Banbury Case

 Answer The rising value of rupee is more threatening to Banbury’s profitability because: • Low rates of return • Nominal interest rate yields • Not expected to change much in the immediate future • Rise of inflation • Credit crisis

 On the Other hand cotton prices were not much threatening to Banbury’s profitability because: • Prediction of cotton futures in the coming year is expected to be fallen down as - March 2011:113.09; July 2011: 102.06/; October 2011: 95.03. The Curious case of high cotton prices

According to case study sales were in US dollars and all other expenses in Indian rupees

Negligible fixed costs as 90% of process in outsourced to contract

Manufacturers resulting in protection to margins in case of sluggish demand

Credit Concerns

Small scale of operations restricting economies of scale Weak profitability

High customer concentration Exposure to foreign exchange risk; partially mitigated through forward exchange contracts Highly fragmented industry with presence of several small and medium manufacturers resulting in high competition, lack of economies of scale and absence of pricing power

Exports account for more than 90% of total sales of the company with countries in the Middle East and Africa forming key destination for its products

The company operates in a highly fragmented market with competition from several

Indian and international fabric weaving and processing companies operating on a small scale, resulting in relatively lower pricing power.

operating margins witnessed pressure in FY 2010 on account of rising raw material costs, net margin of the company witnessed marginal improvement due to reduction in interest and finance charges

The decline in financing cost was primarily led by improvement in realization of

dues from debtors,which resulted in lower working capital utilization. Besides, aiding reduction in borrowing costs, better receivables management resulted in improvement to capital structure, coverage rations...