Strategy Report - Daurala Sugar Works

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Strategy Report - Daurala Sugar Works

  1. 1. Daurala Sugar Works A Unit of DCM Shriram Group Strategic Analysis Submission under the guidance of Dr. Vinay Sharma DoMS, IIT Roorkee Submitted by: Group 11 Team Members: Saurabh Patel Saurabh Paul Saurav Kumar Shailendra Shankar Gautam Sharad Srivastava Shrikant Siddharth Dikshit 12810072 12810073 12810074 12810075 12810076 12810077 12810078 1|Page
  2. 2. Table of Contents 1. Executive Summary ............................................................................................................................ 3 2. Sugar Industry in India ....................................................................................................................... 4 2.1 Situation Analysis of the Industry .................................................................................................. 6 3. Introduction of the Company .............................................................................................................. 7 4. Government Regulations .................................................................................................................... 9 4.1 A Brief Note on Recent Changes In Regulations ......................................................................... 10 5. Value Chain and Operations ............................................................................................................. 11 6. Financial Performance ...................................................................................................................... 13 7. Other Key Areas ............................................................................................................................... 15 7.1 Human Resources and Industrial Relations .................................................................................. 15 7.2 Social Commitment ...................................................................................................................... 15 8. Future Prospects of the Company ..................................................................................................... 17 9. Recommendations ............................................................................................................................. 18 10. Conclusion ........................................................................................................................................ 19 11. References......................................................................................................................................... 20 2|Page
  3. 3. 1. Executive Summary Sugar is an inseparable element of our food habit. As population of India grows, demand for the sugar is on the rise. The change in the income and purchasing capacity has contributed further to the change in demand. According to Indian Sugar Mills Association, India holds the second rank in sugar production with estimated production level of more than 30 million tons. It is also the largest consumer of sugar with 23 million tons. The sugar industry is an agrobased industry and therefore has a crucial role in Indian economy which is still agrarian in nature. The industry also contributes in rural development and strengthens the growth of industries in rural parts of the nation. The sugar industry not only provides sugar but also has several byproducts such as Molasses, power and chemicals. Hence it could be said that this industry could be said as a driver of the national progress. From a strategic perspective, sugar industry offers a diverse set of areas to look into. Apart from having conventional functions like finance, operations and marketing, it also offers an insight into inclusive growth, rural upliftment, the impact of governmental policies and a lot more. Thus industry becomes obvious choice for our study. For this purpose we have focused on Daurala Sugar Works which is a unit of DCM Shriram Group. The facility is located in Daurala region of Meerut district (Uttar Pradesh) and is one of the major producers of sugar in the region. The purpose of our study can be listed as: To analyze the effectiveness of various functions of durable Sugar Works To offer recommendations for future growth To assist in company in decision making and strategy formulations As a part of our study, we have visited the Daurala plant to have a better look at their operations. We have also interacted with an official of cane development department to have a better understanding of the processes. In addition to these primary data, we have also referred a number of secondary sources such as the annual report of the company, government sites, reports produced by various agencies both public and private. The data were collected and analyzed by the group on various functions such as financial performance, operational efficiency, marketing strategy, distribution network, community development, quality and innovations and others. These functions would give us a holistic view of the company and its positioning in the market. It has also been compared with another plant in the same region (Uttam Sugars, Noida) to gauge the competitiveness. The descriptive analysis is done on qualitative parameters and based on the information, a set of recommendations are also provided to suggest the future course of action. These recommendations are given considering the overall strategic view of the plant. These recommendations would also help in reinforcing or altering the existing management decisions or may even give an entire new direction. For this study purpose we have concentrated on sugar product only. Alcohol and other products fall under the scope of further analysis. 3|Page
