Coromandel Credit Note

CREDIT NOTE
COROMANDEL CASE
Evaluate the strength of Coromandel based on past nancial statements.
Coromandel international limited has increased is growth and therefore strength over the last few
years.
It became the largest prouder and exporter, and also took over many industries.
Increase in sales implying increase in demand for their products in the market.
The government has increased the fertilizer subsidies over the years
Increase of sales from 9.59% to 25% , from 12/14 to 15/16, leading to increase in pro ts.
The holding period of the goods also reduced to 21.88 from 2016 from 34.97 in 2013, indicting
high demand for CIL products.
There was a decrease in pro ts after tax due to increase in the prices of fuels, raw material and
other overhead.
Thus, we can say that CIL is strong enough to stand alone.
Assess CIL!s working capital requirement in respect of CC, buyer!s credit, and LCs from its
nancial projections
The agricultural season in India begins from Jun to Jan.
During feb to may many companies mismatch in their cash ows.
The subsidies received are not su cient to keep up with the requirements.
Thus, to overcome these problems, companies like CI, obtain funds from various sources.
The CILs total short term nancial facilities amounted to Rs 39.5billion which was from a consor-
tium of banks.
Out of these, Rs 10.5 billion was fund based cash credit limits and the remaining Rs 29 billion was
in the form of letter of credit.
CIL requested NBI, the head of consortium to increase funds from 39.5 to 568 billion so that CIL
could look after the companies.
The CIL asked for the increase in the funding’s on the basis of its credit history as they were able
to pay back all their previous loans in time and successfully.
Comment on CIL!s liquidity position after it extended credit to its trade channel partners,
invested heavily in its group companies, and received substantial subsidy receivables from
the governmen
CIL had many retail stores spread all over the country.
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Cil gave them its inventory on credit basis.
This credit was worth Rs 555 million at the end of the year on march 31, 2014.
This was one of the major threats to CI from the stores and a risk noted by NBI.
This credit mount was massive could create a problem for the net working capital for CIL.
Also the current ratio of CIL dropped from 1.09.
Therefore, we can say that CIL was in danger as its credit amount was too high and low current
ratio.
Identify the strategic moves of CIL to position itself as a leading market player in the fertil-
izer industry
CIL used acquiring other fertilizer companies as their strategy, so that it is had the monopoly in
the market.
It increased its market share, manufacturing , retail facilities and product portfolio.
CIL also o ered region speci c and value added solutions to the farmers leading to increase
brand loyalty.
They manufactured customized fertilizers to deal with the problems of soil e ciency, leading to
increase in pro ts, crop yield etc.
CIL was successful in positioning itself as a strong market leader.
Identify and discuss possible mitigation strategies for the risks embedded in the
case
Exchange rate risk: CIL imported its raw materials. Given the volatility in the exchange rate of $US
and Rs. Helping CIL to boost the India economy.
Regulatory Risk: It states that CIL has to follow the government rules in order to stand in for the
subsidiaries. CIL being a top company will in view of government and hence have to follow the
rules strictly.
Risk from Group Companies: Other companies where facing losses, CIL’s plan to increase the
working capital to turn these companies around, into pro t making companies.
Monsoon Risk: With high unpredicted monsoon and climate change, its one of the leading prob-
lems for such companies. Use of arti cial rains, improvement in plantation and helping ight cli-
mate change can be done to avoid losses for farmers,
Hazardous Risk: Chemicals uses leads to re and release of harmful gases. Turning towards or-
ganic farming can help keep the soil fertility and also decrease the use of harmful chemicals.
What are your recommendations to Ms. Garg…would you like to extend the facilities re-
quested by CIL?
Given the history of CIL – good credit rating, increased pro ts, no default history etc., even in
such cases extending funding can be a bit risky. CIL needs to change to organic products to de-
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feat the market volatility, if not the demand will decrease signi cantly and leading to increase de-
fault risk or bad loans or being in debt for longer time.
Hence, the amount should be given in period bases to test the e ciency and to maintain a safe
risk free balance.
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Coromandel Credit Note

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CREDIT NOTE

Evaluate the strength of Coromandel based on past nancial statements.

Thus, we can say that CIL is strong enough to stand alone.

The agricultural season in India begins from Jun to Jan.

During feb to may many companies mismatch in their cash ows.

Also the current ratio of CIL dropped from 1.09.

CIL was successful in positioning itself as a strong market leader.

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