INTRODUCTON

The 21st century has witnessed unmatchable development in industrial sector. Further industrialization benefited the mankind in various ways many shapes but it also put the man before insurmountable industrial hazardous. One of the most potent dangers is pollution and global warming. Due to the sensitivity of the matter and its horrible consequences, the world scientists were compelled to sit together to avert this threat and to minimize the threat perception. That is why Atmosphere environment become the talk of the town. In this context, Sitara Chemical Industries Limited amicably decided to cap hazardous gas emissions effects and further to take the necessary steps that are atmosphere friendly. Fortunately, business of chemicals opened new vistas of success and progress due to low cost and environment friendly. Within very noticeable time, it stretched its wings with full vigor and it is to be considered as icon of success. Due to this environment amicable strategy of Sitar Chemical I selected it for my report Sitar Chemical Industries Limited was incorporated in 1981 and began producing caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The plants capacity was gradually increased over years to current level of 545 metric tones a day. In addition, various by-products facilities have been added and expanded from time to time to cope with growing demand. Company entered into Textile Spinning Business in 1995.Its specialty chemicals and export division was established in 2001 and agri chemicals division in 2003.

Purpose of analysing financial statements

I am a student of MBA at KIMS .Prepration of this report is the requirerment of karachi university Business school and is a part of my exam Being a students of MBA , I am also interested in the analysis of financial statements to understand a companys financial position . It is also helpful for me regarding my course studise.

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Scope and Limitations.

This financial analysis report will

Highlight areas of significant importance Enable management to address and resurrect critical internal policies Give a broader view of the financial health of the company to its existing as well as prospective lenders to make certain credit decisions.

Sources
In the course of the preparation of this assignment, the following materials have been referred to

Annual Report on Sitara Chemicals limited Financial statement analysis tools by Meigs and Meigs Counseling and guidance from worthy Mr. Imran Qureshi. www.sitara.com.pk www.wikipedia.org

Report organization

This Report analysis the Profitability. Growth .market share .Gross profit ratios .Earning per share .price earning ratio of sitara chemicals

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VISION

Strive to develop and employ innovative technological solutions to add value to business with progressive and proactive approach.

MISSION
Continuing growth and diversification For bottom line results with risks well contained.

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COMPANY PROFILE
Sitar Chemical Industries Limited was incorporated in 1981 and began producing caustic soda in 1985, initially at a rate of 30 metric tones Caustic a day. The plants capacity was gradually increased over years to current level of 545 metric tones a day. In addition, various by-products facilities have been added and expanded from time to time to cope with growing demand. Company entered into Textile Spinning Business in 1995.Its specialty chemicals and export division was established in 2001 and agri chemicals division in 2003.

Core business activities of the Company

Operation of Chlor-alkali plant, wherein Caustic Soda and Chlorine Gas are produced out of common salt through electrolysis process. Caustic Soda is a basic chemical having a broad spectrum application in various industrial processes. A number of biproducts being manufactured are chlorine based.

Spinning units, wherein all types of yarn e.g. Combed, carded, knitting and Slub yarn are being spun to catering domestic/export market. Agri application Nutrients and Soil yarn conditioner. In addition to foreign technology based products various products have been developed by company R & D people. Such products are covered in Specialty Chemical and Agriculture products.

Products
Caustic soda solid Caustic soda liquid (50%) Caustic soda liquid (33%) Caustic soda flakes Bleaching powder (commercial) Sodium hypochlorite Liquid chloric acid Ammonium chloride Page 4 of 15

COMPANY INFORMATION
Board of Directors Chairman Chief Executive Directors Haji Bashir Ahmed Mr. Muhammad Adrees Mr. Javed Iqbal Mr. Muhammad Anis Mr. Imran Ghafoor Mr. Haseeb Ahmed Mrs. Rukhsana Adrees Mr. Rashid Zahir (Nominee Director of Saudi Pak Industrial and Agricultural Investment Co. (Pvt.) Ltd.) Mr. Mazhar Ali Khan Mr. Anwar-ul-Haq (ACA) Mr. Muhammad Anis Haji Bashir Ahmed Mrs. Rukhsana Adrees Mr. Muhammad Yameen (FCA M/S. M.Yousuf Adil Saleem & Co Chartered Accountants Mr. Sahibzada Muhammad Arif Meezan Bank Limited. National Bank of Pakistan Allied Bank Limited United Bank Limited Bank Alfalah Limited Dubai Islamic Bank Pakistan Limited The Bank of Punjab MCB Bank Limited Standard Chartered Bank First Habib Bank Modaraba Saudi Pak Industrial and Agricultural Investment Co. (Pvt.) Limited Saudi Pak Commercial Bank Limited First National Bank Modaraba Al-Baraka Islamic Bank B.S.C. (E.C.) Askari Commercial Bank Limited Faysal Bank Limited 601-602, Business Centre, Mumtaz Hasan Road, Karachi-74000 28/32 K.M., Faisalabad - SheikhupuraRoad, Faisalabad.

