 -30.675
Extraordinary Items -128.571 -149.157 -103.103 -106.305
Adjusted Net Profit 55.556 301.386 331.232 -28.679

36
Segment reporting

The objective of this segment is to establish principles for reporting financial information,
about the different types of products and services an enterprise produces and the different
geographical areas in which it operates. Such information helps users of financial statements:

(a) Better understand the performance of the enterprise;

(b) Better assess the risks and returns of the enterprise; and

(c) Make more informed judgements about the enterprise as a whole.

Many enterprises provide groups of products and services or operate in geographical areas
that are subject to differing rates of profitability, opportunities for growth, future prospects,
and risks. Information about different types of products and services of an enterprise and its
operations in different geographical areas - often called segment information - is relevant to
assessing the risks and returns of a diversified or multi-locational enterprise but may not be
determinable from the aggregated data. Therefore, reporting of segment information is
widely regarded as necessary for meeting the needs of users of financial statements.

A. JOONKTOLLEE TEA COMPANY LIMITED

No disclosure regarding segment reporting

B. JAY SHREE TEA & INDUSTRIES LIMITED

Based on the guiding principles given in Accounting Standards on Segment Reporting


(AS-17) as prescribed by the Companies Accounting Standard Rules 2006, the Companys
primary business segments are tea, chemicals & fertilisers business.

Segment wise Information for the year


ended 31st March, 2009

37
(A) PRIMARY SEGMENT (Rs. in 000)
1 Segment Revenue (Net 31.03.2009 31.03.2008
Sales/Income from each segment)
Tea 2,81,10,82 2,03,99,41
Chemicals & Fertilisers 1,36,14,19 65,92,61
Infotech 1,03,05
Others 2,81,60 2,40,97
Less : Inter-segmental Revenue 86,95 64,46
Total 4,19,19,66 2,72,71,58
2 Segment Results {Profit / (Loss)
before Tax & Interest}
a) Tea 42,37,65 5,73,95
b) Chemicals & Fertilisers (3,11,92) 5,86,30
c) Infotech (1,11,09)
d) Others 1,00,96 60,81
Total 40,26,69 11,09,97
Less : Interest (Net) 10,37,51 7,54,31
Add : Unallocable Income net of (13,23,10) 6,38,87
unallocable expenditure
Total Profit / (Loss) 16,66,08 9,94,53
before Tax
3 Segment Assets (Including revaluation reserve) &
Segment Liabilities
Assets Liabilities Assets Liabilities
a) Tea 1,92,35,75 31,24,60 1,60,57,59 29,86,39
b) Chemicals & Fertilisers 67,70,27 49,62,14 33,59,88 9,56,23
c) Infotech 4,85,07 48,44
d) Others 1,19,39 61,69 1,11,12 57,35
e) Unallocable 1,56,59,35 21,19,87 1,60,16,83 11,87,07
Total 4,17,84,76 1,02,68,30 3,60,30,49 52,35,48

4 Capital expenditure including capital work-in-progress and depreciation (excluding on


revaluation reserve) for the year

Capital Exp. Capital Exp.


Depreciation Depreciation
a)Tea 10,93,78 5,55,58 11,71,28 5,61,38
b)Chemicals & Fertilisers 41,17 50,90 45,80 48,67
c)Infotech 13,01 49,09
d)Others 5,35 1,67 1,31
e)Unallocable 2,80,31 73,58 1,31,26 67,28
Total 14,20,61 6,81,73 13,61,35 7,27,73
(B) Secondary Segment Domestic Export Total
Segment Revenue 3,50,22,55 68,97,11 4,19,19,66
(2,18,57,18) (54,14,40) (2,72,71,58)
Segment Assets

38
4,14,39,13 3,45,63 4,17,84,76
(3,56,76,72) (3,53,77) (3,60,30,49)

Capital Expenditure 14,20,61 14,20,61


Note: (13,61,35) () (13,61,35)

i) The company has disclosed business segment as the Primary Segment.

Segment Revenue includes other income pertaining to the relevant

C. MCLEOD RUSSELS

No disclosure regarding segment reporting

D. ROSSEL TEA LIMITED

No disclosure regarding segment reporting

Conclusion

39
Though there has been a recovery in the prices of tea and exports have also started looking
up, with the emerging trends in the globalized economy, markets can no longer be protected.
The high cost of production is still a matter of concern for the Indian tea
industry. The Indian tea industry would have to gear itself up to counter the new forces
unleashed by globalization.
Budget 2010-11 gave the extension of concessional import duty on imported plantation
machinery, like tea bagging machines, till March 31, 2011 will help the industry in value
adding and hiking exports in the long run. The finance minister has also increased weighted
deduction on payments made to national laboratories, research associations, universities and
other institutions for scientific research from 125% to 175%. This will help organisations like
the Tea Research Association to take up better research and development activities, resulting
in production of better quality tea saplings.
With cyclical crisis in the Indian tea industry erasing fast, the current need was to shift from a
production oriented strategy and subsidy approach to market oriented strategic framework
with market economy outlook. There is a need to liberate the mindset of the industry from its
earlier mindset of 'disposal of tea' was changing to a new one --'marketing of tea,' which
implied a shift from 'subsidy' to capacity building approach.

Multinational tea companies are increasingly contracting with larger agro-processing


firms,who were able to effectively coordinate deliveries and quality standards from small
farmers through effective supply chain management, as in South India and Indonesia, Sharma
said.

Oversupply of tea and less demand has contributed to market imbalance in India. Strategies
have to be devised to improve the demand side, as so much effort has been put in improving
supply efficiency in the past.

Only financially sound tea producers would perhaps be able to take the risk of delayed
marketing and avail any possible opportunity arising out of future upward price movement in
the market.While productivity and quality have received some attention, cost reduction,
value addition and risk manageent needed a new focus.

40
References

Joonktollee Tea & Industries Ltd Annual Report 08-09

Mcleod Russel India Ltd. Annual Report 08-09

Rossell Tea Ltd Annual Report 08-09

Jay Shree tea & Industries Ltd. Annual Report 08-09

Foster, G., Financial Statement Analysis, Second Edition, Prentice Hall, NJ, 1986.

www.money.livemint.com

www.bseindia..com

www.moneycontrol.com

www.capitaline.com

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