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INTRODUCTION

The Textile Industry is one of the oldest in the world. The oldest known textiles,

which date to about 5000 B.C., are scraps of linen cloth found in Egyptian caves. The

industry was primarily a family and domestic one until the early part of the 1500s when

the first factory system was established. It wasn’t until the Industrial Revolution in

England, in the 18th century, that power machines for spinning and weaving were

invented. In 1769 when Richard Ark Wright’s spinning frame with variable speed rollers

was patented, water power replaced manual power (Neefus, 1982).

In the early 17th century of colonial America, textiles were primarily

manufactured in New England homes, Flax and wool were the major fibers used,

however, cotton, grown primarily on southern plantations, became increasingly important

(Wilson, 1979).In 1782 Samuel Slater, who had worked as an apprentice to Ark Wight’s

partner, immigrated to America. In Blackstone River, Rhode Island, he started building

Ark Wright machines and opened the first English-Type Cotton Mill in America (ATMI,

1997). In the early nineteenth century, in Lowell, Massachusetts, the first mill in America

to use power looms began operations. It was the first time that all textile manufacturing

operations had been done under the same roof (Wilson, 1979 and ATMI, 1997).

The twentieth century has seen the development of the first manmade fibers

(rayon was first produced in 1910). Although natural fibers (wool, cotton, silk, and linen)

are still used extensively today, they are more expensive and are often mixed with

manmade fibers such as polyester, the most widely used synthetic fiber. In addition,

segments of the textiles industry have become highly automated and computerized

(ATMI, 1997).

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The textile industry is characterized by product specialization. Most mills only

engage in either broadloom weaving of cotton or broadloom weaving of the wool.

Similarly, many mills specialize in either spinning or weaving operations, although larger

integrated mills may combine the two operations.

These large mills normally do not conduct their own dyeing and finishing

operations. Weaving, spinning, and knitting mills usually send out their fabrics to one of

the approximately 500 dyeing and finishing plants in the United States (EPA, 1996).

DESIGN OF STUDY

Objectives of the study

• To study the capital structure of the super spinning mills ltd

• To know at what proportion debt and equity are being used

• To find out how the investment projects are financed.

• To know how the funds have been accumulated.

• To know whether the firm’s capital is appropriate.

• To know the leverage of the firm

• To know the operational efficiency.

Sources of data

The data relating to financial statements of super spinning mills ltd and information

relating to capital structure ANALYSIS HAS been collected using primary and secondary

means.

Primary data

Primary data is being collected from various accounting offices and other administrative

offices while interacting with them in the plant.

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Secondary data

The study is mainly based on the secondary data collected from the records and the

annual reports of super spinning mills and various books on accounting and finance.

Data relation to the financial statements of super spinning mills ltd HAS been collected

from the published annual reports which were obtained from the administrative office.

Tools of the data:

The financial study made in super spinning mills comprises of the capital structure,

capital gearing has been clearly depicted by different attractive charts like line charts,

pyramid charts, scatter charts with straight lines, area charts and cone charts.

Period of study:

The capital structure and profitability is done through the financial statements published

by the SS mills for 2006-2007, 2007-2008, 2008-2009, 2009-2010, 2010-2011 financial

years.

Limitations of the study

• The study is limited to capital structure and financial performance of the firm.

• Findings and analysis are only from last five years.

• Findings and analysis depends on audited reports only.

• Only figures required to analyze capital structure and financial structure and

financial performance are provided and much of the data was kept confidential.

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INDUSTRY PROFILE

The cotton textile industry is going through a severe Crisis following a stump in exports

of cotton textiles, yarn and garments to the ASEAN and other countries. Yarn exports

particulars have been severely affected by the development in the ASEAN Region and

there is as yet no indication of a recovery in these exports.

The performance in the first six months of 1998 has been highly discouraging, as

shipments of yarn decline by 50Million KGs as compared to an increase of 273 Million

KGs in the corresponding period in 1997. The trends in subsequent months also have not

significant hanged and the value of exports in the whole of 1998 may be much lower than

in 1997.

The deceleration process started in 1997 as the impact of the ASEAN Crisis was felt

towards the end of the year. With accounting, earlier rise in exports of fabrics, yarn,

garments and other items, and steady growth in production did not create serious

problems in marketing, though the composite and spinning mills using out-dated

machinery were suffering losses due to wide variation in cotton prices, delayed purchased

and inadequate working capital.

The output of all sectors was higher at 27,891 million sq. mts in April–February 1998

against 26,317 millions Sq.mts.in the corresponding period in 1996-97.The power loom

and handloom sector, the former particularly has been taking advantages of the increase

in domestic demand for fabrics.