Company Secretary Chief Financial Officer Audit Committee Chairman Members Head of Internal Audit Auditors Legal Advisor Bankers

Registered Office Factories

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Industry Overview
Chemical Division:
Over all Chemical industry in Pakistan showed a growing trend and kept pace the growth of economy in spite of potential slump in Textile Industry. Especially 3rd and 4th quarters ended with positive note though initial quarters were not financially so significant. We wish to express our gratitude towards Almighty Allah on successful completion of our 22MW Power Project. Electricity generation started in April 2007 and cost benefits are credited in these financial statements for last quarter April 2007 to June 2007.Uninterrupted supply generated by Power Plant will not only reduce cost of our production but increase the life and efficiency of sophisticated membrane technology. Production Operations: All 22, during the year company have produced 137,473 metric tons of Caustic Soda against last years production of 129,838 metric tons. Further production of specialty chemicals also witnessed reasonable increase from last years Textile Division production remained 9,978,032 Kgs of Yarn against 10.991.174Kgs in the last year. During the year 080 spindles remained operational.

Financial Performance:
Company has achieved a net sales of Rs.4,374 Millions during 2007 under review against Rs.3,812 Millions in the previous year showing an increase of 14.7% Gross Profit earned during the year is Rs.1,084 Millions against previous years figure of Rs.705 Millions. Net Profit before tax accounted for Rs.537 Millions against Rs.358 Millions in the previous year. Company became able to achieve this growth after commencement of production at power plant and efficient/ economic management of electricity from other sources. During the year total exports of the company remained at Rs.55 Millions.

Research and Development:

Company continued its research and development activities at its exclusive R & D department that constitutes highly professional and fully dedicated staff. During last few years R & D department introduced various products of which a few have gained maturity. In 2000 company started production of Calcium Chloride as pilot project.

Information Technology:
Company is determined to implement paperless environment is managing its day to day affairs of the company. Automated indenting, store issues, all inter office communication through LAN, systemized managerial reports regarding different operational matters for better control at top level, departmental expenses reports, system generated reports for filing with Government Authorities etc. has been successfully launched.

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Human Resource Development:

Called for to train the staff. Company has nominated 39 employees to attend courses and workshops Company always welcomed the opportunities for staff training, broading their knowledge, vision and skill and awareness about changing technological and learning developments. For this purpose 30 workshops/courses/seminars were held during the year under review wherein renowned consultants of Indo Pak were held at various well known institutions of Pakistan.

Environment, Health and Safety:

Company is strongly committed to continue improvement of its environmental management system by adaptation of appropriate pollution prevention and complying with all relevant legislation. For this purpose company has closed the operation at old mercury plant during the year. Company is also committed to the slogan of safety starts from the entrance.

Business Risk and Challenges:

Textile sector, which consumes approximately 42 % caustic soda of total market, is facing difficulties in Pakistan. Despite the fact Government and APTMA is taking steps to overcome the problems, company has planned to evolve new avenues as is evident from export of caustic soda during the year. Growth of other sectors like Soap & Detergent, Chemicals, Paper & Board, Ghee & Oil and Powder Generation is expected to mitigate shortfall, if any, in the demand in Textile Industry. Company is also extending its product line.Errection of new unit of caustic soda may also create an environment of competition. But we are certain that it will not affect sale of SCIL as demand is also on increasing trend.

Future Outlook:
Whereas currently sales of all products are on growing trend and costs are efficiently controlled, we expect the same continued growth in coming years if all contribution factors remained favorable Company is considering different options for diversifying its product line.PVC and Calcium Carbide projects are actively under consideration and techno commercial activities are being carried out. Company has started work on erection of Calcium Chloride and CPW plants which will be in operation in current year inshallah.Capacity of Calcium Chloride will increase to 21,000 metric tons per annum from current capacity of 5,000 metric tons per annum and product quality will meet international standards..

