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Himanshu Rawat (Leverage Analysis of Crompton Greaves)

This document analyzes the leverage of Crompton Greaves Consumer Electricals Ltd over 5 years from 2016-2021. It calculates the company's degree of operating, financial, and combined leverage and compares it to competitor Havells India Ltd. The business and financial risk of both companies is also assessed over this period using metrics like variability in EBIT, debt-to-equity ratio, and financial leverage. The conclusion is that while Crompton Greaves' leverage was higher than Havells from 2019-2021, Havells currently poses more risk due to its higher combined leverage, meaning it has more fixed costs.

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HIMANSHU RAWAT
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216 views10 pages

Himanshu Rawat (Leverage Analysis of Crompton Greaves)

This document analyzes the leverage of Crompton Greaves Consumer Electricals Ltd over 5 years from 2016-2021. It calculates the company's degree of operating, financial, and combined leverage and compares it to competitor Havells India Ltd. The business and financial risk of both companies is also assessed over this period using metrics like variability in EBIT, debt-to-equity ratio, and financial leverage. The conclusion is that while Crompton Greaves' leverage was higher than Havells from 2019-2021, Havells currently poses more risk due to its higher combined leverage, meaning it has more fixed costs.

Uploaded by

HIMANSHU RAWAT
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Punjab College of Technical Education

Baddowal, Ludhiana

COURSE & SEMESTER


MBA 1 C 2nd SEM
TOPIC: LEVERAGE ANALYSIS OF CROMPTON GREAVES CONSUMER ELECTRICALS LTD
SUBMITTED BY: HIMANSHU RAWAT
ROLL NO: 2011185
SUBMITTED TO: Dr. PALLAVI DAWRA

Crompton Greaves Consumer Electricals Limited.


The following section summarizes insights on Crompton Greaves Consumer Electricals
Limited's Degree of Operating Leverage (DOL):

LEVERAGE ANALYSIS OF CROMPTON GREAVES CONSUMER ELECTRICAL LTD.


PARTICULARS 2021 2020 2019 2018 2017 2016
Sales 4,749.95 4,511.97 4,478.91 4,079.66 3,900.89 1811.68
% Change 5.274 0.738 9.786 4.582 115.31
EBIT 704.69 596.86 585.79 531.04 484.64 203.21
% Change 18.066 1.889 9.933 9.574 138.492
Earnings Per Share (Rs) 9.63 7.89 6.42 5.17 4.52 1.68
% Change 22.05 22.89 24.177 14.38 169.04
CALCULATION OF DEGREE OF OPERATING LEVERAGE: -

It is calculated as
% Change in EBIT / % change in Sales
PARTICULARS 2021 2020 2019 2018 2017
OPERATING LEVERAGE 3.425 2.559 1.015 2.089 1.2

Crompton Greaves Consumer Electricals Limited.


The following section summarizes insights on Crompton Greaves Consumer Electricals
Limited's Degree of Financial Leverage (DFL):

CALCULATION OF DEGREE OF FINANCIAL LEVERAGE: -

It is calculated as
% Change in EPS / % change in EBIT
PARTICULARS 2021 2020 2019 2018 2017
FINANCIAL LEVERAGE 1.22 12.117 2.434 1.5 1.22
DEBT EQUITY RATIO 0.16 0.14 0.36 0.82 1.25
INTEREST COVERAGE RATIO 17.49 15.46 10.42 8.62 7.52

Crompton Greaves Consumer Electricals Limited


The following section summarizes insights on Crompton Greaves Consumer Electricals
Limited's Degree of Combined Leverage (DCL):
• Crompton Greaves Consumer Electricals's latest twelve months degree of combined leverage
(dcl) is 3.52.
• Crompton Greaves Consumer Electricals's degree of combined leverage (dcl) for fiscal years
ending March 2017 to 2021 averaged 1.71.
• Crompton Greaves Consumer Electricals's operated at median degree of combined leverage (dcl)
of 1.34 from fiscal years ending March 2017 to 2021.
• Looking back at the last five years, Crompton Greaves Consumer Electricals's degree of
combined leverage (dcl) peaked in March 2021 at 3.52.
• Crompton Greaves Consumer Electricals's degree of combined leverage (dcl) hit its five-year low
in March 2020 of 0.18.
• Crompton Greaves Consumer Electricals's degree of combined leverage (dcl) decreased in 2019
(1.17, -50.2%) and 2020 (0.18, -84.6%) and increased in 2018 (2.34, +74.7%) and 2021 (3.52,
+1,861.7%).
CALCULATION OF DEGREE OF COMBINED LEVERAGE: -