Southern Mill’s Sad Plight:

The spinning mills in the southern region have been complaining that they are not able to

ensure reasonable margins. This is because the prices of cotton are higher than that of the

counter parts in other regions while the finished products have to Be sent to leading

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centers in Maharashtra, Gujarat and elsewhere. It is not therefore expected that the

industry will have smooth sailing in the foreseeable future.

The Chairman of the Indian Cotton Mills Federation (ICMF) has taken a rather grim view

of the prevailing situation. At the actual meeting of ICMF grim view of the pedaling

situation. At the actual meeting of ICMF held in September, he stated that the number of

mills remaining closed was as high as 257 in July 1998 against 206 a year ago and that

the increase was highest in recent years. Several composite and Spinning mills in

Coimbatore and adjoining areas in Tamil Nadu has also suspended their operations and

the Manchester of South in now presenting a sorry spectacle while it was bustling with

activity not long ago.

Excess Capacity builds up:

The output of fabrics and yarn was not however, adversely affected in 1997-98 as

stated above, because of creation of excess capacity. Actually 6.4 million yarn spindles

and 20,000 rotors were remaining permanently idle in closed mills and another 5 million

could set-up output easily as the modernized and newly established export-oriented units

have been utilizing their capacity to the maximum extend. The expansion of capacities

had been taking place at an unprecedented rate. In the past three years alone, 4.33 million

spindles and 1.32 lakh rotors were installed.

The power-loom sector accounts for around 72% of the total cloth production and it has

been growing over a period. Due to the fact that number of power-looms installed has

increased to 15.23 lakhs units in 1996-97 from 10.44 Lakh units in 1990 and there is a

concentration of Power – loom in Maharashtra, Gujarat, Andhra Pradesh and in the

Punjab region.

Dominance of Power Loom Sector:

The power loom management has a distinct advantage over the composite mills in

the organized sector in terms of outlay, overheads and working capital requirements.

The handloom sector also has been increasing it share in total Production, deposit

complaints that power loom weavers have been rendering ineffective the reservation of

quotas exclusive for the handloom sector for turning out specified products. It share in

total production in 55% and it was 6990 million Sq.mts in 1997-98 against 6441 million

sq.mts in 1996-97.

Sizeable Export Earnings:

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It was estimated that there were 30 Lakh household weavers and about 124 Lakhs

weavers without owning looms and special attention was being provided to the weaving

of furnishing, bed sheets and other items fancied by sophisticated consumers in Western

Europe and elsewhere.

The foreign exchange earnings secured through exports of these items were

Rs.1,491.32 Crores in 1994-95 with steady growth in exports of cotton textiles, made ups,

yarn and garments the foreign exchange earnings exceed $ 10 Billion in 1996-97.

New textile policy a waited:

The performance in 1998-99 may not of course be encouraging, as exporters of

yarn as well as garments have been adversely affected by the crisis in the ASEAN region

and competition in world markets for textiles and garments from producers benefiting by

depreciation in value of their currencies.

In the context of a slow growth in total exports, the emergency of a negative trend in

textile exports in 1997-98 have affected the export in 1998-99.

The Union Ministry of Textiles is aware of the several hardships endured by the

textile industry and is formulating a plan for modernizing the textile mills in the public

sector by incurring heavy expenditure. The new textile policy also is this basic industry

could progress in random and the growth of any particular sector is not at the expense of

another.

Because of the erosion of profit margins and even losses incurred by many Undertakings

in the organized sector, the modernization program has not been Implemented on a

defined basis and the cost of production have got inflated in the process. It has even been

suggested that in view of the huge surplus capacity, non-viable and obsolete machinery

should be allowed to the scrap a part form reducing excise duties and allowing a higher

debt-equity ratio with reasonable interest rates for working capital. The State

Governments, however, are under pressure from political parties and labor leaders for

reviving sick mills even if they not viable.

Since the Textile Industry will have to be in a position to meet fully the

requirements of the domestic and export markets and function on a reasonably profitable

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basis, satisfactory solutions will have to be found by the parties concerned after taking

into a account all aspects.

STATUS OF COTTON TEXTILE INDUSTRIES

while growth has been a way of life this group has also earned to reputation for quality of

its products and credibility for the business excises perused. As a result of strange

thinking, this group has started identifying specific business focuses.

Obviously this has resulted in reorganizing the companies into smaller groups enabling

to effectively manage with customer focus.

RECENT TRENDS IN COTTON TEXTILE INDUSTRY

Cotton industry works to MAINTAIN, boost demand

The cotton industry a few years ago created an advertising campaign calling cotton” the

fabric of our lives”. The slogan may be an apt description. Cotton is the most best selling

fiber all over the world, out selling all manmade fibers combined.

