A study on sugar industry in india

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.




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




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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.




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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




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.




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.




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




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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.




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




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.




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.



A study on sugar industry in india

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