  4. 4. 2. Sugar Industry in India India holds an important place in the global sugar industry. It occupies the second rank in production and first in consumption. It produces around 350 MT of sugarcanes and is second largest agrobased industry with almost 50 million people associated with it. According to Indian Sugar Mills Association, the sugar industry is witnessing a healthy growth as depicted by below statistics. Table 2.1: Growth of Indian Sugar Industry Particular 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Factories count 501 516 488 490 527 529 Cane Acreage (Th. Hect.) 5151 5055 4415 4175 4885 5086 Sugar Production (Th. Tons) 28328 26356 14538 18912 24394 26342 Source: ISMA (http://www.indiansugar.com/Statics.aspx), accessed on 08-Oct-2013 Uttar Pradesh is the largest sugar-cane producing state of the country, followed by Maharashtra and Orissa. The average sugar-cane produced between 2009-10 and 2011-12 is shown below. Figure 2.2: State-wise production of Sugar. Source: Sugarcane Breeding Institute statistics/281), accessed on 08-Oct-2013 (http://www.sugarcane.res.in/index.php/mis/sugarcane- 4|Page
  5. 5. The production of sugar has seen tremendous growth. From 12 MT in 1992-93 it has risen to a level of 23 MT in 2011-12 and over 30 MT in 2012-13. Out of this production, the majority (>65%) is consumed by bulk consumers. Because of this huge production, India was in a state of surplus production. The sugar industry in India is largely depending on the monsoon season. An article in Economic times dated 11-Jun-2013 estimate a fall in the production due to the less output in drought hit states. Nevertheless, it is Rs. 80000 Crore industry that is estimated to double in next 5 years i.e. delivering growth rate of 1520% CAGR. The industry is tightly regulated by both central and state governments. The industry operates in a narrow margin of high sugarcane purchase rate as well as ceiling sugar prices. This has resulted in huge losses for the industry. A Business Line article dated 11-Sep-2013 states that Uttar Pradesh alone has suffered Rs. 3000 Crore loss in 2012-13. It is the byproducts that are filling up for the losses and saving the industry. However recently some freedom has been awarded as per recommendations of Rangrajan Committee. This has resulted in a positive outlook given by ICRA to the sugar industry. India is also a prominent nation in the export of the sugar. It is at fourth rank after Brazil, Thailand and Australia. Occasionally it imports sugar too, subject to demand supply mismatch. For the last 7 years, India has been a net exporter of sugar. Below figure gives the position of India in sugar export. Figure 2.3: Largest exporters of world as % of total world export by volume Source: USDA FAS Sugar: World Market and Trade, May 2012 Some other benefits offered by the sugar industries are: The industry has huge potential of electricity generation (7500 MW). A total of 250 Crore liters of alcohol can be produced. The sugar industry is located in rural India and can it directly benefit to their economic upliftment. 5|Page
  6. 6. 2.1 Situation Analysis of the Industry The situation of the Indian sugar industry is analyzed through a SWOT study which is given below: Strength (S): Huge demand and therefore insulation from foreign markets. Manufacturing plants are located across different climate zones, a guard against the monsoon. In-house technological competence. Efficient cane management system Weakness (W): Poor sugar recovery level (stuck to around 10% for last 50 years). High production cost (Rs. 29-30 per kg in India whereas Rs. 24 in Brazil/Rs. 25-26 in Australia) Facilities being idle for some part of the year (inefficiency) Small and scattered holding of the land Opportunities (O): Diversification into value-adding streams (alcohol, chemical etc.) Untapped ethanol market Niche sugar products (fair trade sugar, organic sugar) Potential of electricity generation Threat (T): Environmental dependencies such as monsoon Threat of other remunerative crops taking land away Low morale in the sector Government policies and regulations 6|Page
