AKG RTATIO7

7/30/2019 AKG RTATIO7

1/83

INTRODUCTION

INDUSTRY PROFILE

Indian sugar Industry:

India is the second largest producer of sugar in the world. The Indian sugar

industry is the second largest agro industry located in the rural India. The Indian sugar

industry has a turnover of Rs.500 billion per annum and it contributes almost Rs.22.5

billion to the central and state as tax, and excise duty every year. It is the second largest

agro processing industry in the country offers cotton textiles.

About 50 million sugar cane farmers and a large number of agricultural laborers

are involved in sugar cane cultivation and ancillary activities, constituting 7.5% of therural population. The industry provides employment to about 2 million skilled/semiskilled

workers and others mostly from the rural areas.

The industry not only generates power for its own requirement but surplus power

for export to the grid based on by - product- bagasse. It also produces ethyl alcohol,

which is used for industrial and potable uses, and can also be used to manufacture

Ethanol, an ecology friendly and renewable fuel for blending with petrol.

The sugar industry in the country uses only sugar cane as input; hence sugar

companies have been established in large sugar cane growing states like Uttar Pradesh,

Maharashtra, Karnataka, Gujarat, Tamil Nadu and Andhra Pradesh. In the year 2003-04

these six states contribute more than 85% of total sugar production in the country. Exhibit

1 shows the state-wise sugar production in India for 2004-2005 and 2005-06.

The government de-licensed the sugar sector in the August 1998, there by

removing the restriction on the expansion of existing as well as on the establishment of

new units , with the only stipulation that a minimum distance of 15 kms would continue

to be observed between an existing sugar mill and a new mill.


2/83

EXHIBIT 1: Sugar production by state in India (in Metric Million Ton):

There are 566 installed sugar mills in the country with a production capacity of

180 lakh Million tons of sugar, of which only 453 are working. These mills are located in

18 states of the country. Around 315 of the total installed mills are in the co-operative

sector, 189 in the private sector and 62 in the public sector.

The number of operating sugar mills in the country has increased from 29 in sugar

year (SY) 1930-31 to 412 by (S) Y1996-97 (sugar year = October 1 st to September

30th). The addition in number of mills was at its peak during seventies that when nearly

100 mills were added between 1970 and 1980 to increase the number of operating units to

300. The development of industry in the past is as given in table below.

The average capacity of the sugar mills in the industry has considerably moved up

from just 644 ton per day in SY 1930-31 to 2656 ton per day. But still the production of

sugar in India is inching. Industry was driven by horizontal growth (increase in number of

units) compared to the vertical growth witnessed in other countries (increase in average

capacity) Refer Exhibit (3)

1.1 Sugar Availability:

Sugarcane occupies about 2.7% of the total cultivated land and it is one of the

most important cash crops in the country. The area under sugar cane has gradually

increased from 2.7 million hectares in 1980-81 to 4.3 million hectares in 2006-07, mainly

because of much larger diversions of land from other crops to sugarcane by the farmers

for economic reasons. The sugarcane area, however, declined in the year 2003-04 to 3.9

million hectares and to 3.7 million hectares in 2004-05, mainly due to drought and pest

attack.


3/83

From a level of 154 MMT in 1980-81, the sugarcane production increased to 241

MMT in 1990-91 and further to 296 MMT in 2000-2001. Since then it has been hovering

around 300 MMT until last year. In the season 2003-2004, however, sugarcane

production declined to drought and pest attack. Not only sugarcane acreage and sugarcane

production has bas been increasing, even drawl of sugarcane by sugar industry has also

been increasing over the years. In India, sugarcane is utilized by sugar mills as well as by

traditional sweeteners like Gur and Khandsari producers. However, the diversions of

sugarcane to Gur and Khandsari are lower in states of Maharashtra and Karnataka, as

compared to Northern states like Uttar Pradesh. Exhibit 2 gives data on sugarcane

utilization for different purposes.


4/83

EXHIBIT 2: Sugar Utilization:

The three largest sugarcane growers in terms of production are Brazil, India and China,

yielding between them more than half of total sugar production. Exhibit 3 compares

production and yield figures for the top 11 sugar growing countries as shown below.


5/83

EXHIBIT 3: Sugarcane production and consumption by country.

Most of the mills in India are not equipped to make refined sugar. Mills which are

designed to produce refined sugar can manufacture sugar not only from sugarcane but

also from raw sugar which can be imported. Therefore, such mills can run their

production all the year round, as opposed to single stage mills which are dependent upon

the seasonal supply of sugarcane.


6/83

COMPANY PROFILE

Mr. Dhruv M. Sawhney, Chairman & Managing Director graduated with a

Masters in Mechanical Sciences from Emmanuel College, University of Cambridge, U.K.

and M.B.A with distinction from the Wharton School, University of Pennsylvania, U.S.A.

He was on the Dean's list for all terms, came second in the University, and is a life

member of Beta Gama Sigma. Mr. Sawhney has received the highest civilian award

"Chevalier de la Legion d'Honneur" from President Chirac of the French Republic.

Mr. Sawhney is a Past President of the Confederation of Indian Industry (CII), the

Indian Sugar Mills Association and the Sugar Technologists Association of India. He was

the first Chairman from the developing world of the International Society of Sugar CaneTechnologists. Mr. Sawhney has served on the Board of various public sector

organizations and chaired Government advisory councils on Industry, Energy and Sugar.

He chairs the Commonwealth Leadership Development Conferences founded by HRH

Prince Philip, The Duke of Edinburgh in 1956 to foster and broaden the understanding

and decision-making ability of individuals in the commonwealth countries. Mr Sawhney

is Deputy Chairman of the Evian Group and Chairman of the India Steering Committee of

the World Economic Forum, Switzerland. He also chairs CII's International and Internal

Audit Committees.

Mr. Sawhney takes a keen interest in education, and was a past Governor of the Indian

Institute of Management, Lucknow, the Management Institute at the University of Delhi

and Chairman of the Doon School, Dehra Dun, one of India's most famous Public

Schools. He is a Companion Member of the Chartered Institute of Management, U.K. and

chairs the Board of Trustees of Delhi's oldest private charitable hospital. He was

President of the All India Chess Federation for 12 years.


7/83

TRIVENI NGINEERING AND INDUSTRIES LIMITED


8/83

PERFORMANCE:

Particulars 2010-11 2011-12 % Increase

Sales (Gross) 12702.96 10212.92 24.38Sales (Net) 11920.37 9610.50 24.04

Operating Profit ( EBIDTA) 2130.00 1724.46 23.52

Interest and Financial Charges 229.96 304.67 (24.52)

Depreciation and amortization 288.25 178.73 61.29

Profit before tax (PBT) 1611.79 1241.06 29.87

Tax liability- Normal 165.32 235.29

- Net deferred tax charges 131.51 10.57Profit after tax (PAT) 1314.96 995.20 32.13

Surplus brought forward 82.40 44.55

Available for appropriation 1397.36 1039.75

APPROPRITATIONS

Provision for Dividend (included dividend

distribution tax)

Equity 147.54 93.95 57.04Preference - 2.70 -

Transfers to molasses reserves 1.27 0.83

Transfer to capital redemption reserves 19.87 19.87

Transfer to general reserves 1150.00 840.00

Surplus carried forwarded 78.68 82.40

Earning per equity share of Re. 1 each (in Rs.) 5.88 4.77 23.27

During the year under review, the company reported a record performance across the

following parameters:

Net sales increased 24.04 % to Rs 11920.37 million.

Profit after tax increased 32.13 % to Rs 1314.96 million.

There was a remarkable growth in turnover in all the engineering units accompanied by

an attractive increase in their respective margins. The company is optimistic of a similar

or higher growth in turnover and profit of all businesses in Financial Year 2011-12.


9/83

CORPORATE INFORMATION:

Sl. No. Name and Address of Stock Exchange Stock Code

01. Bombay Stock Exchange Limited

Phiroze Jeejeebhoy Towers,

Dalal Street, Fort

Mumbai400023

532356

02. National Stock Exchange of India Ltd.

Exchange Plaza, 5th Floor, Plot no c/1, G block, Bandera (E),

Mumbai400051

TRIVENI

Enhancing shareholders value:

The Triveni public issue: The shares of Triveni Engineering & industries Limited are

listed on the Bombay stock Exchange and National stock Exchange, the major stock

exchange of India.

The company issued 50 million equity shares in November 2009 and the issue was

oversubscribed more then ten times reflecting investor confidence. The equity shares of

RS. 1 each were issued through a book building process within a price range of Rs. 42.50.