Contribution to National Exchequer:

During the year, the Company contribution to the national exchequer amounted to Rs.610 Million in respect of payments toward sales tax and income tax, this does not include the import duties, withholding tax deducted by the company from employees, suppliers and contractors and deposited into treasury

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SITARA CHEMICAL INDUSTRIES LIMITED ANALYSIS OF INCOME STATEMENT FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004 2007 Rupees 4,374,051,8 81 3,289,672,1 58 1,084,379,7 23 54,814,5 Selling and Distribution Cost Administrative Expenses Other Operating Expenses Finance cost Share of profit of associated Company Profit before taxation Other Operating Income Operating Income Texation Net profit for the year after taxation Loss on disposal assets of discontinued Operation Net profit for the year Earning per share 88 164,803,0 36 39,893,5 57 317,624,3 73 54,13 2 507,298,3 01 29,617,6 04 536,915,9 05 163,876,0 20 373,039,8 85 4 1 266,512,66 57 50,067,7 98 373,039,8 85 20.11 4 14.36 266,512,66 59 15.96 296,099,2 5 12.86 238,623,60 5 91,709,03 10 346,167,0 5 1 358,221,69 67 141,538,1 6 238,623,60 4 9,939,00 0 487,705,1 1 132,025,68 359,465 348,282,69 07 9,089,36 6 370,649,29 478,615,8 5 9,827,30 360,821,98 2 5 137,785,60 12 4 23,904,31 93 129,373,6 7 3 140,981,54 89 99,571,6 8 98,265,83 2006 Rupees 3,811,890,04 3 3,106,772,48 0 705,117,56 3 54,522,87 91 129,744,9 5 29,211,66 2005 Rupees 3,942,390,7 74 3,042,004,1 82 900,386,5 92 63,080,4 2 111,121,55 2004 Rupees 3,506,147,62 9 2,876,129,38 2 630,018,24 7 30,597,20

Sales Cost of Goods Sold Gross Profit Operating Expenses

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SITARA CHEMICAL INDUSTRIES LIMITED ANALYSIS OF INCOME STATEMENT FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004 2007 %age of Sale Sales Cost of Goods Sold Gross Profit Operating Expenses Selling and Distribution Cost Administrative Expenses Other Operating Expenses Finance cost Share of profit of associated Company Profit before taxation Other Operating Income Operating Income Texation Net profit for the year after texation Loss on disposal assets of discontinued Operation Net profit for the year 1.25% 3.77% 0.91% 7.26% 0.001% 11.60% 0.68% 12.28% 3.75% 8.53% 0.00% 8.53% 1.43% 3.70% 0.63% 3.61% 0.009% 9.14% 0.26% 9.40% 2.41% 6.99% 0.00% 6.99% 1.60% 3.29% 2.53% 3.28% 0.000% 12.14% 0.23% 12.37% 3.59% 8.78% 1.27% 7.51% 0.87% 3.17% 0.83% 2.80% 0.000% 10.29% 0.28% 10.57% 3.77% 6.81% 0.00% 6.81% 100.00% 75.21% 24.79% 2006 %age of Sale 100.00% 81.50% 18.50% 2005 %age of Sale 100.00% 77.16% 22.84% 2004 %age of Sale 100.00% 82.03% 17.97%

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Profitability

Sales

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PRICE EARNING RATIO

SHARE MARKET PRICE

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ANALYSIS OF INCOME STATEMENT

FOR THE YEARS ENDED JUNE 30, 2007 2006 2005 2004 Revenue section Dollar and percentage change
2007, 2006 Amount Increase or decrease 2006, 2005 % 2006, 2005 2005, 2004 Amount % 43624314 12.44 57,475,654 24.08

2007

2006

2005

2004

Net sale Net income

4374051881 3811890043 3942390774 3506147629 56216183 14.74 Minus 373039885 266512664 296099259 238623605 106527221 39.97 figure

By making analysis of income statements of last four years, it is seen that sale volume of Sitara products booming year to year. That is good sign for the company and Net income also shows an increase with the exception of year 2005, 06. In year 2007 the inflation rate was 11% and net sale increase by 14% it shows net sale is increasing slightly more than the inflation rate therefore we can say that company is growing. And capturing its market share. Cost of good sold and gross profit The cost of goods sold was 82.03% of sale in 2004 and gross profit was 17.97%, it might be possible that company purchased raw material at higher cost, or due to high labor cost or high factory overhead expenses. It might be possible that company needs to make maintenance of its plant and equipment to enhance production capacity that will lower the cost of goods. But it is good sign that company sale increased in 2005 as that of 2004 but cost of goods sold decreased from 82.03% to 77.16% from 2004 to 2005 and that has a direct affect on gross profit. Gross profit is increase from 17.97% to 22.84% from 2004 to 2005, it means that management of the company keep vigilant eyes and well aware about the extra cost of producing one extra unit. We are blind at that point, either company reduced the number of labor or established advance technology to increase the production in bulk and reduce the cost of goods sold or might be possible reduce the factory overhead cost Operating expenses Selling expense Selling and distribution cost is 0.87% of sale in 2004 and it is increase to 1.60% in 2005, but it is dropped down to 1.43% in 2006 and also decreased from 1.43% to 1.25% of sale in 2007. It indicates that the company management is reducing Selling and distribution cost while increasing its admin expenses year to year, that can lower down the company profit.