  7. 7. 3. Introduction of the Company Daurala Sugar Works was established in the year 1932 at Daurala, a small town near Meerut on National highway no. 58. At this time, after more than 80 years it is still respected as one of the most efficient and modern facilities in the nation, earning it a respectable position in both domestic as well as overseas markets. The unit is owned by DCM Shriram industries Ltd. Later in 1994, a drug intermediary was established with the name of Daurala Organics Ltd. which amalgamated with DCM Shriram in 2005. In addition to these units, the DCM Shriram group also has a unit name as Shriram Rayons in Kota, Rajasthan. The products of these units are mentioned below: Table 3.1: Produts and Units Unit Location Products Daurala Sugar Works Daurala, Uttar Pradesh Sugar Refined Sugar Pharma Grade Sugar Alcohol Aromatic Chemicals Shriram Rayons Kota, Rajasthan Industrial Rayon Nylon Chemicals Daurala Organics Daurala, Uttar Pradesh Drug Intermediaries Fine Chemicals Source: DCM Shriram website (http://www.dcmsr.com/), accessed on 08-Oct-2013 DCM Shriram group was established and operates as per the vision of Lala Shri Ram (founder). The group gives significant importance to the corporate ethics and strives to maintain leadership position. It observes norms to achieve excellence in areas of Quality, R&D, Environment, Safety, HR, Quality of Life and Societal Considerations. It has adopted a model code of conduct to smoothen the process and decision making process. DCM Shriram has evolved over the years and some of the events are as follows: 1932 – Sugar factory was established in Daurala, UP 1965 – Rayon plant was founded in Kota, Rajasthan 1990 – DCM reorganized into 4 different companies. DCM Shriram Industries Ltd. was born. 1994 – Daurala Organics Ltd. was established. 2005 – Daurala Organics Ltd. was amalgamated into DCM Shriram group. As a group which has inherited the legacy of effective governance, sound corporate management, technological superiority & the support & trust of numerous stakeholders, it is created with the values envisioned by its founder chairman (Late) Dr. Bansi Dharji. 7|Page
  8. 8. DCM Shriram Industries Ltd. deals with a variety of products such as Sugar, Organic & Inorganic Chemicals, Alcohol, Rayon Tyrecord and Drug Intermediates. Some of the information about the group is mentioned below: Key People: Registered Office: Turnover: Employee Headcount: Annual Sugar Production: Power Generation: Alcohol Capacity: Sh. Tilak Dhar, CMD New Delhi Rs. 1109 Cr. (2012-13) 2477 (as at 31st Mar 2013) 1.26 lakh MT (2012-13) 1887 lakh KWH (during 2011-12) 45000 KL Figure 3.2: DCM Shriram Logo DCM Shriram group believes that employees are the key strength of the company. A committed and progressive work force is the core competence for any business to achieve its objectives. A sense of togetherness increases accountability and produces better results. The Company's HR policies and actions revolve around this viewpoint and it focused on nurturing of its human resources to build their long term association with the company. Skill development training and workshops are provided to the employees with potential in order to enhance their skills. The industrial and labor relations remained friendly in its operations throughout the year. As of 31.3.2013 the total employee headcount was 2477. 8|Page
  9. 9. 4. Government Regulations There are five major aspects of the current regulatory environment in India. Cane Area Reservation The command area allocates a specific area to a mill for cane procurement. Farmers within the assigned area have the option of registering with the mill for cane supply. In situations where the farmer registers a specific quantity or acreage of cane, he is by law bound to deliver that quantity of cane from the registered acreage to the mill after harvest. If the farmer does not register, he is free to sell the cane to any buyer. The mill cannot record cane from outside the allocated area. The directive area is allocated on a permanent basis, though the government may restructure the area, if required. At present, the compulsory distance between mills is set at 15 km. No new mill can be put up at a distance of less than 15 km from an existing mill. Pricing of Cane The cane pricing mechanism determines the cane price that the farmer receives. In some states, sugar mills pay the (Statutory Minimum Price) SMP announced by the Central Government, while in others, mills pay on the base of the (State Advised Price) SAP declared by the State Governments. Though the SAP is significantly superior than SMP, the key difference is that in SMP, there is a linkage between cane price, recovery rate of cane, and the price of sugar, but in SAP, there are usually no such linkages. Monthly Release Mechanism Monthly release mechanisms are monthly releases given by the government to each mill that determine the quantity of sugar that must be sold by the mill in the release period. At present, releases are given on a monthly basis to mills across India. In the recent past, several mills have wanted legal intervention to sell sugar over and above the release quantities in the free market. The release mechanism enables the government to influence prices in the domestic market by regulating supply, and is aimed at ensuring consistent availability of sugar throughout the year at a balanced price. International Trade Regulations Regulations for international trade include tariff based restrictions like import duties and export subsidies as well as non-tariff restrictions akin to export bans. Earlier, India has successfully been able to address domestic shortages through raw sugar imports, which were refined by mills for sale in the home market. In the future, these can be considered in case of domestic supply shortages, due to production variances. International trade restrictions enable the government to influence prices and availability in the domestic market through supply control. 9|Page