While 97% of the demand was for shares in the upper band, the company prudently fixed

the issue price at Rs. 48 in general investor interest. Consequent to this issue, the equity

shares of the company were listed on NSE and BSE on 13 December 2008. As on 31

March 2009, reputed institutional investors including mutual funds, foreign institutional

investors and domastic banks held 21.53% of the companys shareholding. The closing

price of Triveni share at NSE on 31 March 2009 was Rs. 125.95, impaling a market

capitalisation of Rs.32480 million. The company has increased the limit of investment byFIIs to 49%, which will enable more international investors to participate in its growth

story.


10/83

At Triveni, our principal achievement is that we started with one business, but leverage

our engineering knowledge to extend into four other growing and profitable business.

4500

6500

60006300

7500

8000

7000

10800

88009000

9500

10000

9500

1000010200

11000

0

2000

4000

6000

8000

10000

12000

Dec-11 Jan-12 Feb-12 Mar-12

SHARE PERFORMANCE OF TRIVENI Vs

BSE SENSEX

Triveni Share Price- BSE low Triveni Share Price - BSE high

BSE Sensex low BSE Sensex high


11/83

SUGAR BUSINESS GROUP (SBG)

Highlights, 2010-11

13% increase in turnover from Rs. 7676.07 million in 2011-12 to Rs. 8663.25 million.

Recovery of the Deoband sugar unit of the highest in Western UP during the 2010-11

sugar seasons.

60% increase in sugar capacity from TCD in 2011-12 to 40500 TCD.

Commissioning of the 7000 TCD Greenfield sugar unit in Sabitgarh in January 2011.

Outlook, 2011-12

Sugar prices are expected to stay firm for the next two years on account of domestic

demand and supply, high crude price influencing higher ethanol production as well as

due to other international factors.

The company will expend capacity from 40500 TCD to 61000 TCD in 2010-11

It will commission three Greenfield units in Chandanpur (6000 TCD) and Rani Nagal

(5500 TCD) by the start of the 2010-11 sugar season; the third plant in Narainpur

(6000 TCD) will be completed in the fourth quarter of 2011-12; capacity expansion of

the Ramkola sugar unit from 3500 TCD to 6500 TCD will be complete by the start of

the 2009-10 sugar season.

The company is setting up a captive 160 KLPD distillery for ethanol production that

will be commissioned in the fourth quarter of 2009-10.

Performance

The company achieved 7% higher crushed in 2011-12, a good performance as it

competed successfully with producers of alternative sweeteners to reduce cane diversion

and increase drawal of sugarcane. Further, the company produces Rs. 0.38 million tones

of White sugar in 2005-06. Due to late rains, winter frodt and overfertilisation, the sugar

recovereries in Western UP were lower by around 0.6-0.7% than what had been achieved

in 2011-12. Averages recover for our sugar units declined from 10.08% in 2011-12 to

9.59% in 2010-11 due to the aforesaid. It is to the companys credit that

despite poor

weather, the Deoband units reported one of the highest recoveries among

all Western UP sugar factories during the season under review.


12/83

In Sugar Division area during the down turn, they invested in the modernization of the

sugar units to achieve benefits which are fully under their control and invested

additionally in the cogeneration plant to insulate themself from the sugar cycle,

developing an alternative stable revenue stream. Besides they invested in state-of-the-art

vacuum pans in a joint collaboration with sugar research international of Australia. The

result of these initiatives is that when the industry turned around, Triveni was in the right

place at the right time with the right capacity and the right efficiencies.

The government did not permit the import of white sugar during the last two years even

when a shortage was evident, but quite pragmatically allowed the import of raw sugar

under an advance License scheme with corresponding export obligations. Considering all

the factors and as described in detail in the Management Discussion and Analysis, the

sugar outlook appears stable till 2007.

The Khatauli sugar unit is being modernized and expanded to 16000 tcd and they are

planning to setup three new units, one of which will be set up at Sabitgarh, district

Bulundshahar, UP. All these units would have capacity of 5000-7000 tcd, expandable to

12000tcd. As a result, they expect their sugarcane crushing capacity to significantly rise

over our current base of 25250 tcd.

THE BRANDED SUGAR (SHAGUN)

The Companys branded sugar is manufactured in Khatauli

and marketed under the Shagun Brand. The companyannounced this sugar in 26 September 2003.the branded

sugar provides in 1-5 KG.packets. During the year under

review, the off take of Branded sugar increased by 44 % to

6522 MT. While the market of branded sugar is not large,

demand is increasing due to increased urbanization and life

style changes.And the branded sugar of Triveni Shagun is

packaged in a state-of-the-art sugar packaging section located

in the sugar factory premises. The sugar packaging section is considered to be the best

designed sugar packaging sections amongst all the players in branded sugar business in

India.


13/83

THE COGENERATION GROUP (CBG)

Plant: Khatauli and Deoband Bagasse-based cogeneration power is a renewable, enviournmant friendly driver of

sustainable development. The government of India has issued the national electricity

policy, which calls for the promotion of cogeneration and generation from renewable

Sources of energy.

Performance, 2011-12

222% increased in the divisions revenue from Rs. 188.03 million in 2011-12to Rs.

605.5 million.

304% increased in EBIDTA from Rs. 58.6 million in 2010-11 to Rs. 237 million.

Commissioning of new 23 MW co-generation plant in Khatauli reported PLF of over

98% in March 2010.

92% plant load factor for the Deoband unit across 207 days of working (99% and

100% PLF in February and March 2011 respectively).

Power purchase agreement with Utter Pradesh Power Corporation Ltd. (UPPCL), the

buyer for the power supplied to the grid; timely payments from UPPCL for the power

supplied.

Cogen plant at

Khatauli was one

of the quickest

commissioning

schedules for co-

generation plants

in India.


14/83

Trivenis co-generation units

DEOBAND:

State of the art, bagasse-based co-generation unit with a capacity of 22 MW. The company captivity consumed 31 % of the electricity produced by this plant and

the rest was supplied to the Utter Pradesh power corporation Limited, secured by a

ten-year power purchase agreement.

Plant operated at an average plant load factor of 92% for the 207 days it was

operational in 2007-08; PLF could have been higher but for fuel shortage during the

start of the sugar season and high grid disturbances in January 2008. Plant achieved

99 % and 100 % PLF in February 2007 and March 2008 respectively.

KHATAULI:

State of the art and energy efficient, bagaees-based 23 MW cogeneration power plant

(commenced operation during 2010-11 sugar season).

The company captivity consumed 25 % of the electricity produced by this plant and

the rest was supplied to the Utter Pradesh Power Corporation Limited, secured

through a 10- year power purchase agreement.

One of the quickest commissioning schedules for co-generations plant in India.

Commenced the export of power in October 2010. After an initial period of

stabilization, the cogen plant has achieved full capacity; PLF was over 98 % for

March 2008.

Additionally utilizes continuous Electro de-ionization (CEDI) process in its Boiler

feed water system (installed through the companys water business Group) with the

objective to rationalize bulk acid and alkali handling as well as improve water quality.

This is the largest CEDI-based water treatment module in India and the first in a

power plant in the country.


15/83


16/83

TECHNOLOGYS

TECHNOLOGIES IN SUGAR DIVISION:

Continuous Vacuum Pan

Syrup Clarifier System

Short Retention Clarifier

Continuous vacuum Pan

Developed by Triveni SRI Limited, a wholly owned subsidiary, in association

with Sugar Research International (SRI) of Mackay, Australia, the CVC was installed in

the Deoband sugar factory for usage on C massecuite, the first time an SRI pan was

installed for C massecuite in a sulphitation plant.

SRI is one of the sugar machinery technology authorities in the world; its

subsidiary, Triveni SRI Limited, has an exclusive license in India from SRI International

for many of their products. Owing to technical improvements made on the CVP, Triveni

and SRI are now eligible to jointly own the intellectual property for this new improved

vacuum pan. Company has in the past presented these details in a paper jointly presented

with SRI at a convention of the International Society for Sugar Sugarcane Technology.

The contribution of

the division to the

companys revenue

increased from

16.9% in 2010-2011

to 22.6% in 2011-

2012


17/83

Syrup Clarifier System:

Installed at the Deoband and Khatauli sugar plants to improve the quality of sugar,

this licensed product from SRI has been sold to EID parry in Tamil Nadu, where it is

working efficiently.

Short retention Clarifier:

To be installed in 2011-12 at the Khatauli unit and at the new plant, the

clarification of juice is achieved in only 30 minutes while in a normal clarifier juice is

retained for approximately 150 minutes. This prevents the inversion of sugar and also

leads to an improved sugar recovery and quality.

