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The Case is prepared by Prof. C V Kumar, Associate dean, This case is to be used for IBS Hyderabad-Class

Room discussion only.

Page 1

Financing Current Assets Gee Vee Industries

Rajesh Sharma is a committed and sincere officer in the Finance Department of GEE VEE IndustriesMumbai, a textile company with about Rs 2000 cr turn over. Rajesh was worried about the fundsmanagement and rushed to his section head Mr. Amitesh Agarwal and had said Sir, you haveprobably been aware that our company is facing financial crunch during the last few months and I

am afraid that it is extending this month too and would continue if we do not take corrective steps . Ipropose to request our existing bankers State Bank of India and Union Bank of India to arrangefunds for a period of 6 months. But I am not sure whether they will consider because we do nothave supporting additional increases in sales to request for such adjustments. Our debtors arepiling up and the recovery is going down, and due to the economic slow down, our products are notselling in the same tempo in the market as in the past and our order book from different retail outletchains is not encouraging

Mr Amitesh tried to pacify him stating, Hey Rajesh! Do not worry; our position is not that bad. Iappreciate your concerns. I attribute the current problem to our failure in recovering the debtorseffectively. Normally more than 90% of our customers used to honor their commitments within threemonths from the date of receiving our goods. I think that due to the economy slowdown abroadand in India our major customers are not able to pay on time. Otherwise their transactions with ushave been quite good. In order to overcome the current crisis, we can raise funds through theopen market. Can we also try to raise some temporary funds from our bankers and in view of thetrack record they will oblige us. We should do something about the funds blocked with Policedepartments and Indian Railwlays to whom we have made substantial supplies. We will work outmodalities and prepare a note to the Chairman.

BRIEF HISTORY:The company is promoted by Gee Vee Group; one of the Indias largest and fastest growingintegrated Textile Groups. The company was set up in 1969 with limited capital; the Group has todayemerged as a well-established manufacturer of textiles catering to the needs of millions across India.The Company was promoted by Gagan Vishnu and his sons; it enjoys the reputation of being one ofthe modern and largest manufacturers of processed knitted fabrics with an experience of over four

decades. The Company has leveraged its experience from time to time to establish its presence inthe International and Domestic markets.

The Company operates in the textile industry and is engaged in the business of manufacturingcotton spun yarn, doubled yarn, knitted grey fabrics, processed knitted fabrics and garments. Itsproducts are sold primarily to major garment manufacturers in the Domestic and Internationalmarkets. The Company for the first time in India has commercially launched a new product which isuseful in party wear. The Company has also launched another fabric which is comfortable as sportswear. The Company has started supplying these fabrics in large quantities to various American andEuropean countries.

Technical Aspects:

Products manufactured:

7/29/2019 15-Gee Vee

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The Case is prepared by Prof. C V Kumar, Associate dean, This case is to be used for IBS Hyderabad-Class

Room discussion only.

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Sr.No.

Unit Capacity in TPA

1 Spinning 226000 Spindles2 Knitting 31,000

3 Processing 41,000

4 Texturising 5,000

5 Garmenting 3 mn pcs

Marketing arrangements:

Markets

The Companys textile markets are spread over in northern, western and southern India, wheremajor textile and garment manufacturers are located. It has not made huge presence in theeastern parts of India. The demand for the Companys products is driven by a number of factors,such as global trends, productivity levels of other significant textile producing countries such asChina and domestic and international economic activity.

Sales, Marketing and Distribution

The Company markets, sells and distributes all of its products to a broad range of customers. Toaddress the needs of its diverse customer base, the Company pursues a range of marketing, salesand distribution approaches. The Company believes its multiple marketing, sales and distributionapproaches allows it to maximize its ability to serve its diverse customer base.

The Companys sales force is located primarily in Mumbai and has agents and representative officesnear Indias main textile manufacturing areas and major cities, such as Delhi, Chennai, Kolkata,Bangalore, Tirupur, Pune, Hyderabad and Ahmedabad , as well as in many of the majorinternational textile markets.

The Companys sales force utilizes its wide and varied customer base to work col laboratively with its

customers in order to forge long-term relationships. Additionally, the Companys sales force works inconjunction with its customers at their sites to meet their evolving needs, including recommendingimprovements in quality and productivity.

Customers Profile

The Company derives its income from a varied customer base ranging from major domestic garmentmanufacturers to individuals purchasing yarns, fabrics or ready-made garments direct from theCompany. The Company works closely with key customers to develop new products andapplications to enable them to meet changing demand for their products. Most of the Companysproducts are sold pursuant to short-term purchase orders. The average delivery time of productsordered is approximately one month. In addition, many of the Companys fabric and garmentproducts are sold through domestic distributors and Supply Chain stores in India and aboard.

