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  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
  A study on sugar industry in india
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A study on sugar industry in india

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  • 1. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 A STUDY ON FINANCIAL PERFORMANCE OF SUGAR INDUSTRY IN INDIA Dr. G. Malyadri,Associate Professor,Dept of MBA,Sreenivasa Institute of Technology and Management Studies (SITAMS), Andhra Pradesh, INDIA B. Sudheer Kumar,Assistant Professor,Dept of MBA,Sreenivasa Institute of Technology and Management Studies (SITAMS), Andhra Pradesh, INDIA ABSTRACT Indian sugar industry is highly stragmented with organize and un organized players. The unorganized players mainly produce gur and khandsari, the fess refined forms sugar. The sector has a number of transformational opportunities. These opportunities have remained largely untapped. The industry has the potential to cater to the large and growing domestic sugar consumption and emerge as a significant carbon credit and power producer. Further, the industry can improve its cost competitiveness through higher farm productivity and by managing the domestic production variation through international trade with a focus on countries in the Indian ocean. Thus, transformed sector would be fess cyclical with greater alignment between sugar cane and sugar prices, and will have stable diversified sources of revenue. Key Words: - Analysis of Indian Sugar Industry from Ratio’s Port Of View, Profitability Ratio, Turnover Ratio. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 2. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 INTRODUCTION Indian sugar industry, the second largest agro base processing industry afte3r the cotton textiles industry in country, has a lion’s share in acceleration industrialization process and bringing socio-economic changes in under developed rural areas. The sugar industry covers around about 7.5 percent of total rural population and provides employment to around about 5 lakh people in rural and the semi rural areas. About 4.5 crore farmers are engaged in sugarcane cultivation in India. Sugar mills (co-operative, private and public) have been instrumental in initiating a number of entrepreneurial activities in rural India. This study is an attempt to review progress of sugar industry in India both in financial and micro economic terms, understand its problems and challenges in context of an going liberzation process based on sound financial fundamentals Indian sugar industry can be global leader provided it comes out of the vicious cycle of shortage and surplus of sugarcane, lower sugarcane yield, lower sugar recovery, ever increasing production costs and mounting losses. This study aims to throw light on the present situation of the Indian sugar industry, discussing the indicate details of the industry from financial and micro economic profit of view etc; this study aims to provide and insight in to the financial viability and profitability of Indian sugar industry. METHODOLOGY: In this study, the secondary data has been provided wherever required; the secondary data has been collected from various sources like Books, Journals, Newspapers, Abstract industries report and internet. The following are the sources of information and methodology used in this study. 1. Acquiring material from the various reports made available by the company specifically related to the sugar sector. 2. Acquiring material from the internet 3. Reviewing relevant books and business journals International Journal of Management and Strategy http://www.facultyjournal.com/
  • 3. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 ANALYSIS OF INDIAN SUGAR INDUSTRY FROM RATIO’S PORT OF VIEW: LIQUIDITY RATIOS: TABLE 1 Current Ratio & Quick Ratio YEAR Current Ratio Quick Ratio 2008-09 1.04 0.87 2009-10 1.25 1.03 2010-11 1.29 0.96 2011-12 1.58 1.23 2012-13 1.09 1.05 If we look at the current ratio for the industry, we find that is has been fluctuating quite a lot within the range of 1 to 1.60, then means that the industry has had a torrid time maintaining its working capital, partly it could also due to the fact that the industry is seasonal based and also because of demand and supply mismatch in several financial years like 2007-08, 2010-11. On as average if we like at the current ratio, we can safely come to a conclusion that for every rupee of current liability the industry had Rs 1.25 of current asset to back it. If use consider the quick ratio, we find that it has also been a bit fluctuating whereby it ranged anywhere between 0.80 to 1.30, it also shows that bulk of current assets of the companies comprised of stocks of sugar cane/sugar which comprises a large part of any company’s working capital financing, sugar industry in India has been plagued by the disease called paradox of plenty, where the excess production of sugar became a burden on the industry. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 4. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 LEVERAGE RATIOS: TABLE 2 Long term debt equity Ratio YEAR Debt Equity Ratio 2008-09 0.49 2009-10 0.48 2010-11 0.28 2011-12 0.37 2012-13 0.48 He can interpret from the above table2 that in order to fund its working capital and expansion plans the industry met a large position of its funding requirement needs through long-term debt component, the sugar industry is a seasonal industry where by the requirement for funds increases during the crushing season, it also depends on butter stock position and crop production in any year and therefore we find that the need for debt is also fluctuating from the above table. What is more inserting that the industry’s debt equity ratio is 0.40:1 implying that the industry as such is not exposed to much of a financial risk of running into bankruptcy and is also not highly leveraged. INTEREST COVERAGE RATIO: TABLE 3 Interest Coverage Ratio YEAR Interest Coverage Ratio 2008-09 0.84 2009-10 1.52 2010-11 3.02 2011-12 3.63 2012-13 1.55 International Journal of Management and Strategy http://www.facultyjournal.com/