Mill-Tandem:

Designed and manufactured by the company (captive technology), installed in

companys sugar plants. The mill-tandem has proved to be one of the most efficient in

India: reflected in the reduction in Bagasse losses and increase in reduced mills extraction

(RME); RME for the unit is 96 while that of the industry is around 95; bagasse loss in the

unit is 1.6 compared to 1.9 for the rest of the industry; strong design feature ensures a

negligible downtime. Triveni has set up over 65 sugar plants and supplied over 300 cane

mills to sugar factories in India and overseas.


18/83

FINANCIAL REWIEW

KEY PARAMETRES:

2010-11 2011-12

Return on Net worth (RONW) (%) 72.59 38.92

Return on Capital employed (ROCE) (%) 3.52 29.34

Total Debt Equity Ratio (Times) 2.74 0.79

EBDITA margin (%) 17.94 17.87

PAT margin (%) 10.36 11.03

Interest Cover (Times) 4.89 8.60

Book value (Rs. Per equity share of Re. 1, post bonus) 7.91 19.82


19/83

CORPORATE INFORMATION

Chairman and Managing Director

Mr. Dhruv M. Sawhney

Board of Directors

Dr. F.C. Kohli

Lt. Gen. K.K. Hazari (Retd.)

Mr. M. K. Daga

Mr. R. C. Sharma

Mr. V. Venkateswarlu

Mr. R. K. Kapoor (IDBI Nominee)

Vice President (legal) and Company Secretary

Mr. V.P. Ghuliani

Bankers

Punjab National Bank

Central Bank of India

Canara Bank

Oriental bank of Commerce

Union Bank of India

Standard Chartered Bank

State Bank of Travancore

UTI bank Ltd.

Auditors

M/s. J.C. Bhalla & Co.

Branch Auditors

M/s. Virmani & Associates


20/83

COMPANYS BUSINESS LOCATIONS

Registered Office

Deoband, District Saharanpur

Utter Pradesh247554

Phone: (01336) 222497, 222185,222866

Fax: 222220

Corporate Office

Express Trade Towers, 8th floor

15-16, sector 16 A, Noida 201301 (UP)

Phone: (0120) 5308000

Fax: 5311010-11

Share department/investors grievances

Express Trade Tower; 8th floor

15-16, sector- 16 A Noida 201301 (U.P.)

STD code: 0120

Phone: 4308000

Fax: 4311010-11

Email:shares@trivenigroup. Com

Registrar and share transfer agents

For equity shares held in physical and electronic mode.

M/s Karvy computer share Pvt. Ltd. Karvy house,46,

Avenue 4 Street No. 1, Banjara Hills Hyderabad 500034

STD Code :040 Phone: 23312454,23320751

Fax: 23311968

Email: [email protected]

Turbine business group

12-A, peenya industrial Area, Peenya, Banglore-560058

STD Code: 080

Phone: 28394721(4 lines), 28394843, 28394771

Fax: 28395211
mailto:shares@trivenigroupmailto:shares@trivenigroupmailto:shares@trivenigroupmailto:[email protected]:[email protected]:[email protected]:shares@trivenigroup


21/83

LITERATURE REVIEW

Chaote GN, Tanaka K(1979) Stated that financial ratio analysis allows a hospital to

evaluate its own performance over time and to compare itself with other hospitals.Through reclassification procedures, potential distortions are reduced, and administrative

decisions can be based on more reliable rations. Step 1 reclassifies financial statements

for analysis, step 2 computes and explains ratios, and step 3 combines ratios into patterns

for interpretations. Step 4 describes the 209-hospital sample, step 5 compares three

individual hospitals' ratios to industry ratios, and step 6 discusses behavior of two

hospitals' ratios and industry ratios over time.

P Smith(1990) Stated that ratio analysis has been a tool of analysts for as long as

financial statements have been prepared. Yet its limitation to considering only one

numerator and one denominator severely limits its usefulness. This paper extends the

traditional ratio analysis to permit the incorporation of any number of dimensions of

performance, using data envelopment analysis. The method produces measures of

corporate efficiency, together with a wealth of supporting information. The strengths and

weaknesses of the method applied to financial statements are appraised.

Paavo Yli- Olli and IIKKa Virtanen(1990) Stated that we develop, on the economy-

wide level, empirically-based classification patterns for twelve commonly used financial

ratios and measure the long-term stability and structural invariance of these patterns. The

data are based on annual reports of U.S. and Finnish industrial firms for the periods 1947-

75 and 1974-84, respectively. The selected financial ratios are, according to a priori

classification, the measures of short-term solvency, long-term solvency, profitability, and

efficiency. Classification patterns are developed using factor analysis and the stability and

invariance analyses are carried out via transformation analysis. The following factors are

found: solvency, profitability, efficiency, and dynamic liquidity. Classification patterns

are developed using ratio indices in first-difference form. This is necessary because of

clear trend in the time series. Further, empirical results show that different aggregation

methods lead to different results. The theoretically better value-weighted indices give

more accurate and easier-to-intepret empirical results. Factor patterns based on these


22/83

indices display time-series stability and cross-sectional invariance. This confirms the

importance of aggregation method in ratio analysis.

Francis Edum- Fotwe(1996) Stated that there is a variety of financial ratio analytical

methodologies for evaluation of construction companies corporate performance and

identifying potential insolvent contractors. These methodologies comprise traditional

approaches, subjective index and ratio models. The shortcomings of the financial ratio

analytical methods are highlighted and some approachesto improving their efficiency

presented. It has been suggested that standardizing the assessment criteria of subjective

index methods for the construction industry can reduce the variation in different expert

evaluations and so lead to a more uniform assessment. Secondly, the transformation

approach has been recommended as a means of improving the efficiency of ratio models.

Zeller TL, Stanko BB, Cleverley WO(1997) Stated that using audit financial data in a

study of 2,189 not-for-profit hospitals for the period 1989-1992, six financial

characteristics of performance were defined. These characteristics are profitability factor,

fixed-asset efficiency, capital structure, fixed-asset age, working capital efficiency, and

liquidity. The statistical output also shows the specific sets of financial ratios that can be

used to measure the six characteristics of hospital performance. The results of this study

can be beneficial to healthcare financial managers, hospital boards, policy groups, and

other relevant entities because it affords them a clear understanding of an institution's

financial performance.

Hepu Deng, Chung - Hsing Yeh, Robert J. Willis(2000) Simultaneous consideration of

multiple financial ratios is required to adequately evaluate and rank the relative

performance of competing companies. This paper formulates the inter-company

comparison process as a multi-criteria analysis model, and presents an effective approachby modifying TOPSIS for solving the problem. The modified TOPSIS approach can

identify the relevance of the financial ratios to the evaluation result, and indicate the

performance difference between companies on each financial ratio. To ensure that the

evaluation result is not affected by the inter-dependence of the financial ratios, objective

weights are used. As a result, the comparison process is conducted on a commonly

accepted basis and is independent of subjective preferences of various stakeholders. An

empirical study of a real case in China is conducted to illustrate how the approach is used

for the inter-company comparison problem. The result shows that the approach can reflect

the decision information emitted by the financial ratios used. The comparison of objective


23/83

weighting methods suggests that, with the modified TOPSIS approach, the entropy

measure compares favourably with other methods for the case study conducted.

Kaiser sera (1996) We are focusing on three alternative techniques-linear discriminant

analysis, logit analysis and genetic algorithms-that can be used to empirically select

predictors for neural networks in failure prediction. The selected techniques all have

different assumptions about the relationships between the independent variables. Linear

discriminant analysis is based on linear combination of independent variables, logit

analysis uses the logistical cumulative function and genetic algorithms is a global search

procedure based on the mechanics of natural selection and natural genetics. In an

empirical test all three selection methods chose different bankruptcy prediction variables.

The best prediction results were achieved when using genetic algorithms.

Ahmad H.Jumah, Douglas wood, (2000) This article investigates the business

performance of a sample of companies announcing outsourcing contracts. Performance

effects are investigated by measures including operating profit, earnings margin, return on

shareholders capital, reduction in employment cost and research and development

expenditure prior to and subsequent to the outsourcing announcement. The conclusion is

that outsourcing companies profitability and liquidity decrease in years in which

outsourcing announcements occur, and tend to increase in the subsequent year. Also, it is

possible that the short-term and long-term financial structure of outsourcing companies is

altered

Hyunjoon kim (2002) This study examines the risk features of hotel real estate

investment trust (REIT) firms. In particular, it investigates the systematic and

unsystematic risk of hotel REIT stocks and the determinants of their systematic risk, or

beta. Using the financial data of 19 U.S. hotel REIT firms from 1993 through 1999, theauthors found that 84% of the firms'total risk was contributed by firm-specific,

unsystematic risk. Systematic risk correlated positively with debt leverage and growth but

negatively with firm size. These findings suggest that growth via mergers and

acquisitions and less reliance on debt financing may help lower systematic risk and

enhance hotel REITs'value.