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The Case is prepared by Prof. C V Kumar, Associate dean, This case is to be used for IBS Hyderabad-Class

Room discussion only.

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Prime Customers of the Company (illustrative)

S. No. Domestic International

1 Westside Wal-Mart

2 Life Style Wrangler3 Pantaloons J C Penny

4 Pepe Louis Philippe

5 Shoppers Stop Macys

6 Ruff Van Heusen

SWOT Analysis

Strengths : The Company has been operating in the textile business for the past 30 years. TheCompany will benefit from economies of scale of operations leading to better cost effectiveness vis--vis its competitors, which are mainly operating in the unorganized sector. The promoters of the

Company have a long history in the Textile arena and their experience and knowledge gives anedge to the Company. The Company has a track record of successfully implementing the sequenceof Expansion Plans in the said segments. The Company is already in the business of manufacturingcotton yarn, knitted grey fabrics and processed knitted fabrics. Thus, the Company is in strongposition to leverage its past experiences for the proposed project.

Weaknesses : The company is in a highly competitive market with tremendous price pressures.The Company is already weathering the competition from other players considering their costeffectiveness.

Opportunities : The opening up of the developed country markets has thrown upon variousopportunities for developing countries such as India & China. The cost effectiveness inmanufacturing textile products in India will also drive the business growth. The Company through its

large scale operations will position itself as a cost effective producer leading to better sales.

Threats : The Indian textile Industry is distinctly characterized by large scale presence of theunorganized sector. However, the large scale of operations of the Company as well as its capabilityto offer end-to-end solutions will place the Company at an advantageous position vis--vis smallunorganized player.

Liquidity Crunch:

As per the existing norms of the bankers the company had given their yearly requirement of workingcapital quarter-wise through their QIS returns. Expecting an increase of about 25% in their salesduring 2009-10, the company projected that every quarter they would be able to generate revenues

of 630 crore. But for the quarter ended Jun 2009, it could achieve Rs 525 crore only. Thecompany was facing problem of realizing their debtors as the customers were seeking for somemore time to pay their dues. The export orders were also not encouraging.

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The Case is prepared by Prof. C V Kumar, Associate dean, This case is to be used for IBS Hyderabad-Class

Room discussion only.

Page 4

The Chairman in their recent board meeting held during August 2009 clarified to the members thatthe financial crunch was mostly due to piling up of debtors from reputed retail outlet chains and oneor two government departments in India; he clarified that the company need not worry about thereceivables from foreign debtors as they were supported by letter of credit. He added that the newproducts have good potential but are yet to take off.

Mr Amitesh Agarwal finalized the status report on overdue debtors as follows.(Rs in crore)

Particulars Jan- March 2009 April-Jun 2009 JulySep 2009 (up toAug)

Overdue Debtors of last quarter 50 100 150

Credit sales during the currentquarter

500 400 300

Recoveries during the currentquarter

450 350 225

Overdue at the end of the quarter 100* 150 225**

* Out of Rs 100 cr Rs. 25 cr only was recovered by the end of Sep 2009.

**Rs 25 cr out of Rs 225 cr pertains to the sales during April 2009 and Rs 50 cr worth ofmaterial supplied during Sep 2009 to The State Police Departments is yet to be received; asper the agreement the department will pay only after verifying the quality of the entire stockof cloth supplied to them. It is estimated that this amount will be paid only during March2010.

The company presently enjoys the following credit facilities from SBI and other banks (consortium).(Rs in crore)

Type of facility Sanctioned Limit Outstanding Balance(30 Jun 2009)

Term Loan 692 337.21Working capital 523 451.3

Non Fund Based Limits 31 16.91

The company has been submitting the Monthly Select Operational Data and QIS data to the leaderof consortium regularly. The fixed assets of the company are already offered as primary security tothe Term Lending banker and pari-passu charge to all the other member banks of the consortium.Similarly for working capital limits also the current assets like Raw materials, semi-finished goodsand finished goods are hypothecated to the banks which were lending working capital finance.

The company was not in a hurry to initiate legal action, as the customers were very reputed and thatthe company had to continue to do business with them in future. The offer by majority of thedebtors that they would pay a penalty of 1% per month itself showed their commitment to paying thedues at the earliest possibility.

The company wants to choose best possible option in tiding over the situation.