Question

Uses RB Patel Group Limited

Examine any investment projects the company has taken in the past and critically examine if that project increased the wealth of the shareholders.

Answer 1

Analysis:-

Nature & Stakeholders of RB Patel Group Ltd:

RB Patel Group Ltd. is one of the leading supermarket chains in Fiji. It was founded in the 1930s as a family owned supermarket in Labasa. Over the years, it has established nine branches and eleven stores Fiji wide. Its principal activities are retailing and wholesaling of merchandise, owners and administrators of properties and equity investments. RB Patel Group Ltd. is a publicly listed company and a subsidiary of Fijian Holdings Ltd. through its retailing arm, FHL Retailing Ltd. Currently, FHL Retailing has 50.16% shareholding in the RB Patel Group Ltd.

One of the missions of RB Patel Group Ltd. is to develop, grow and maintain mutually beneficial relationships with all its stakeholders. As per the 2015 Annual Report, RB Patel Group Ltd. identifies stakeholders as parties who have an interest in its organization and operations. Therefore, the stakeholders of RB Patel Group Ltd. are its shareholders, employees, customers and suppliers of RB Patel Group Ltd., financial institutions financing RB Patel Group Ltd. and the Fiji government.  

RB Patel Group Ltd.’s Unsystematic Risk :

Unsystematic risk is the variability in returns caused by unique factors relating to that firm. It arises from the way a particular firm conducts its activities. According to Beal et al (2008), unsystematic risk consists of financial risk and business risk.

In terms of financial risk, RB Patel Group Ltd. is prone to a credit risk and liquidity risk. Credit risk arises when counterparty defaults on its contractual obligations. This can eventually impact the cash flow of RB Patel Group Ltd. and result in financial loss. However, it has set-up policies to evaluate the creditworthiness of its customers and control credit exposure.

Liquidity risk arises when RB Patel Group Ltd. encounters difficulty in meeting obligations for its financial liabilities. However, the firm maintains adequate bank balance to cater for its activities. Majority of its current liabilities are expected to be settled within a year. Thus, RB Patel Group Ltd.’s liability risk is insignificant in nature.

Other examples of unsystematic risk for RB Patel Group Ltd. are operational risk and regulatory risk. Operation risk is the risk of loss arising from systems failure, human error, and fraud to external event. RB Patel Group Ltd. cannot eliminate all operational risk. However, it is able to manage such risks through relevant management policies. Regulatory risk arises from regulatory agencies established to govern the business sector in Fiji. For example : The retail and wholesale prices of products regulated by the Commerce Commission of Fiji.

I would, therefore, after analyzing the 2014 and 2015 Annual Report, advise the Chief Investment Officer that RB Patel Group Ltd. is subject to the unsystematic risk mentioned above.

Share Price & Performance of RB Patel Group Ltd:

According to Moss (2014), share price is one of the major factors which can be used to evaluate company performance. The following graph depicts the market share price of RB Patel Group Ltd. for the past five years.

Based on the current share price, it would be justified to say that RB Patel Group Ltd. has performed well over the past five years. As evident in the graph above, share price has generally increased from 2011 to 2015. From 2014 to 2015, the share price increased from $2.70 to $3.00; an increase of 11%. This is a positive sign for RB Patel Group Ltd. as it reflects shareholder confidence.

It also reveals the fact that RB Patel Group Ltd has experienced consistent growth from 2011 to 2015. As per the 2015 Annual Report, Net Profit Margin has increased from 5.20% in 2011 to 5.52% in 2015. This indicates that the profitability of the company has improved from 2011 to 2015. In addition, Earnings Per Share has also increased from $16.12 in 2011 to $20.00 in 2015. This implies that the company's profit allocated to each share has increased over the five years.

Investment Projects & Wealth of Shareholders:

What project evaluation methods did the company use? Is the company planning to undertake any further projects in the future?

RB Patel Group Ltd. invested $6 million in a Cinema multiplex named Life Cinema at their Jet Point Complex in Martintar, Nadi. This investment project started in late 2013 and was completed midway 2015 (Lal, 2014). Life Cinema began its operations in December 2014. It has, since then, had a significant impact on the traffic at the complex. This is reflected in the increased level of activity, that is, rise in the number of customers and increase in sales figures at the Jet Point Complex. In addition, Life Cinema allowed RB Patel Group Ltd. to diversify its operations and compete directly with Damodar Event Cinemas in Fiji’s cinema market.

Analysis of the 2015 Annual Report reveals that the construction of Life Cinema saw RB Patel Group Ltd.’s net profit after tax increase from $5,338,685 in 2013 to $5,919,319 in 2015. Return on equity also increased from 22.78% in 2013 to 23.62% in 2015. Based on above two ratios, it is evident that investment in Life Cinema has increased the wealth of shareholders in RB Patel Group Ltd.

RB Patel Group Ltd. is planning to further develop the current properties at Jet Point, Harbour Point and the residential property in Suva.

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