Tomas Ekland,(2003) In this paper, we illustrate the use of the self-organizing map

technique for financial performance analysis and benchmarking. We build a database of


24/83

financial ratios indicating the performance of 91 international pulp and paper companies

for the time period 19952001. We then use the self-organizing map technique to analyze

and benchmark the performance of the five largest pulp and paper companies in the

world. The results of the study indicate that by using the self-organizing maps, we are

able to structure, analyze, and visualize large amounts of multidimensional financial data

in a meaningful manner


25/83

COMPANYS STRENGTHS

Advanced technological assets and capital equipment, represented by world-class

continuous vacuum pans at the B (sugar boiling) and C (sugar boiling) stages, resulting in

boiling consistency, uniform crystal size, reduced molasses purity, decline in steam

consumption and enhanced product quality. The technology and intellectual property for

this equipment were jointly developed with Sugar Research International, the premier

Australian organization.

Positive recall in a competitive marketplace, translating into a premium and quicker

off-take.

The location of the sugar manufacturing plants in the fertile Doab region (between the

Ganga and Yamuna rivers), resulting in a superior sugarcane quality and an exceptionally

high yield.

Canal water availability over a large part of the region, representing one of the highest

penetrations of man-made water intervention in India, reducing the companys

dependence on monsoon vagaries.

Established culture of cane cultivation in the region.

Largest cane crushing capability across any one unit in India (18.66 million quintals

in the 2008-09-sugar season at Khatauli); a quicker crush enables the farmer to grow

wheat on fallow land and earn an attractive supplementary income.

Excellent cane procurement logistics, critical for any large sugar unit, demonstrated in

the systematic pooling of cane from no less then 220 purchase centers in the Khatauli

command area without any shortage or inventory pile-up.

Dependable relations with more than 160,000 farmers across the Khatauli, Deoband

and Ramkola command areas, resulting in a reliable and increasing supply of sugarcane.

Strong in-house technical and project management capability, resulting in the

commissioning of the Deoband co-generation project in the fastest implementation time

lines; proposed expansion of the Khatauli capacity from 11750 tcd to 16000 tcd.

Vast project execution experience in setting up sugar plants and carrying out

expansions in view of our earlier experience in sugar plant machinery and through our

subsidiary, Triveni SRI Limited.


26/83

INDUSTRY ANALYSIS

World Sugar

The forecast of the world sugar balance (October2010 to September 2011) indicates that

production will be 2 mn tones lower than consumption: world sugar output (October 2010

to September 2011) has been estimated at 146.1 mn tones (raw value) as against 143.7 mn

tones in the previous year while consumption is estimated 2.1 per cent higher at 148 mn

tones (raw value) with increased demand coming out of Asia and the Far East.

Interestingly, leading trade house ED&F Man sees this global (2010-11, Oct-Sept) deficit

widening to 4 mn tones; its production estimate for 2011-12 is unchanged from its 2010-

11 benchmark of 143 mn, while consumption, driven by Asia, is forecast to increase from

144 mn to 147 mn.

In fact, the principal factor behind the price rise over the past 18 months was the

conviction that global demand growth could outstrip production in 2011-12, depleting

stocks, as well as the belief that high oil prices may induce Brazil and other countries to

divert more cane towards the production of ethanol, reducing cane supplies directed

towards sugar manufacture. Looking into the short-term, two developments are likely to

tip yhr Asian balance: Indias sugar consumption has been growing at an average annual

rate of around 3 per cent over the last ten years; besides, global sucrose demand,

discounting the role of artificial sweeteners, is expected to grow by around one mn tones

a year. China too is likely to become a major importer after 2010 given the limited

availability of its resources to expand sugar production.

The total

consumption of

sugar increases by

1.2 MMT in 2011-12

to 18.5 MMT in 2010-

2011.


27/83

WTO

Sugar and dairy products are probably the most protected agricultural sector. As a

result, the impact of product-specific negotiations in the WTO Doha Round (as agreed in

the July 2004 framework) on sugar was more significant then in the last WTO round ofmultilateral trade negotiations.

The critical factors: the base period chose for the duty reduction commitments, the

length of the implementation period for making the reductions and whether sugar would

be included in a WTO list of sensitive products, which would allow it to escape a part of

the WTO trade reform process.

More recently, the World Trade Organizations highest court issued a final ruling

on April 28, 2008, ordering the European Union to stop dumping subsidized sugar

illegally on the global markets or face trade sanctions. The decision by the Whos

Appellate Body in Geneva gives the EU up to 15 months to strictly comply with this

directive. It is important to note that the export of white sugar, especially from European

Union, is heavily subsidized at prices less than 25 percent of the prices prevailing in the

European domestic markets. But for such exports, the international prices of the white

sugar would be higher and would in turn have a favorable impact on Indias domestic

prices.

In 2004, a panel of WTO experts estimated that the EU exported about four

million metric tones of sugar in 2007-08 (period under investigation) or about three times

more then what the rules permitted. As a result, any reform in this area will give Indian

exports a significant boost and have a positive impact on global prices.

India also suffers from a small quota in the Loma and ACP conventions, which

gives members a preferential price in the lucrative EU and US markets. Any increase in

these quotas could help domestic manufactures in the short term.

Ethanol

At the 13th annual International Sugar Organization seminar in 2004, Chairman

Francisco varua (also President of the Philippines Sugar Millers Association) pronounced

that ethanol could become the sugar cane industrys principal product by the end of the

first decade of the new millennium. Not only are fuel ethanol programmes spreading

across the globe, but more players are becoming aware of the need for cross-order trade to

help the product become more competitive against gasoline.


28/83


29/83

DOMESTIC INDUSTRY SCENARIO AND OUTLOOK

Industry Structure

The sugar industry in India is highly fragmented, with 566 sugar units spread over 16

states. The total capital employed by the sugar industry is Rs 250 bn, annual sugarcane

payments Rs 180 bn, direct employment for 500,000 and the involvement of 45 mn

farmer/families in cane growth.

The average size of each unit is approximately 3300 tcd, substantially below the

new international economic size of 7500 tcd. Nearly 35 percent of all Indian mills are in

the private sector, 6 per cent in the public sector and 59 per cent in the co-operativesector. Despite the large recent profits shown by the Indian sugar industry, 112 millsold

and inefficient remained closed during the year.

In a raw material-dependant industry, profitability is influenced by the following

factors:

Cane availability:

Within the reserved area of any factory, the yield and size of the area under

sugarcane are critical success drivers.

Economic size:

Without a minimum economic size of 5000 tcd (generally 10000 tcd in western

Uttar Pradesh), it is becoming increasingly difficult for a sugar unit to command pricing

power.

Technology:

The ability to minimize sugar-processing losses depends on process technology.

Demand-pull:

The ability to draw a higher percentage of sugarcane from the reserved area

reduces the diversion to other sweeteners.

Sucrose content:

This is directly influenced by soil quality and cane development programmes

initiated by progressive manufacturers; a higher sugar content in sugarcane leads to the

manufacture of more sugar, while payment is still based on weight.


30/83

Operating efficiency:

The ability to bring cane in quickly from the fields and continuously operate a

sugar unit minimizes post-harvest sucrose evaporation.

OPERATIONAL PERFORMANCE:The company achieved 7 % higher crush in 2008-09,a good performance as it

competed successfully with producers of alternative sweeteners to reduce cane diversion

and increase drawled of sugarcane. Further, the company produced Rs 0.38 million tones

of White sugar in 2008-09. Due to late rains, winter frost and overfurtilisation, the sugar

recovers in western UP were lower by around 0.6-0.7 % then what had been achieved in

2008-09. Average recovery for our sugar units declined from 10.08 % in 2008-09 to 9.59

% in 2007-08 due to reasons a foresail. It is to the companys credit that despite poorweather, the Deoband unit reported one of the highest recoveries among all western U.P.

sugar factories during the season under review.

Trivenis Khatauli, Deoband and Ramkola units crushed 18.66 mn tones, 13.8 mn

tones and 3.4 mn tones of sugarcane respectively during the 2008-09 sugar seasons. The

sugarcane crushed at the Khatauli sugar unit was the highest across any unit in the

country. Recovery was 10.06 per cent at Khatauli, 10.19 per cent at Deoband and 9.86 per

cent at Ramkola. The company also imported 0.185 mn tones of raw sugar, which was

converted into white sugar during the 2008-09-sugar season.