  10. 10. Levy Sugar Levy sugar is procured by the government where 10% of the mills’ production is earmarked for supply through the Public Distribution System (PDS). The levy sugar is procured at the levy price that is set by the government based on the cost of production and allowing a reasonable margin for the mills. The levy price has typically been lower than the free market price in the past. The current subsidy for levy sugar is made up of various components and is shared between the mills and the government. The distinction between the levy price and the free market price is borne by the mills. Levy sugar enables the government to supply sugar through the PDS and ensure the availability of sugar at affordable prices. 4.1 A Brief Note on Recent Changes In Regulations Due to tighter government control over sugar prices, the industry is suffering huge losses. There have been voices to decontrol the industry. The government has formed various committees headed by people to look into the matter. Some of these committees are headed by Mahajan (1998), Tuteja (2004) and Nandkumar (2010). These committees studied sugar decontrol however these recommendations were not implemented. Recently government formed a new committee led by Dr. C. Rangrajan which submitted its recommendations in October 2012. Fortunately this time government is paying some attention to the suggestions. The effect of the recommendations is listed below: Table 4.1: Suggested changes by Rangrajan Committee Before After State Government Control Minimum Distance Minimum Distance Criteria between Mills Criteria between Mills Cane Area Reservation Cane Area Reservation Dual Cane Pricing Dual Cane Pricing Central Government Control 10% Levy Sugar Tariff Rates on trade Obligation 40% sugar to be packed Regulated Release in Jute only Mechanism Import and Export Compulsory Sugar Packaging in Jute only Source: Indian Sugar Mills Association Hence we see that state control has not altered. However there is big relief on central regulations. For example 10% levy obligation has been removed which according to ISMA, can save up to Rs. 2500 Crore. Additionally the committee also suggested a revenue sharing model in which 75% of sugar prices should amount to cane prices. This would help in distributing benefits to farmers. Various state governments are supportive if this model. Karnataka has passed an act for this revenue sharing model. 10 | P a g e
  11. 11. 5. Value Chain and Operations Production of sugar from the unit is influenced by the number of external factors such as availability of sugarcane, sugarcane prices, government policies etc. Like almost all sugar mills in India, Daurala Sugar complex is also largely dependent on independent farmers. It’s a complex logistical operation which involves cutting and loading of sugarcane , its transportation to the Daurala complex and unloading at the complex. The input being largely dependent on farmers, it's become essential for the company to maintain the smooth supply chain in the absence of backward integration. The sugar production in India follows a zig-zag pattern where production gets reduced every 2-3 years. This phenomenon is known as “Sugar Cycle”. Due to fluctuation in sugarcane production, the mill has to be prepared and have to maintain their operating cycle accordingly. Also after harvesting, sugarcane should be crushed soon otherwise spoilage could be spoiled. A holistic snapshot of extraction is mentioned below. Figure 5.1: Value Chain of the Sugar Source: Sugar Sector Report, HDFC Securities, 2008 Fortunately the 10% levy quota has been removed recently according to the Rangrajan Committee recommendations. Once the sugar cane arrives in the complex , following process is followed there: Crushing: Juice is extracted from the sugar cane. In this step residual fiber such as bagasse is produced which is used to produce clean energy for the operations. Neutralization: Lime is used to neutralize the acidity of the sugar cane. Boiling: The juice obtained in the second step is heated up to boiling. Clarification: The output of 3rd step is heavy complex precipitate which is purified by clarifiers. Evaporation: Still 80% water is present which is evaporated by evaporator to produce syrup. 11 | P a g e