Finance cost Finance cost for the operation was 2.80% of sale in 2004, 3.28% in 2005, 3.61% in 2006 and almost doubled (7.26%) in 2007 that is not a good sign for the company, it Page 12 of 15

might be possible that company is paying more interest on borrowing amount but output generated from that finance is not satisfactory. Net income Net profit for the year of the company was 6.81% of Sale in 2004, 7.51% in 2005, 6.99% in 2006 and 8.53% in 2007 if we analyze net profit for these years it is increase from 6.81% to 7.51% from 2004 to 2005 it is just due to decreasing the cost of goods sold from 2004 to 2005 and increasing the sale volume even though operating expenses were increased and loss on disposal assets in 2005 of 1.27% of sale and it lower down from 7.51% to 6.99% from 2005 to 2006 is due to low sale volume and cost of goods sold increases and other effect of increase in administrative expense in 2006 that causes the decrease in net profit for the year. It is increased from 6.99% to 8.53% from 2006 to 2007. One effect for increasing profit is due to high sale volume, low cost of goods sold low selling and distribution cost and high operating income. Even though increase in administrative expenses and finance cost and taxation could not put bad effect on net profit for the year as compare to previous year. Earning per share
2007
Net income Share of capital stock outstanding Earning per share (373039885 /18553399) 373039885 18553399 20.11

Earning per share is most widely used of all accounting Ratios .It directly affects The market value of companys shares .In sitara chemicals earning per share Increases year to year .It is good sign for company. It shows that market value of its share is increasing.
Price Earning Ratio

2007 Current market price per share of stock Earning per share Price earning Ratio 159.25 20.11 7.92

2006 115 14.36 8.01

2005 114.06 15.93 7.16

2004 85.13 12.86 6.62

Price earning ratio affects the investors expectations for companys future Performance .Trend shows that price earning Ratio is slightly increasing from year to year .This it will be the fortune for Sitara chemical in future prospects.

CONCLUSION.

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o By the financial analysis of the income statement of Sitara chemicals limited .It is clear that companys financial position is much healthier in comparison to the prior year income statement so when I analysis the revenue section i reach on this conclusion that companys sale volume increase more than the inflation rate which is 11% while sale increase by 14% .Therefore company is growing o Companys operating expense i-e administrative expense and finance cost is increases from year to year .It indicate that management is not using the resources efficiently o Earning per share shows the market value of companys share. Sitaras earning per share increases from previous 4 years o Price earning Ratio is also good .Which is showing the companys position is better. o Finally it is obvious that companys over all financial position is very good .Its sale is increasing day by day that exactly effect the net income but companys must make the strong strategy to overcome on the operating costs. RECOMMENDATIONS o Company should focus to control on the administrative expenses, o Finance cost is also need to make the policy to overcome on it.

o Proper control on selling expenses will improve the income.

COMPANY INFORMATION
Board of Directors Chairman Haji Bashir Ahmed

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Chief Executive Directors

Mr. Muhammad Adrees Mr. Javed Iqbal Mr. Muhammad Anis Mr. Imran Ghafoor Mr. Haseeb Ahmed Mrs. Rukhsana Adrees Mr. Rashid Zahir (Nominee Director of Saudi Pak Industrial and Agricultural Investment Co. (Pvt.) Ltd.) Mr. Mazhar Ali Khan Mr. Anwar-ul-Haq (ACA) Mr. Muhammad Anis Haji Bashir Ahmed Mrs. Rukhsana Adrees Mr. Muhammad Yameen (FCA M/S. M.Yousuf Adil Saleem & Co Chartered Accountants Mr. Sahibzada Muhammad Arif Meezan Bank Limited. National Bank of Pakistan Allied Bank Limited United Bank Limited Bank Alfalah Limited Dubai Islamic Bank Pakistan Limited The Bank of Punjab MCB Bank Limited Standard Chartered Bank First Habib Bank Modaraba Saudi Pak Industrial and Agricultural Investment Co. (Pvt.) Limited Saudi Pak Commercial Bank Limited First National Bank Modaraba Al-Baraka Islamic Bank B.S.C. (E.C.) Askari Commercial Bank Limited Faysal Bank Limited 601-602, Business Centre, Mumtaz Hasan Road, Karachi-74000 28/32 K.M., Faisalabad - SheikhupuraRoad, Faisalabad.

Company Secretary Chief Financial Officer Audit Committee Chairman Members Head of Internal Audit Auditors Legal Advisor Bankers

Registered Office Factories

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