The company produced 1, 96,000 tones in Khatauli (included processed raw

sugar), 1,52,000 tones in Deoband (included processed raw sugar) and 33,600 tones in

Ramkola, a cumulative 3,81,600 tones in 2008-09 (3,64,400 tones in 2007-08). As a

result, company emerged as one of the largest sugar producers in India and expects to

preserve this position following the increased production from its ongoing expansion

programmes.

The companys Khatauli unit procured cane from over 220 out-centers during the

letter part of the season, a record across any sugar unit in India. Dispersed prudently over

a 59000 hectare commend area, Khataulis sugarcane marketing staff refined the

logistical system of cane harvest and transportation in the shortest time (empirical studies

suggest that if whole stalk sugarcane is not crushed within 16 hours following harvest, the

sucrose in the cane is converted into non-sugars with a consequent drop in sugar

recovery). This efficiency will stand the company in good stead when it expends its

capacity to 16000 tcd in the 2008-09 seasons. Besides engineering stoppages were within


31/83

the estimated budget there was an attractive improvement in steam consumption, thereby

increasing the allocation of Bagasse for the Deoband co-generation plant.

FORWARD-LOOKING STATEMENTS

Global Corporate Strategy

In the opinion of leading international sugar expert F.O.Licht, regulatory, technological

and organizational issues will drive the growth of sugar companies. Since sugar is an

agricultural commodity, the last factor is expected to influence profits the most. In this

connection, it would be reasonable to assume that regulatory differences between various

production locations may decline. As a result, companies that profited from regulationrents (guaranteed income within a protected business environment) will need to change

their strategy to protect their longer-term survival.

The last of these determinants limits the expansionary drive of sugar companies to

national and /or supranational entities (EU) where an identical set of rules guarantees a

high degree of planning security. The regulatory environment under which sugar

companies operate is often challenging, requiring skill, experience and potential clout.

From an international perspective, the industry structure of the sugar sector is

surprisingly mature and yet fragmented; technology is advanced but innovations restricted

to normal technological progress; markets saturated but driven by economic or

population growth. As a result, technological economies of scale are important in

determining the size of an individual plant.

From an organizational perspective, companies can succeed through prudent cost

reduction by centralizing functions (cost accounting and data processing) or optimizing

competencies (bargaining contracts with suppliers and customers etc.).

Companys Expansion Plans

Company intends to complete the following projects which will enable it to avail

benefits / incentives under the UP Government sugar policy:

The commissioning of three new sugar plants. Each plant to have 5000 to 7000

tcd capacities (expandable to 10000-12000 tcd at a minimal cost). The

commissioning of one of the plants (Sabitgarh) at one of the best sites in Indiatoday, with 75 per cent of the cultivable area being canal irrigated with almost no


32/83

low lying sugarcane areas. In preparation, over 5000 hectares of high recovery

sugarcane have been planted.

The modernization and expansion of the Khatauli sugar unit from 11750 tcd to

16000 tcd, which will make it the largest single standalone sugar unit in India.

The commissioning of a 23 MW co-generation plant at Khatauli by September

2011 to supplement the 22 MW cogeneration plant at Deoband.

Following the establishment of these three units and the expansions at the existing

units, companys cane crushing capacity will significantly rise from its existing

aggregate of 25,250 tcd.

The benefits of this scale equate to a better coverage of overheads, generation of

adequate bagasse to ensure the fullest utilization (over 270 days) of companys two

cogenerations units and tax-free profits from the two-cogeneration units for ten years.

Going ahead, company also intends to commission a large distillery to fully consume

the large throughput of molasses with the objective to manufacture ethanol in line

with the government policy.

It is our opinion that there will be an inevitable consolidation over the next few years

in the sugar industry, with unviable plants in the co-operative, state government and

private sectors closing down. This will present attractive acquisition opportunities and

your company expects to avail of them especially if they lie in their targeted

geographies.


33/83


34/83

This technique is called cross-sectional analysis. Cross-sectional analysis compares

financial ratios of several companies from the same industry. Ratio analysis can provide

valuable information about a company's financial health. A financial ratio measures a

company's performance in a specific area. For example, you could use a ratio of a

company's debt to its equity to measure a company's leverage. By comparing the leverage

ratios of two companies, you can determine which company uses greater debt in the

conduct of its business. A company whose leverage ratio is higher than a competitor's has

more debt per equity. You can use this information to make a judgment as to which

company is a better investment risk.

However, you must be careful not to place too much importance on one ratio. You obtain

a better indication of the direction in which a company is moving when several ratios aretaken as a group.

OBJECTIVE OF RATIOS

Ratio is work out to analyze the following aspects of business organization-

A) Solvency-

1) Long term

2) Short term

3) ImmediateB) Stability

C) Profitability

D) Operational efficiency

E) Credit standing

F) Structural analysis

G) Effective utilization of resources

H) Leverage or external financing

FORMS OF RATIO:

Since a ratio is a mathematical relationship between to or more variables / accounting

figures, such relationship can be expressed in different ways as follows


35/83

A] As a pure ratio:

For example the equity share capital of a company is Rs. 20,00,000 & the preference

share capital is Rs. 5,00,000, the ratio of equity share capital to preference share capital is

20,00,000: 5,00,000 or simply 4:1.

B] As a rate of times:

In the above case the equity share capital may also be described as 4 times that of

preference share capital. Similarly, the cash sales of a firm are

Rs. 12,00,000 & credit sales are Rs. 30,00,000. so the ratio of credit sales to cash sales

can be described as 2.5 [30,00,000/12,00,000] or simply by saying that the credit sales

are 2.5 times that of cash sales.

C] As a percentage:

In such a case, one item may be expressed as a percentage of some other item. For

example, net sales of the firm are Rs.50,00,000 & the amount of the gross profit is Rs.

10,00,000, then the gross profit may be described as 20% of sales [ 10,00,000/50,00,000]


36/83

STEPS IN RATIO ANALYSIS

The ratio analysis requires two steps as follows:

1] Calculation of ratio

2] Comparing the ratio with some predetermined standards. The standard ratio may be the

past ratio of the same firm or industrys average ratio or a projected ratio or the ratio of

the most successful firm in the industry. In interpreting the ratio of a particular firm, the

analyst cannot reach any fruitful conclusion unless the calculated ratio is compared with

some predetermined standard. The importance of a correct standard is oblivious as the

conclusion is going to be based on the standard itself.

TYPES OF COMPARISONS

The ratio can be compared in three different ways

1] Cross section analysis:

One of the way of comparing the ratio or ratios of the firm is to compare them

with the ratio or ratios of some other selected firm in the same industry at the same point

of time. So it involves the comparison of two or more firms financial ratio at the same

point of time. The cross section analysis helps the analyst to find out as to how a

particular firm has performed in relation to its competitors. The firms performance may

be compared with the performance of the leader in the industry in order to uncover the

major operational inefficiencies. The cross section analysis is easy to be undertaken as

most of the data required for this may be available in financial statement of the firm.

2] Time series analysis:

The analysis is called Time series analysis when the performance of a firm is

evaluated over a period of time. By comparing the present performance of a firm with the

performance of the same firm over the last few years, an assessment can be made about

the trend in progress of the firm, about the direction of progress of the firm. Time series

analysis helps to the firm to assess whether the firm is approaching the long-term goals or

not. The Time series analysis looks for (1) important trends in financial performance (2)

shift in trend over the years (3) significant deviation if any from the other set of data\

3] Combined analysis:

If the cross section & time analysis, both are combined together to study the

behavior & pattern of ratio, then meaningful & comprehensive evaluation of the


37/83

performance of the firm can definitely be made. A trend of ratio of a firm compared with

the trend of the ratio of the standard firm can give good results. For example, the ratio of

operating expenses to net sales for firm may be higher than the industry average however,

over the years it has been declining for the firm, whereas the industry average has not

shown any significant changes.

The combined analysis as depicted in the above diagram, which clearly shows that the

ratio of the firm is above the industry average, but it is decreasing over the years & is

approaching the industry average.


38/83

PRE-REQUISITIES TO RATIO ANALYSIS

In order to use the ratio analysis as device to make purposeful conclusions, there

are certain pre-requisites, which must be taken care of. It may be noted that these

prerequisites are not conditions for calculations for meaningful conclusions. The

accounting figures are inactive in them & can be used for any ratio but meaningful &

correct interpretation & conclusion can be arrived at only if the following points are well

considered.

1) The dates of different financial statements from where data is taken must be same.