  12. 12. Crystallization: Syrup is converted into crystal form. Refinery: Here sugar is made free from molasses and impurities. After that the sugar is marketed. Apart from bagasse which is used to produce clean energy there are also other by-products like molasses and press mud which provides a substantial profit to the company. Molasses is produced while centrifuging the sugar crystals which is used to produce alcohol. Daurala mills supply this alcohol to chemical and alcohol industry. The other by product, press mud is rich in potassium, phosphorus, sodium and organic matters is used as biofertilizers and is mainly consumed in nearby areas. In the year 2012-13, Daurala Sugar Works has produced 1.26 lakh MT sugar by crushing 13.80 lakh MT of sugarcane with a 9.27 % recovery rate. Previous year the sugar production was 1.32 lakh MT sugar by crushing 15.06 lakh MT of sugarcane with 8.74% recover rate. Efficiency on the energy front is also improved resulting in more export of the power. Therefore even though the overall sugar production has dropped, the efficiency has risen by 0.53%. Currently it is matched to the overall industry average. In addition to these, the company has initiated following steps to further increase efficiency.: One more bagasse drier is installed. Evaporators are arranged so that so to increase the capacity without compromising on energy consumption. Power saving by VFDs. For efficient heat transfer plate heat exchanger is installed. Screw compressor for increasing energy efficiency. Process optimization An energy audit is done to replace the higher cost utility of lower cost utility tools. Management of the Daurala Sugar Complex has always believed in going the “extra mile” to achieve the desired quality. Here quality is not shown only in the output but there also emphasizes on the quality of the process. The plant is equipped with modern equipments and well developed R&D labs to support their diverse range of products. A control system is placed to ensure the continual improvement in terms of quality which can meet the ever increasing expectation of consumers. It is one of the first plant in India to manufacture double-refined sugar of global standard. It is also involved in the manufacture of pharmaceutical grade sugar conforming to IP/BP specifications. To consistently deliver service of higher quality they have employed higher technologies and automation. Systems such as syrup clarification and filtrate clarification are installed to match the international standards. To identify and test high yielding varieties of cane they have commissioned an In house sugarcane research farm. Due to its continuous strive for quality, they are also credited with Globally recognized certifications for maintaining quality. In 1996 it was accredited with ISO-9002 certification for all its manufacturing facilities. It was also the first sugar complex in India to do so. Recently DET NORSKEY VERITAS, Norway accredited them under ISO 9001:2000 certification. Other certifications in their portfolio include “Quality Management Systems” based on ISO 9001:2008 and “Food Safety System Certificate” based on FSSC 22000:2011. 12 | P a g e
  13. 13. 6. Financial Performance The latest financial year was very profitable to the company. The company reported a turnover of Rs. 1109 Crore in 2012-13 which is a slight improvement from last year turnover of Rs. 1101 Crore during the 2011-12. The company’s gross profit also improved from Rs. 13.2 Crore in 2011-12 to Rs. 40.9 Crore hence showing an impressive growth more than three times. This reinforces the operational improvement of the company. The company also succeeded in reducing overheads as reflected by the net profit. In the year 2011-12 the company suffered a net loss of Rs. 17.4 Crore which is now converted into a net profit of Rs. 11.2 Crore in 2012-13. The company also spent 0.15% of its turnover on research and development activities. The company also improved on export of products. Its 2011-12 revenue from export was Rs. 245 Crore (24.54% of revenue from sale of products). It has got improved to Rs. 271.49 Crore in 2012-12 (constitutes 24.33% of the total sale of the product). Sugar always is the largest contributor to the revenue to Rs. 438.19 Crore figure which is 39.27% of the total value. Table 6.1: Financial performance comparison with peers Particular Daurala Sugar Works Operating Profit Margin 4.65% Current Ratio 0.67 Quick Ratio 0.43 Debt Equity Ratio 1.89 Long Term Debt Equity Ratio 0.52 Inventory Turnover Ratio 2.79 Debtors Turnover Ratio 12.52 Fixed Asset Turnover Ratio 1.70 Working Capital Cycle 75.65 days Source: Annual Report of the respective companies Kothari Sugar 10.06% 1.27 0.47 1.13 1.13 3.63 18.27 0.99 34.39 days Uttam Sugar Mills 3.25% 1.87 0.29 19.46 19.46 1.76 55.99 1.23 122.79 days The company has astonishingly high proportion of short term debt as against long term debt. It has a short term liability of around Rs. 293 Crore whereas its long term liability is only around Rs. 74 Crore. This imbalance has affected the liquidity position of the company. There are some key challenges faced by the company which has a bearing on the financial front. They are listed below: In Uttar Pradesh, there is a gap between the linkage in prices of cane and sugar which have to be borne by the company. Increasing prices of raw materials. Drought in the regions of Karnataka and Maharashtra. The summary financial information for the last 2 years are given on the next page. 13 | P a g e
  14. 14. Figure 6.2: DCM Shriram’s Operating Profit over the years depicting Sugar Cycle 120 95.93 99.55 100 80 60 40 83.09 Sugar Cycle 43.26 35.09 36.45 20 0 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Operating Profit (In Rs. Crore) Source: India Infoline (http://www.indiainfoline.com/Markets/Company/Fundamentals/ProfitLoss/DCM-Shriram-Industries-Ltd/523369), accessed on 12-Oct-2013 Table 6.3: Key Financial Information sheet of the company Particulars 2012-13 Net Worth (Rs. Crore) 211.87 Gross Profit/Loss (Rs. Crore) 40.9 Net Profit/Loss 11.2 Turnover (Rs. Crore) 1109 Earning Per Share (Rs.) 6.46 Sugar Contribution in total revenue from sales (%) 39.27 Export contribution in total revenue from sales (%) 24.33 Sugar Contribution in total cost of goods sold (%) 59.28 Long Term Borrowings (Rs. Crore) 73.92 Source: Annual reports for DCM Shriram Industries Ltd. 2011-12 205.70 13.2 (17.4) 1101 (9.99) 39.77 24.54 61.71 94.12 14 | P a g e
