Introduction

Kota Fibre Limited (KFL) founded in 1962 to produce nylon fibre to be used in weaving cloths for saris. Mr. Pundir is the managing director and owner of the firm. The company has a stable YoY growth in demand due to increase India population and per capita income. Kota Fibres used new technology and domestic raw material to produce quality product. KFL is operating in a highly competitive environment and seasonal industry, with competition is affected by price, service and credit period and sales concentrated in the festival season. The demand for saris amounted to 12 billion yards of fabric.
Overview

• KFL is a profitable firm with sales growth of 18% during FY00 and net profit of Rs.2.6million. The sales are expected to increase to Rs.90.9million in FY01.
• KFL has a continuous dividend payment history, due to conservative management.
• The company manufactured yarn is used by the local weavers for manufacturing saris.
• Synthetic textile market is stable with expected growth of 15% per year.
• Yarn manufacturer like KFL has to grant credit to merchants to capture the market share. However no credit is given to KFL from its suppliers
• KFL is operating at very thin profit margins

Overview of the business of the company
KFL is operating in a highly working capital intensive industry, characterized by high inventory and debtors levels and low credit period. As the company is operating in a highly competitive industry, KFL is meeting the competition with extending high credit period to its customer and operating against the policies of overproduction and overstocking. To avoid stacking inventory during the lean season, KFL is operating at peak capacity for two months and hiring and firing employees at the beginning and end of peak season, leading to unrest in the employees union. Kota Fibres had been a profitable company through the years. Sales were up 18 percent in 2000. 2001 brought on challenges questioning the firm’s liquidity as