2) If possible, only audited financial statements should be considered, otherwise

there must be sufficient evidence that the data is correct.

3) Accounting policies followed by different firms must be same in case of cross

section analysis otherwise the results of the ratio analysis would be distorted.

4) One ratio may not throw light on any performance of the firm. Therefore, a group

of ratios must be preferred. This will be conductive to counter checks.

5) Last but not least, the analyst must find out that the two figures being used to

calculate a ratio must be related to each other, otherwise there is no purpose of

calculating a ratio.


39/83

CLASSIFICATION OF RATIO

CLASSIFICATION OF RATIO

BASED ON FINANCIAL BASED ON FUNCTION BASED ON USER

STATEMENT

1] BALANCE SHEET 1] LIQUIDITY RATIO 1] RATIOS FOR

RATIO 2] LEVERAGE RATIO SHORT TERM

2] REVENUE 3] ACTIVITY RATIO CREDITORS

STATEMENT 4] PROFITABILITY 2] RATIO FOR

RATIO RATIO SHAREHOLDER

3] COMPOSITE 5] COVERAGE 3] RATIOS FOR

RATIO RATIO MANAGEMENT

4] RATIO FOR

LONG TERM

CREDITORS

BASED ON FINANCIAL STATEMENT

Accounting ratios express the relationship between figures taken from financial

statements. Figures may be taken from Balance Sheet , P& P A/C, or both. One-way of

classification of ratios is based upon the sources from which are taken.

1] Balance sheet ratio:

If the ratios are based on the figures of balance sheet, they are called Balance

Sheet Ratios. E.g. ratio of current assets to current liabilities or ratio of debt to equity.

While calculating these ratios, there is no need to refer to the Revenue statement. These

ratios study the relationship between the assets & the liabilities, of the concern. These

ratio help to judge the liquidity, solvency & capital structure of the concern. Balance

sheet ratios are Current ratio, Liquid ratio, and Proprietory ratio, Capital gearing ratio,

Debt equity ratio, and Stock working capital ratio.


40/83

2] Revenue ratio:

Ratio based on the figures from the revenue statement is called revenue statement

ratios. These ratio study the relationship between the profitability & the sales of the

concern. Revenue ratios are Gross profit ratio, Operating ratio, Expense ratio, Net profit

ratio, Net operating profit ratio, Stock turnover ratio.

3] Composite ratio:

These ratios indicate the relationship between two items, of which one is found in

the balance sheet & other in revenue statement.

There are two types of composite ratios-

a) Some composite ratios study the relationship between the profits & the

investments of the concern. E.g. return on capital employed, return on proprietors

fund, return on equity capital etc.

b) Other composite ratios e.g. debtors turnover ratios, creditors turnover ratios,

dividend payout ratios, & debt service ratios

BASED ON FUNCTION:

Accounting ratios can also be classified according to their functions in to liquidity

ratios, leverage ratios, activity ratios, profitability ratios & turnover ratios.

1] Liquidity ratios:

It shows the relationship between the current assets & current liabilities of the

concern e.g. liquid ratios & current ratios.

2] Leverage ratios:

It shows the relationship between proprietors funds & debts used in financing the

assets of the concern e.g. capital gearing ratios, debt equity ratios, & Proprietory ratios.

3] Activity ratios:

It shows relationship between the sales & the assets. It is also known as Turnover

ratios & productivity ratios e.g. stock turnover ratios, debtors turnover ratios.


41/83

4] Profitability ratios:

a) It shows the relationship between profits & sales e.g. operating ratios, gross profit

ratios, operating net profit ratios, expenses ratios

b) It shows the relationship between profit & investment e.g. return on investment,

return on equity capital.

5] Coverage ratios:

It shows the relationship between the profit on the one hand & the claims of the

outsiders to be paid out of such profit e.g. dividend payout ratios & debt service ratios.

BASED ON USER:

1] Ratios for short-term creditors:

Current ratios, liquid ratios, stock working capital ratios

2] Ratios for the shareholders:

Return on proprietors fund, return on equity capital

3] Ratios for management:

Return on capital employed, turnover ratios, operating ratios, expenses ratios

4] Ratios for long-term creditors:

Debt equity ratios, return on capital employed, proprietor ratios.


42/83


43/83


44/83


45/83

Since cash and bank balances and short term marketable securities are the most liquid

assets of a firm, financial analysts look at the cash ratio. If the super liquid assets are too

much in relation to the current liabilities then it may affect the profitability of the firm.

INVESTMENT / SHAREHOLDER

EARNING PER SAHRE:-

Meaning:

Earnings per Share are calculated to find out overall profitability of the organization. An

earnings per Share represents earning of the company whether or not dividends are

declared. If there is only one class of shares, the earning per share are determined by

dividing net profit by the number of equity shares.

EPS measures the profits available to the equity shareholders on each share held.

Formula:

NPAT

Earning per share =

Number of equity share


46/83

The higher EPS will attract more investors to acquire shares in the company as it

indicates that the business is more profitable enough to pay the dividends in time. But

remember not all profit earned is going to be distributed as dividends the company also

retains some profits for the business

DIVIDEND PER SHARE:-

Meaning:

DPS shows how much is paid as dividend to the shareholders on each share held.

Formula:

Dividend Paid to Ordinary Shareholders

Dividend per Share =

Number of Ordinary Shares

DIVIDEND PAYOUT RATIO:-

Meaning:

Dividend Pay-out Ratio shows the relationship between the dividend paid to equity

shareholders out of the profit available to the equity shareholders.

Formula:

Dividend per share

Dividend Pay out ratio = *100

Earning per share

D/P ratio shows the percentage share of net profits after taxes and after preference

dividend has been paid to the preference equity holders.


47/83


48/83

PROFITABILITY

These ratios help measure the profitability of a firm. A firm, which generates a substantial

amount of profits per rupee of sales, can comfortably meet its operating expenses and

provide more returns to its shareholders. The relationship between profit and sales is

measured by profitability ratios. There are two types of profitability ratios: Gross Profit

Margin and Net Profit Margin.


49/83

GROSS PROFIT RATIO:-

Meaning:

This ratio measures the relationship between gross profit and sales. It is defined as theexcess of the net sales over cost of goods sold or excess of revenue over cost. This ratio

shows the profit that remains after the manufacturing costs have been met. It measures the

efficiency of production as well as pricing. This ratio helps to judge how efficient the

concern is I managing its production, purchase, selling & inventory, how good its control

is over the direct cost, how productive the concern , how much amount is left to meet

other expenses & earn net profit.

Formula:

Gross profit

Gross profit ratio = * 100

Net sales

NET PROFIT RATIO:-

Meaning:

Net Profit ratio indicates the relationship between the net profit & the sales it is usually

expressed in the form of a percentage.

Formula:

NPAT

Net profit ratio = * 100

Net sales

This ratio shows the net earnings (to be distributed to both equity and preference

shareholders) as a percentage of net sales. It measures the overall efficiency of

production, administration, selling, financing, pricing and tax management. Jointly

considered, the gross and net profit margin ratios provide an understanding of the cost

and profit structure of a firm.


50/83

RETURN ON CAPITAL EMPLOYED:-

Meaning:

The profitability of the firm can also be analyzed from the point of view of the total fundsemployed in the firm. The term fund employed or the capital employed refers to the total

long-term source of funds. It means that the capital employed comprises of shareholder

funds plus long-term debts. Alternatively it can also be defined as fixed assets plus net

working capital.

Capital employed refers to the long-term funds invested by the creditors and the owners

of a firm. It is the sum of long-term liabilities and owner's equity. ROCE indicates the

efficiency with which the long-term funds of a firm are utilized.

Formula:

NPAT

Return on capital employed = *100

Capital employed

FINANCIAL

These ratios determine how quickly certain current assets can be converted into cash.

They are also called efficiency ratios or asset utilization ratios as they measure the

efficiency of a firm in managing assets. These ratios are based on the relationship

between the level of activity represented by sales or cost of goods sold and levels of

investment in various assets. The important turnover ratios are debtors turnover ratio,

average collection period, inventory/stock turnover ratio, fixed assets turnover ratio, and

total assets turnover ratio. These are described below:


51/83


52/83

ITR reflects the efficiency of inventory management. The higher the ratio, the more

efficient is the management of inventories, and vice versa. However, a high inventory

turnover may also result from a low level of inventory, which may lead to frequent stock

outs and loss of sales and customer goodwill. For calculating ITR, the average of

inventories at the beginning and the end of the year is taken. In general, averages may be

used when a flow figure (in this case, cost of goods sold) is related to a stock figure

(inventories).