  15. 15. 7. Other Key Areas 7.1 Human Resources and Industrial Relations DCM Shriram group believes that employees are the key strength of the company. A committed and progressive work force is the core competence for any business to achieve its objectives. A sense of togetherness increases accountability and produces better results. The Company's HR policies and actions revolve around this viewpoint and it focused on nurturing of its human resources to build their long term association with the company. Skill development training and workshops are provided to the employees with potential in order to enhance their skills. The industrial and labor relations remained friendly in its operations throughout the year. As of 31.3.2013 the total employee headcount was 2477. 7.2 Social Commitment DCM Shriram has always believed in the philosophy of giving back to the society. The Company is mindful of its responsibilities towards the community and gives signinifant importance to this area. The company thinks it as a win-win strategy to focus and act on the corporate governance. It has taken several initiatives to improve the condition of the local environment. Some of the initiatives are mentioned. Education The company has established Sir Shriram Higher secondary School at Daurala for providing quality education. It is affiliated to CBSE board and imparts education for classes up to 10. It also facilitates students from weaker sections of the society according to RTE Act. Special care is given to the differently abled children. The school has been successfully providing quality education in the area and commands a respected name. Healthcare The company runs a charitable dispensary along with qualified doctors and paramedical staff for taking case of health care needs of the employees, their families and also people in the vicinity of Daurala Sugar Works. It conducts regular medical camps at periodic intervals for family planning operations and health checkups in Daurala from which local population also gets benefitted. 15 | P a g e
  16. 16. Rural Development Agriculture is considered as the backbone of the rural economy and farmers are an integral part of the same. Daurala Sugar Works has been giving special focus on improving the life of farmers and their families in Daurala and surrounding regions by providing most recent agricultural techniques, organic manure, free seeds as well as skill development programs etc. This has also helped in maintaining an excellent relationship with them. Infrastructure Development Daurala Sugar Works is also involved in the local management in establishing infrastructure around the facility. It incorporates construction and maintenance of roads and sewage for the benefit of the local population. Other initiatives Apart from above listed details, Daurala Shriram has also been involved in several other kinds of activities. Some of these activities are listed. Providing community development through adoption of villages. Organizing Shankar Shad Mushaira annually and involving renowned poets. Conducting the immunization drives for the surrounding population. Sponsoring sporting events of national level such as DCM Shriram Air Force Open Golf Championships. Facilities for sports and cultural events to encourage involvement by all employees and their families. 16 | P a g e
  17. 17. 8. Future Prospects of the Company The sugar industry is poised to witness a positive growth in coming years. The next couple of years will specially be helpful if we keep phenomenon of the sulfur cycle into consideration. Since government has deregulated the industry upto certain extent, this has created an encouraging atmosphere and provided confidence in the players. DCM Shriram, being a major stakeholder, would also benefit from the same. The twelfth five year plan estimates total demand of sugar to be 279 million tonnes by 2016-17 and 312 million tonnes by 2020-21. This means there is ample opportunities for expansion. The sugar is highly dynamic in nature and dependent on the climatic conditions. In such situation, technologies can play a pivotal role. Newer technology like PLENE can make a notable difference for the industry. The sugar industry is primarily affected by five following key factors: Table 8.1: Key Factors for Sugar industry Key Factor Trend Description Cost of production Cyclical Known as sugar cycle (sugarcane) Recovery Rate from Positive DCM Shriram has improved the rate by 0.53% as compared to Sugarcane last year Government Regulations Positive The government has deregulated the industry to a certain extent which would help in curbing the losses. Statutory Minimum Price Negative Government has been increasing the price over the years from by Government Rs. 81.18 in 2008-09 to Rs. 