LATEX INDUSTRIES

Case Presentation
Group -9
Presented by :
Deep Patel
Monika Gangwar
Pallavi Singh
Background of Latex Industries
Founded – 1970, established in Bangalore(India)
Purpose – Manufacture Milk Processing Equipment
Initial Production – Licensing Agreement with Dutch
Company.
After patents Expired – Decided to go on its own.
(Major challenges for company start from here)
Limited Market in India for Expansion and Growth
Company decided to go internationally.
At this time UNIDO invites tender in 1979.
Company decided to fill up the tender and go
internationally.
Latex Industries
In 1979, Company Bid for the Construction of Milk
Processing Plant.
Plant was proposed by –
United Nations Industrial Development
Organization(UNIDO)
Finance by –
International Finance Corporation of the World Bank
Pre Requisite for Qualification are :
* Experience, Reliability and Price
* Inspection Visit – by UNIDO in India
* On-the-spot Survey – Construction Site
However, Company Stand Last in the Bid.
 Analysis of the Company Ratios
Liquidity Ratios
1. CURRENT RATIO(Standard 2:1)
Current Ratio = Current Assets
Current Liabilities
Particulars 1986 1987
Total Current Assets 991060 1051581
Total Current Liability 475953 527147
Current Ratio 2.082264 1.99485
2. QUICK RATIO(Standard 1:1)
Quick Ratio = Current Assets – Inventories
Current Liabilities
Particulars 1986 1987
Current Assets 991060 1051581
Inventories 316493 411804
Current Liability 475953 527147
Quick Ratio 1.417298 1.21366
3. NET WORKING CAPITAL(ratio should be more)
Net Working Capital Ratio= Net working capital
Net assets
Where, Net working capital = current assets - current
liabilities Particulars 1986 1987
Current Assets 991060 1051581
Current Liability 475953 527147
Net Assets 1054009 1113512
Quick Ratio 0.49 0.47
LEVERAGE RATIO
1. TOTAL DEBT RATIO(ratio should not be more than
2:3 or 0.67)
Total Debt Ratio = Total Debt / capital employed
Where total debt=loans+ debentures+ bank overdraft+ short
term loans+ lease with interest
Capital employed= equity share capital+ reserves &
surplus + preference share capital+ long term liabilities.
Particulars 1986 1987
Total Debts 573851 582980
Capital Employed 578056 586365
Total Debt Ratio 0.99 0.99
2. DEBT-EQUITY RATIO( ratio is 2:1)
Debt equity ratio = Total Debt/Net Worth
Where, Total debt= loans+ debentures+ bank overdraft+
short term loans+ lease with interest
Net Worth = equity share capital+ Reserves & surplus +
preference share capitalParticulars 1986 1987
Total Debts 573851 582980
Net Worth 290442 286576
Debt Equity Ratio 1.98 2.034
ACTIVITY RATIO
1. INVENTORY TURNOVER RATIO ( Standard high
ratio)
Inventory turnover
Particulars ratio= cost of goods
1986 sold/average
1987
Cost Of Goods Sold 1068594 106940
inventory Average Inventory 316493 411804
Inventory Turnover Ratio 3.88 0.26
PROFITABILITY RATIOS
1. GROSS PROFIT RATIO(higher margin% is a
favourable)
Gross profit margin= gross margin/sales
Particulars 1986 1987
Gross Margin 15870 48190
Net Sales 1084465 1117830
Gross Profit Ratio 0.02 0.04

2. NET PROFIT MARGIN(higher margin % is a

favourable)
Particulars 1986 1987
Net profit Profit
margin= profit
After Tax after tax/net
15468 sales
11929
Net Sales 1084465 1117830
Net Profit Margin 0.01 0.01
About Zimbabwean Project (in 1979)
Reasons for standing last in the bid According to cost
structure of the company are as follows :
High Research & development cost as compared to other
bidder
Subsidies.

Apart from this

Lack of International Construction Experience.
- Project will not be delivered on time Acc. To IFC.
 3 Strategies In order of Financial Strain
1. Diversification to Food Processing equipment's ( in 1986)
Limited growth in milk processing segment
More growth opportunity in Food Processing segment
Agreement with Garland Foods’ Equipment (Canadian Firm)
Startup the Operations by 1988
Cost Involved was more than $ 2,25,000 plus 1% of profit to
Garland Foods’
2. Sub-contractor for Danish Firm ( in 1986)
Company have to increase its research and development activity -
To make division operational - US$ 35000 and US$ 25000 for
subsequent year & inventory Investment will rise by US$15000.
3. Consultancy Division ( 1987 onwards)
Experience gained through Zimbabwean Project
Hiring of 4 Assistant managers would cost them $ 35,000 per year
International Consultancy, a valid
alternative??
Friendly Indian competitor came for advice
After that Latex thought for charging its technical advice
But only one international Bid experience that too Latex
LOST the bid
Already Struggling within the Indian milk processing
industry
Costs for hiring the employee for the consultancy
Consultancy on Domestic level could be an alternative as
Latex was working in India for about 10 years
Recommendation for Future Prosperity
Limited growth in domestic milk processing industry
Go international but not on their own but initially work as
Sub-Contractor for other international players
Less financial Strain for the Company
This would give them Understanding about the
international scenario, knowledge, links, expertise and
proper finance for further operations as a main Bidder