FIXED ASSETS TURNOVER (FAT)

The FAT ratio measures the net sales per rupee of investment in fixed assets.

Formula:

Net sales

Fixed assets turnover =

Net fixed assets

This ratio measures the efficiency with which fixed assets are employed. A high ratio

indicates a high degree of efficiency in asset utilization while a low ratio reflects an

inefficient use of assets. However, this ratio should be used with caution because when

the fixed assets of a firm are old and substantially depreciated, the fixed assets turnover

ratio tends to be high (because the denominator of the ratio is very low).

PROPRIETORS RATIO:

Meaning:

Proprietary ratio is a test of financial & credit strength of the business. It relates

shareholders fund to total assets. This ratio determines the long term or ultimate solvency

of the company.

In other words, Proprietary ratio determines as to what extent the owners interest &

expectations are fulfilled from the total investment made in the business operation.

Proprietary ratio compares the proprietor fund with total liabilities. It is usually expressed

in the form of percentage. Total assets also know it as net worth.

Formula:

Proprietary fund

Proprietary ratio = OR

Total fund


53/83

Shareholders fund

Proprietary ratio =

Fixed assets + current liabilities

STOCK WORKING CAPITAL RATIO:

Meaning:

This ratio shows the relationship between the closing stock & the working capital. It helps

to judge the quantum of inventories in relation to the working capital of the business. The

purpose of this ratio is to show the extent to which working capital is blocked in

inventories. The ratio highlights the predominance of stocks in the current financial

position of the company. It is expressed as a percentage.

Formula:

Stock

Stock working capital ratio =

Working Capital

Stock working capital ratio is a liquidity ratio. It indicates the composition & quality of

the working capital. This ratio also helps to study the solvency of a concern. It is a

qualitative test of solvency. It shows the extent of funds blocked in stock. If investment in

stock is higher it means that the amount of liquid assets is lower.

DEBT EQUITY RATIO:

MEANING:

This ratio compares the long-term debts with shareholders fund. The relationship between

borrowed funds & owners capital is a popular measure of the long term financial solvency

of a firm. This relationship is shown by debt equity ratio. Alternatively, this ratioindicates the relative proportion of debt & equity in financing the assets of the firm. It is

usually expressed as a pure ratio. E.g. 2:1

Formula:

Total long-term debt

Debt equity ratio =

Total shareholders fund


54/83

Debt equity ratio is also called as leverage ratio. Leverage means the process of the

increasing the equity shareholders return through the use of debt. Leverage is also known

as gearing or trading on equity. Debt equity ratio shows the margin of safety for long-

term creditors & the balance between debt & equity.

RETURN ON PROPRIETOR FUND:

Meaning:

Return on proprietors fund is also known as return on proprietors equity or return on

shareholders investment or investment ratio. This ratio indicates the relationship

between net profit earned & total proprietors funds. Return on proprietors fund is a

profitability ratio, which the relationship between profit & investment by the proprietors

in the concern. Its purpose is to measure the rate of return on the total fund made

available by the owners. This ratio helps to judge how efficient the concern is in

managing the owners fund at disposal. This ratio is of practical importance to

prospective investors & shareholders.

Formula:

NPAT

Return on proprietors fund = * 100

Proprietors fund

CREDITORS TURNOVER RATIO:

It is same as debtors turnover ratio. It shows the speed at which payments are made to the

supplier for purchase made from them. It is a relation between net credit purchase and

average creditors

Net credit purchase

Credit turnover ratio =

Average creditors

Months in a year

Average age of accounts payable =

Credit turnover ratio


55/83

Both the ratios indicate promptness in payment of creditor purchases. Higher creditors

turnover ratio or a lower credit period enjoyed signifies that the creditors are being paid

promptly. It enhances credit worthiness of the company. A very low ratio indicates that

the company is not taking full benefit of the credit period allowed by the creditors.


56/83

IMPORTANCE OF RATIO ANALYSIS:

As a tool of financial management, ratios are of crucial significance. The

importance of ratio analysis lies in the fact that it presents facts on a comparative basis &

enables the drawing of interference regarding the performance of a firm. Ratio analysis is

relevant in assessing the performance of a firm in respect of the following aspects:

1] Liquidity position,

2] Long-term solvency,

3] Operating efficiency,

4] Overall profitability,

5] Inter firm comparison

6] Trend analysis.

1] LIQUIDITY POSITION: -

With the help of Ratio analysis conclusion can be drawn regarding the liquidity

position of a firm. The liquidity position of a firm would be satisfactory if it is able to

meet its current obligation when they become due. A firm can be said to have the ability

to meet its short-term liabilities if it has sufficient liquid funds to pay the interest on its

short maturing debt usually within a year as well as to repay the principal. This ability is

reflected in the liquidity ratio of a firm. The liquidity ratio are particularly useful in credit

analysis by bank & other suppliers of short term loans.

2] LONG TERM SOLVENCY: -

Ratio analysis is equally useful for assessing the long-term financial viability of a

firm. This respect of the financial position of a borrower is of concern to the long-term

creditors, security analyst & the present & potential owners of a business. The long-term

solvency is measured by the leverage/ capital structure & profitability ratio Ratio analysis

s that focus on earning power & operating efficiency.

Ratio analysis reveals the strength & weaknesses of a firm in this respect. The

leverage ratios, for instance, will indicate whether a firm has a reasonable proportion of

various sources of finance or if it is heavily loaded with debt in which case its solvency is

exposed to serious strain. Similarly the various profitability ratios would reveal whether

or not the firm is able to offer adequate return to its owners consistent with the risk

involved.


57/83

3] OPERATING EFFICIENCY:

Yet another dimension of the useful of the ratio analysis, relevant from the

viewpoint of management, is that it throws light on the degree of efficiency in

management & utilization of its assets. The various activity ratios measures this kind of

operational efficiency. In fact, the solvency of a firm is, in the ultimate analysis,

dependent upon the sales revenues generated by the use of its assets- total as well as its

components.

4] OVERALL PROFITABILITY:

Unlike the outsides parties, which are interested in one aspect of the financial

position of a firm, the management is constantly concerned about overall profitability of

the enterprise. That is, they are concerned about the ability of the firm to meets its short

term as well as long term obligations to its creditors, to ensure a reasonable return to its

owners & secure optimum utilization of the assets of the firm. This is possible if an

integrated view is taken & all the ratios are considered together.

5] INTERFIRM COMPARISON:

Ratio analysis not only throws light on the financial position of firm but also

serves as a stepping-stone to remedial measures. This is made possible due to inter firm

comparison & comparison with the industry averages. A single figure of a particular ratio

is meaningless unless it is related to some standard or norm. one of the popular techniques

is to compare the ratios of a firm with the industry average. It should be reasonably

expected that the performance of a firm should be in broad conformity with that of the

industry to which it belongs. An inter firm comparison would demonstrate the firms

position vice-versa its competitors. If the results are at variance either with the industry

average or with the those of the competitors, the firm can seek to identify the probable

reasons & in light, take remedial measures.

6] TREND ANALYSIS:

Finally, ratio analysis enables a firm to take the time dimension into account. In

other words, whether the financial position of a firm is improving or deteriorating over

the years. This

is made possible by the use of trend analysis. The significance of the trend analysis of

ratio lies in the fact that the analysts can know the direction of movement, that is, whetherthe movement is favorable or unfavorable. For example, the ratio may be low as


58/83


59/83

2] Comparison of performance over time

When comparing performance over time, there is need to consider the changes in

price. The movement in performance should be in line with the changes in price.

When comparing performance over time, there is need to consider the changes in

technology. The movement in performance should be in line with the changes in

technology.

Changes in accounting policy may affect the comparison of results between

different accounting years as misleading.

3] Inter-firm comparison

Companies may have different capital structures and to make comparison of

performance when one is all equity financed and another is a geared company it

may not be a good analysis.

Selective application of government incentives to various companies may also

distort intercompany comparison. comparing the performance of two enterprises

may be misleading.

Inter-firm comparison may not be useful unless the firms compared are of the

same size and age, and employ similar production methods and accounting

practices.

Even within a company, comparisons can be distorted by changes in the price

level.

Ratios provide only quantitative information, not qualitative information.

Ratios are calculated on the basis of past financial statements. They do not

indicate future trends and they do not consider economic conditions.

PURPOSE OF RATIO ANLYSIS:

1] To identify aspects of abusinesss performance to aid decision making

2] Quantitative processmay need to be supplemented by qualitative


60/83

Factors to get a complete picture.

