GROUP 6

GUNA FIBRES LTD.

Apostol, Estopen, Lee, Lim, Tan (Marcus), Torres
POINT OF VIEW
LOAN OFFICER OF THE ALL-INDIA BANK
& TRUST COMPANY

Decision of whether to grant Guna Fibres Ltd.

additional credit or not
CASE CONTEXT
GUNA FIBRES LTD.
Nylon fiber producer 
Supplies to textile weavers
One of many firms in the textile industry
CASE CONTEXT
GUNA FIBRES LTD.
Steadily growing demand for fiber
Peak season and slack selling season
Demand fluctuations that coincide with the Diwali celebration
Guna follows a seasonal production schedule
2 months at peak operating capacity
Resulted in annual hirings and layoffs
Guna pays quarterly dividends to shareholders
Mostly relatives
PROBLEM DEFINITION
Guna Fibres Ltd.'s significantly low liquidity

They were not able to fully repay their line

of credit with the bank

Delay on the shipment of their merchandise

to their customers

Find a solution to Guna Fibres’ low liquidity

in order to be granted more credit and to
maintain their loan.
 SWOT ANALYSIS
STRENGTHS WEAKNESSES
Guna Fibres is equipped with new technology and Dependence on loans to finance operations
uses domestic raw materials Weak distribution system due to poor road conditions
It has a strong foothold on the nylon fiber industry Excess funds are used as dividends since it’s “safer”
due to the many established franchises with local that way
textile weavers The company offers generous credit payment which
It is largely  profitable lead to liquidity problems. 
Purchase of Raw Materials is based on company’s
sales 2 months from now

OPPORTUNITIES THREAT
Stable demand for textiles and a chance for demand High competition among other fiber manufacturers
to grow with increased population and income Suppliers offer little to no credit
Sales forecasted to grow to about INR900 million Reduced bargaining power of yarn manufacturers
Seasonal fluctuations are predictable
There are two proposals to enhance transportation
and operations
 porter's five forces
THREAT OF NEW ENTRANTS
High competition in the textile industry indicates that there are few barriers to
entry
Lower barriers to entry and the growing demand for textiles might further
increase the threat of new entrants

THREAT OF SUBSTITUTES
Substitutes for the synthetic textile products would be cotton or silk

INDUSTRY RIVALRY
There is high competition in the synthetic textile industry
 porter's five forces
BARGAINING POWER OF BUYERS
Consumers have a relatively high bargaining power due to the abundance of
local textile weaving mills in the market
Synthetic textile is a standardized product which means consumers (cloth
merchants and textile weavers) can buy products from fiber suppliers, such as
Guna Fibres Ltd. at the same time

BARGAINING POWER OF SUPPLIERS

Suppliers have moderate bargaining power
They have power since they offer almost no trade credit, but their power is
moderate in nature because of the high number of suppliers in India.
CASE ANALYSIS
Guna Fibres is in a precarious situation
Unable to pay the excise tax
Delayed operationsLose business to competitors
CASE ANALYSIS
Proposals
Reduce raw materials inventory requirement from 60
days to 30 days
Reduce dividend payments by 50% and simultaneously
applying the reduction of raw materials (1)
Establish a level production scheme
PROPOSAL 1
PROPOSAL 1
PROPOSAL 2
FINANCIAL RATIOS
PROPOSAL 3
FINANCIAL RATIOS
DECISION
All-India Bank & Trust Company should grant additional
credit provided that Guna Fibres follow the stipulated
financial plan on the covenant, which requires them to
reduce raw material inventory requirement from 60 to 30
days and to cut 50% of the dividends.
JUSTIFICATION
Increased profit
Improves the company’s liquidity
Short-term liquidity
Zero balance on Nov. 2012 Notes Payable
JUSTIFICATION
Bank has confidence in Guna Fibres
Capability of Guna to pay principal and interest
Bank profits from interest income
Established relationship (Long term loans)
THANK YOU!