139.12 in 2010-11 for each quintal. Sugar Price decided by Government has been changing the prices maintaining an Government equilibrium between affordability and market situation. Source: MoneyControl (http://www.moneycontrol.com/news_html_files/broker_report/2011/Feb05117050211.pdf), accessed on 17-Oct-2013 The company analysis presented mixed results. While there is improvement in financial performance, it is still too early to comment on that. The company requires a closer look in their management of short term finance. Additionally, the company is sort of under leveraged when compared to peers and it could raise funds for expansion purposes. This will also help in gaining a bigger market share. In the operational front, there is steady and definite improvement and this certainly is a good sign. The company is well recognized and respected at the local level. However there is need of serious marketing effort to make it a national brand. Additionally it could also look for integration (both horizontal and vertical) to gain a competitive advantage and reduce overall cost of sales. The vertical integration in particular is a unique and path breaking concept for expanding business. It not only helps in attaining a stronger foothold in the market but also improve overall profitability. 17 | P a g e
  18. 18. 9. Recommendations Following sets of recommendations can be made for the company.: Improve Short Term Financial Management: Analyzing the financial performance we found that the total debt equity ratio was 1.89 whereas long term debt to equity ratio was only 0.52. It shows that the company is taking a significant amount of short term debts which reflects poor working capital management. The peer comparison tells us that there is scope of improvement on inventory management. All these things come under the purview of short term financial management. Vertical Integration: The company should also look towards vertical integration. This would broaden the business opportunity and also enhance profitability. This integration should ideally be targeted in both ways. However, DCM Shriram has already good relations with upstream segment like farmers. The need is to foster an association with downstream players like retailers. Soft drink manufacturers, sweets and chocolate manufacturing companies are the most likely targets for such initiatives. The integration model is as given: Figure 9.1: Vertical Intergration in Sugar Industry Source: Vertical Business Integration: A Logical Prospective Evolutionary Step for Sugar Industry in India – by Dr. Vinay Sharma, Dr. Rajat Aggarwal, Anita Sengar, Ritika Mahajan and Kumkum Bharati, 71st Annual Convention Proceedings (Sep 24-26, 2012), The Sugar Technologists Association of India Marketing Effort: Though the company is well-known however there is a further need for intense marketing efforts in order to make it a household name. The company at present produces several packaged products but they are not well established in the consumer’s minds. A sustained effort is therefore required to remove this gap. 18 | P a g e
  19. 19. 10. Conclusion As the demand of sugar in rowing, the sugar industry faces a positive supply pressure. This coupled with recent freedom provided by the government would create a favorable environment for the company. The company is already doing sufficiently well and also took several initiatives for further improvement. It should try to adopt newer technologies to stay ahead of the competition. In addition to this, it should constantly look for adding to the value provided to customers. This requires a dedicated marketing and consumer research activity set. The company should also work on strengthening its internal operations (like financial management) and try to develop new business models (such as integration). All these things will help in putting DCM Shriram in a position of leadership. 19 | P a g e
  20. 20. 11. References Research Papers/Confrerences/Speeches: R. S. Deshmukh, N. N. Bhostekar, U. V. Aswalekar, V. B. Sawant (2012), “Inbound Supply Chain Methodology of Indian Sugar Industry”, International Journal of Engineering Research and Applications, Vidyavardhini College of Engineering and Technology, Vasai, pp. 71-78 Dr. Vinay Sharma, Dr. Rajat Aggarwal, Anita Sengar, Ritika Mahajan, Kumkum Bharati (2012), “Vertical Business Integration: A Logical Prospective Evolutionary Step for Sugar Industry in India”, Proceeding of the 71st Annual Convention of STAI, pp. 3-11 Dr. C. Rangrajan (2013), “Improving the Economy of Sugar”,Keynote Address at 1 st National Sugarcane Growers Conference Reports: Report of the Working Group on Sugarcane Productivity and Sugar Recovery in the Country, 2013, Directorate of Sugar, Department of Food and Public Distribution, Ministry of Consumer Affairs, Food and Public Distribution, Government of India Sugar Sector Report, 2008, HDFC Securities XII Five year Plan (2012-2017) Report, Planning Commission of India Online Resources: http://www.dcmsr.com/ http://www.moneycontrol.com/ http://www.indiansugar.com/ http://www.icra.in/ http://www.sugarcane.res.in/ http://www.fas.usda.gov/ http://www.indiainfoline.com/ 20 | P a g e

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