3] 5 main areas:-

Liquiditythe ability of the firm to pay its way

Investment/shareholders information to enable decisions to be made on the

extent of the risk and the earning potential of a business investment

Gearinginformation on the relationship between the exposure of the business to

loans as opposed to share capital

Profitabilityhow effective the firm is at generating profits given sales and or its

capital assets

Financial the rate at which the company sells its stock and the efficiency with

which it uses its assets

ROLE OF RATIO ANALYSIS:

It is true that the technique of ratio analysis is not a creative technique in the sense

that it uses the same figure & information, which is already appearing in the financial

statement. At the same time, it is true that what can be achieved by the technique of ratio

analysis cannot be achieved by the mere preparation of financial statement.

Ratio analysis helps to appraise the firm in terms of their profitability & efficiency

of performance, either individually or in relation to those of other firms in the same

industry. The process of this appraisal is not complete until the ratio so computed can be

compared with something, as the ratio all by them do not mean anything. This

comparison may be in the form of intra firm comparison, inter firm comparison or

comparison with standard ratios. Thus proper comparison of ratios may reveal where a

firm is placed as compared with earlier period or in comparison with the other firms in the

same industry.

Ratio analysis is one of the best possible techniques available to the management

to impart the basic functions like planning & control. As the future is closely related tothe immediate past, ratio calculated on the basis of historical financial statements may be


61/83

of good assistance to predict the future. Ratio analysis also helps to locate & point out the

various areas, which need the management attention in order to improve the situation.

As the ratio analysis is concerned with all the aspect of a firms financial analysis

i.e. liquidity, solvency, activity, profitability & overall performance, it enables the

interested persons to know the financial & operational characteristics of an organisation

& take the suitable decision.


62/83

METHODOLOGY OF THE STUDY

The data collected for the project was in the form of written as well as verbal information

regarding ratio analysis of the company.1) Primary data: -

The information about the Company is gathered from the discussion with the

employees/staff and from the web site of the Company.

2) Secondary data:-

The secondary data collected -

The balance sheets as on the date of 31st march for the years-

20092010

20102011

2011 - 2012

The methodology of this study has been adopted on the following basis:

Study of various Journals, Notes & Books.

Study through web-sites

Collection of Primary & Secondary data records of the organization.

Analysis of the collected data for its application.


63/83

OBJECTIVE OF THE STUDY:

To know the financial condition of the company. To analyze the liquidity position of the company. To throw light on a long term solvency of a firm.


64/83

LIMITATION OF THE STUDY

Generally company does not allow outsiders to conduct any study or research work

in company. Therefore, get the project done in company itself was very difficult.

Due to confidentiality some important information, which are important for the

project, could not be collected.

Some of the information is lack of accuracy, due to which approximately values

were used for the analysis. Hence, the results also reveal approximate values.

The project is based on theoretical guidelines and as per situations prevalent at the

time of practical training. Hence, it may not be apply to different situations.

The time span for the project was very short which was of 2 months, which itself

acts as a major constraint. Moreover, studying the guidelines and applied it

practically within such short time span was a task of great pressure.


65/83

ANALYSIS

RATIO ANALYSIS


66/83

1)Debt Equity Ratio:

Long Term Debt

Debt Equity Ratio =

Share Holders Fund

Debt= Secured loan + unsecured loan (long term)

Particulars 2012 2011 2010

Debt 135,33,40,965.26 63,80,64,000 76,80,20,840

Equity 34,03,59,000.00 34,03,59,000 33,19,71,481

Ratio 3.97 1.87 2.31

The D/E ratio is an important tool of financial analysis to appraise the financial structure

of a firm. It has important implication from the view point of the creditors, owners, and

the firm itself. The ratio reflect the relative contribution of creditors and owners of

business in its financing.If we look at this Debt equity ratio we can say the company is

having long term debt in 2012 by 3.97. Here the long term debt are increasing by a

relatively higher rate to 49% in 2012 as compared to 2011 where it increase to 23%.

201028%

2011

23%

2012

49%

Chart showing changes in Debt Equity Ratio


67/83

2) Shareholders equity ratio:

Share holders Equity

Shareholders equity ratio: =

Total assets (Tangible)


Shareholders funds 83,45,92,364.65 60,93,74,000 34,38,69,627

Total assets 2,18,79,33,329.91 152,67,00,000 110,46,90,466

Ratio 0.38 0.39 0.31

Share holders equity: Equity shares+ Preference+ Reserves and surplus- losses (if any)

If we look at this ratio we can say the company is having increase in shareholders equity

ratio in the following year by year bases.

2010

29%

2011

36%

2012

35%

Chart showing changes in Shareholders

equity ratio


68/83

3)Debt to net worth ratio:

Long term debtDebt to Net worth Ratio =

Net worth

Net worth: equity + preference+ reserves and surplus- losses


Long term debt 135,33,40,965.26 63,80,64,000 76,80,20,840

Net worth 83,45,92,364.65 60,93,74,000 34,38,69,627

Ratio 1.62 1.04 2.23

:

If we look at this ratio we can say the company is having more long term debts than its

net worth. So the company has to taken care of it. Here higher the ratio higher the

obligation and vice-versa.

46% in 2010

21%in 2011

33% in 2012

Debt to Net worth Ratio


69/83

4) Fixed assets to long term funds:

Fixed assets

Fixed assets to long term funds:Long term funds.

Long term funds = equity + debt


Fixed Assets 1,63,08,90,394.60 84,09,12,000 83,19,52,687

Long term funds. 169,36,99,965.26 97,84,23,000 109,99,92,321

Ratio 0.96 0.85 0.75

If we look at this ratio the company is getting more and more long term funds from year

to year. This analysis states us that the company securing itself by raising its long term

funds. This raise the companys capability of investment.

2010

29%

2011

33%

2012

39%

Fixed assets to long term funds


70/83

5) Current ratio:

Current assets

Current ratio:Current liabilities


Current assets

111,96,08,329.53 68,35,78,842.26

42,20,67,183.97

Current Liability

58,42,63,485.22 27,92,61,185.52

15,17,08,691.07

Ratio 1.91 2.44 2.78

:

0

0.5

1

1.5

2

2.5

3

2010 2011 2012

Current ratio

Current ratio


71/83

The ideal level of current ratio is 2:1.we shown too much higher ratio its good for the

company. Higher the current ratio, the larger is the amount of rupees available per rupees

of current liabilities, the more is the firms ability to meet current obligation and greater is

safety of fund of short term creditors.

As the current ratio is moving downwards from year to year, it states us that the company

is becoming lesser capable to meet its short term obligations. If the companys current

ratio goes lesser than 1 it would be very harmful to the company. So the company has

taken care of it. Companys current ratio is far betterthan its ideal level.


72/83

6)Quick Ratio:

Current assets- stock

Quick Ratio:

Current liabilities- bank o/d


Current Assets- Stock 66,90,90,723.72 37,81,31,521.16 19,65,75,176.36

Current LiabilityBank

overdraft

58,42,63,485.22 27,92,61,185.52 15,17,08,691.07

Ratio 1.14 1.35 1.29

Ideal level of this ratio is 1:1.compare to current ratio stock is deducted from current

assets because we cant convert stock into cash in short period of time. If we look at the

quick ratio we can say that the company is not so consistent to meet its short term debt

obligations. By above analysis the company from 2010 to 2011 it had more capability of

2010 -34%

2011-36%

2012-30%

Quick Ratio


73/83

repaying its debt obligations and if compare 2011 to 2012 it has lost its capability of

repayment of its debt obligations.

7)Return on capital employed:

Return on Capital Employed = Net Profit * 100

Capital Employed


Net Profit 22,52,18,081.25

21,64,97,137.69

7,09,29,391.60

Capital Employed 83,45,92,364.65 60,93,74,000 34,38,69,627

Ratio 0.26 0.35 0.20

This position of the company states us that the company is fair enough in its return on

capital employed. The above analysis states us that the company as compared to 2012

into 2011 it is not having fair margin and if we 2011 into 2010 it has gained good margin

in it.

2010

25%

2011

43%

2012

32%

Return on Capital Employed


74/83

8) Net profit margin:

Net Profit Margin = Net Profit before interest and Tax * 100

Sales


Net Profit before

interest and Tax

251,079,243.25

247,131,501.69

70929391.60

Sales

1,160,705,003.75 942,877,990.40

518359946.19

Ratio 0.21 0.26 0.13

The net profit margin is indicate of managments ability to operate the business with

sufficient success not only to recover from revenues of the period, the cost of

merchandise or services, the expenses of operating the business and the cost of the

borrowed funds, but also to leave a margin of reasonable compensation to the owners for

providing their capital at risk. By a

Documents

AKG RTATIO7