It is calculated as

Operating leverage X Financial leverage

PARTICULARS 2021 2020 2019 2018 2017

COMBINED LEVERAGE 4.18 31.01 2.47 3.13 1.46

COMPETITOR COMPARISON ON LEVERAGE ANALYSIS


HAVELLS INDIA LTD
LEVERAGE ANALYSIS OF HAVELLS INDIA LTD.

PARTICULARS 2021 2020 2019 2018 2017 2016


Sales 10,427.92 9,429.20 10,057.62 8,138.57 6,135.26 5,436.88
% Change 10.59 -6.24 23.57 32.65 12.84

EBIT 1,565.26 1,027.38 1,192.19 1,049.29 824.14 747.88


% Change 52.35 -13.85 13.61 27.31 10.19
Earnings Per Share 16.61 11.71 12.65 11.4 8.63
(Rs) 11.45
% Change 41.84 -7.43 10.96 32.09 -24.62

CALCULATION OF DEGREE OF OPERATING LEVERAGE: -

PARTICULARS 2021 2020 2019 2018 2017

OPERATING LEVERAGE 4.94 2.219 0.577 0.836 0.79

CALCULATION OF DEGREE OF FINANCIAL LEVERAGE: -

PARTICULARS 2021 2020 2019 2018 2017

FINANCIAL LEVERAGE 0.79 0.56 0.8 1.17 -2.41

DEBT EQUITY RATIO 0.08 -- 0.01 0.03 0.06

INTEREST COVERAGE RATIO 20.78 46.86 71.41 41.11 62.66

CALCULATION OF DEGREE OF COMBINED LEVERAGE: -

PARTICULARS 2021 2020 2019 2018


2017

COMBINED LEVERAGE
3.90 1.24 0.46 0.98 -1.90
DEGREE OF OPERATING AND FINANCIAL LEVERAGE AND COMBINED LEVERAGE OF
CROMPTON AND HAVELLS INDIA LTD FOR PAST 5 YEARS:

BUSINESS AND FINANCIAL RISK OF CROMPTON GREAVES


CONSUMER ELECTRICALS LTD FOR 5 YEARS.

• BUSINESS RISK IN THIS CASE IS MEASURED BY VARIABILITY IN EBIT AND


CHANGE IN OPERATING EXPENSES.
• FINANCIAL RISK IS MEASURED BY DEBT/EQUITY% AND FINANCIAL
LEVERAGE.
BUSINESS AND FINANCIAL RISK OF HAVELLS INDIA LTD FOR 5 YEARS:

• BUSINESS RISK IN THIS CASE IS MEASURED BY VARIABILITY IN EBIT AND


CHANGE IN OPERATING EXPENSES.
• FINANCIAL RISK IS MEASURED BY DEBT/EQUITY% AND FINANCIAL
LEVERAGE.
BUSINESS RISK AND FINANCIAL RISK OF CROMPTON GREAVES AND HAVELLS
INDIA LTD FOR 5 YEARS.

• BUSINESS RISK IN THIS CASE IS MEASURED BY VARIABILITY IN EBIT AND


CHANGE IN OPERATING EXPENSES.
• FINANCIAL RISK IS MEASURED BY DEBT/EQUITY% AND FINANCIAL
LEVERAGE.
FINANCIAL LEVERAGE ANALYSIS WITH DEGREE OF FINANCIAL
LEVERAGE OF CROMPTON GREAVES CONSUMER ELECTRICAL LTD.

CONCLUSION:
• The conclusion drawn is that the debt to equity of crompton greaves consumer
electrical ltd is decreasing from 2016 to 2020 which shows that company is relying
less on debt financing or paying off its debt thus the financial leverage of the
company is also going down which is a good sign for the company and investors.
• The interest coverage ratio for the past 2 years is also good than the previoues
years.The degree of combined leverage of crompton is lower from years 2019 to
2021 than havells while havells DCL was less from year 2016 to 2018.
• But currently crompton is having a less DCL which shows that havells is more
riskier than crompton as high leverage means more fixed cost to the firm.

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