  • 5. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 Interest cove rage ratio signifies a company’s ability to meet its interest expenses, this ratio signifies by how many times the company has been able to have a coverage on its financial expenses at operating profit level, in simple terms higher the ratio for a commodity industry or for that matter for any industry signifies cushion for the owners of the company as it reflects how efficiently the financial risk and obligation are dealt by the company’s financing policy. TURNOVER RATIO: TABLE 4 Inventory Turnover Ratio YEAR Inventory Turnover Ratio 2008-09 2.38 2009-10 2.30 2010-11 2.97 2011-12 3.97 2012-13 3.83 An inventory turnover ratio signifies by how many times inventory has been turned around during one fiscal year. In simple terms it signifies how many times inventory has been converted into cash, for example if STR is 10 times if signifies during the year the average stock lying with the company has been converted into cash 10 times. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 6. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 Thus, higher the ratio better it is for the company. TABLE 5 Fixed Assets Turnover Ratio YEAR Fixed Assets Turnover Ratio 2008-09 0.97 2009-10 1.52 2010-11 1.37 2011-12 1.05 2012-13 1.17 Assets turnover ratio measures the efficiency of the firm in measuring managing and utilizing the assets. The higher the turnover ratio, the more efficient is the management and utilization of assets while low turnover ratios are the indicative of under utilization of available capacity and presence of idle capacity, In the above case, we find that the fixed assets turnover ratio has been quite dissatisfactory in the financial year 2007-08 but has shown signs of improvement in the subsequent financial year 2008-09, 2009-10 and a dip in the trend in the financial year 2010-11 and 2011-12, this is because of the fact that states in 2008-09 was quiet high as compared to any financial year in terms of the assets owned b y it, however in the subsequent years due to seasonality of the business this ratio dipped which also shows the inefficient utilization of the fixed assets by the industry is capered to the sales achieved by it. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 7. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 PROFITBILITY RATIO: TABLE 6 Gross Profit Ratio (in %) YEAR Gross Profit Ratio 2008-09 2.07 2009-10 8.20 2010-11 12.47 2011-12 13.90 2012-13 2.86 Gross profit margin measures the percentage of each sales rupees remaining agter the company has paid for its goods gross profit is the result of the relationship between prices, sales, volumes and costs. In the above case we find that the gross profit margin of the industry has been rather shakes in its outlook because at the outset if we see such figures one would be forced to say that either the cost of production has increased or the sales margin have come down, but in this case due to seasonality of the commodity in which the industry deals in (I.e. sugar) decides the fate of its profits. From the above table it becomes clear that the gross profit ratio year 2007-08 is quite low due to lack of business opportunities in the slack season of 2007-08. TABLE 7 Operating Margin (in %) YEAR Operating Margin % 2008-09 7.06 2009-10 12.67 2010-11 15.03 2011-12 16.26 2012-13 7.54 International Journal of Management and Strategy http://www.facultyjournal.com/
  • 8. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 In the above table, we find that the Operating margin of the industry has been improving over the span of 4 consecutive years which shows that the industry has been able to manage its expenses well within limits in the good business season thereby maximizing its operating margin, along with the growth of the industry which has also been satisfactory. But in the financial year 2011-12 the operating margin falls drastically due to rising cost of goods sold along with the fall in the price of sugar both in the domestic as wee as international markets due to supply of the commodity outstripping its demand. TABLE 8 Net Profit Margin (in %) YEAR Net Profit % 2008-09 -6.50 2009-10 -0.69 2010-11 6.44 2011-12 7.62 2012-13 -0.52 Net profit margin measures the relationship between net profit and the sales of the firm. It is an indicative of management’s ability to operate the business with sufficient success not only to recover from revenues of the period, the cost of the merchandise or services, the expense of operating the business (including depreciation) and the cost of borrowed funds, but also to leave a margin of reasonable compensation to the owners for providing their capital at risk. In the above table, we can clearly see that the industry has done miserably on this front where it has not been able to break even except in the financial years of 2009-10,2010-11 where the improvement in sugar prices during 2009-10,2010-11 and high profits had resulted in a lower debt-equity ratio and higher pointing towards the seasonality of the business and mismanagement of the subsequent expenses incurred toward managing a business in which a seasonal commodity like sugar is dealt with. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 9. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 TABLE 9 Return of Net Worth (in %) YEAR Return of Net Worth % 2008-09 -22.94 2009-10 -2.65 2010-11 32.05 2011-12 23.98 2012-13 -0.49 Return on net worth refers to the returns earned on the net capital being made by the owners of the company it is the reward which the company calculates in order to check the performance of the net capital that it has to put into the business. In the above case we find that the sugar industry has put up figures which are for from satisfactory whereby the financial year 2007-08 and 2008-09 showing negative return on net worth due to the reasonability of the business and a number of reasons beyond the control of the industry like the pricing of sugar, export policy on sugar front by the government of India, and the treatment of the excess sugar stock as a result of bumper crop in same financial year where supply outstripped its demand. TABLE 10 Earnings per Share YEAR EPS 2008-09 -6.17 2009-10 -0.67 2010-11 6.53 2011-12 5.47 2012-13 -0.19 International Journal of Management and Strategy http://www.facultyjournal.com/
  • 10. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 Earnings per share refer to the earnings generated for each share floated by the company or kept with it as promoter holding. In the above table, we come across an industry which is struggling to make both ends meet by even breaking due to number of factors external as well as internal to the industry due to which it posed a negative figure in the first two financial years under analysis i.e.,2007-08 and 2008-09 respectively. Though the industry made a comeback in the financial years 2009-10 and 2010-11 where it posed positive earnings per share, this was a result of increase in the prices of sugar which lead to improved margins on the sales mode and subsequent improvement in the financial results of the company and the industry as a whole. Though in the financial year 2011-12 the industry again posed negative figures due to shrink8ing margins, not even able to break even and partly also because of the fall in the prices of sugar due to supply outstripping the demand for sugar both in the domestic as well as the international markets, from an investor point of view, his confidence on the sugar industry would have been dented based on the earnings per share made by the industry on an average. CONCLUSION Despite fluctuation in production, India’s sugar consumption has increased steadily at around 5 per cost per annum. Per capita sugar consumption has steadily increased from 5.3 kgs per annum in the early 1960’s to around 18 kgs per annum at present. Driven by the continued switching from gur to sugar, raising incomes and growing population, India’s sugar consumption is projected to increase to 20.5 million tons in 2011 and 21.4 million tons in 2012. India’s sugar consumption is expected to grow to a modest rate of 4.5 percent per annum in the medium term. Income increases and high income elasticity of sugar and the continued switch in demand from gur and khandsari to sugar are expected to drive consumption, more ever, the growth of sugar demand by food industries and other nonhousehold users, estimated to account for about 45 percent of total consumption, could provide additional importunes to longer-term market growth. On the pricing and distribution front, the objective of self-sufficiency in food grain production has led to a system of price-support purchases through the FCI and subsidized distribution through the public distribution system (PDS). This price support system has resulted in low incentives to improve sugarcane yields and sub optional price realizations by sugar mills. International Journal of Management and Strategy http://www.facultyjournal.com/
  • 11. International Journal of Management and Strategy (IJMS) 2013, Vol. No.4, Issue 6, January-June2013 http://www.facultyjournal.com/ ISSN: 2231-0703 India’s domestic sugar supply is expected to be critically dependent on sugarcane and sugar availability. In the short term, in spite of higher expected sugar production of 18.6 million tons in 2011, low sugar stocks could exert an upward pressure on prices, result in higher sugar imports and improve profitability of sugar companies, in the medium term, both area and production of sugarcane are expected to fluctuate considerably from year to year depending on variations in climatic conditions, the vulnerability of areas cultivated under rain fed conditions, fluctuations in prices of gur and khandsari and changes in returns from competing crops apart from these factors, future growth in sugar production is expected to dependent on higher sugarcane average, better case recovery rate, more economical scale of operation and higher price realizations. The research and development efforts in sugar cane need to be focused primarily toward evolving new high sucrose-content, disease resistant varieties of sugarcane and developing quality seed and varieties resistant to water logging; drought etc; higher sugarcane and sugar production could result in India again becoming a net exporter of sugar. However, India’s sugar exports are expected to fluctuate considerably because of continuing increase in demand, and fluctuations in domestic supply. REFERENCES: Journal of co-operative sugar, December 2005, volume 37, No: 4 ICRA Sector Analysis report Religare Securities Limited report on Sugar Sector KPM Report on Sugar Sector Report, Department of Agriculture and Co-operations, Agricultural Production Statistics, New Delhi, 2004. International Journal of Management and Strategy http://www.facultyjournal.com/

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