A global survey conducted by cotton Inc. and cottons council international shows that

almost half of the people surveyed strongly agree that it’s important to have clothes made

from natural fibers like cottons. That demand fuels an industry generating more than

4, 00,000 U.S. jobs and accounting for more than $25 billion in products and services

each year.

1993-94 1994-95 1995-96 1996-97 1997-98Spindles (millions) 27.82 28.60 29.25 31.25 36.25Rotors (lakhs) 1.32 1.39 1.50 1.90 4.00Weaving Capacity Mill Sector 1.69 1.50 1.40 1.40 1.30Capacity Utilization Spinning 76 76 78 82 87Weaving 56 54 56 60 65Spun-yard production (Million kgs)

1806 2067 2090 2400 3025

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While consumers still prefers cotton to manmade fibers, but demand for synthetics is

growing at a faster rate .there are always new fibers coming on to the market.

There are more FIBERS NOW doing more things. Consumers are looking for more

functionality, such as style resistance or wrinkle resistance. But we have ENGINEERED

COTTON fabrics that can do those things too.

The main synthetic fiber is polyester, although consumers have come to recognize it by

new names like micro fiber. “but its polyester “.

Particularly in women’s ware market, WHICH REPRESENTS THE LARGEST

VOLUME OF CLOTHING SOLD? Women are looking for a LIGHT, easy drape OR

HIGH sheen. Cotton inc. is working to change the notion that cotton cannot provide those

attributes. There are new cotton fabrics that resist wrinkling. there is 100% cotton that

STRETCHES.

The industry has economics on its side. It is less expensive to make cotton clothing. For

example, Lycra, a synthetic known for its stretchiness, costs about $ 2 per pound

Compared to about 50 or 60 cents per pound for cotton.

The industry appears to be making head way. The cotton content of all the skirts and

dresses produced is about 51 %, compared about 47.5percent a year ago. From a farmer’s

perspective, that’s significant.

“Each 1% increase in the women’s market equates to about 50,000 bales in new cotton

demand.”

The growing demand in the apparel sectors could not come at a better time for cotton

farmer’s worldwide cotton consumption for industrial uses is declining. Mean while, at

106.5millon bales, global cotton production is expected to reach a new record this year,

driving prices below 2003 levels. This rise in production is due to more planted acres in

china and global yields.

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A survey by cotton industries and cotton council international shows that, when

selecting clothing and other consumer textile products, cotton is the fiber of choice

around the world.

COMPANY PROFILE

In modern fashion technology, the demand for perfection begins right at the birth of the

raw material, permeates through every single process, till the highly discerning customer

dons the finished garment. It is this demand for perfection that has spurred the growth of

an organization and its corporate philosophy.

Those who can furnish clients with the best quality, competitive price, excellent customer

services and prompt delivery can only survive in the market. Super Spinning Mills

Limited takes immense pride in perceiving its role as the comprehensive architect of

every single yarn and garment that its produces.

SARA ELGI is a multi-unit, multi-interest business group with a wide range of industrial

activity, an organization that has founded its evolution on value-based commercial

practice. Super Spinning Mills Limited was established in 1962 with an initial capacity of

12,000 spindles.

Over its four decades of chequered growth it has expanded to 1, 50,000 spindles spread

over 5 operational units. The company commenced operations with the manufacture of

grey, gassed, mercerized and dyed cotton yarn. Today, the company has carved a niche

for itself on the textile map of the country.

Group Companies

ELGI ELECTRIC & INDUSTRIES LTD.

ELGI SOFTWARE & TECHNOLOGIES LTD.

ELGI BUILDING PRODUCTS LTD.

SARA TRADING & INDUSTRIAL SERVICES LTD.

SARA ENVIROTECH LTD

SARA ELGI INDUSTRIAL RESEARCH & DEVELOPMENT LTD.

SARA ELGI INSURANCE ADVISORY SERVICES PVT. LTD.

ELGI EQUIPMENTS LTD.

ELGI TREADS (I) LTD.

L.G. BALAKRISHNAN & BROS. LTD.

ELGI ULTRA INDUSTRIES LTD.

PRECOT MILLS LTD.

MERIDIAN INDUSTRIES LTD.

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SARA ELGI ARTERIORS LTD.

Each company in the Group specializes in a specific area, thus enabling us to better meet

the diverse needs of the industry. Our companies are focused on meeting our customer's

individual needs. We exist to provide superior customer satisfaction - developing solid,

long-term relationships with our customers.

As a result of strategic thinking, the group has started identifying specific business

focuses. Obviously, this has resulted in reorganizing the co. into smaller groups enabling

efficient managing with customer focus. Accordingly since June 1996 the Group headed

by Mr. L. G. Ramamurthi & Mr. Sumanth Ramamurthi concentrates on the following

companies.

Super Spinning Mills Ltd.

ELGI ELECTRIC & INDUSTRIES LTD.

ELGI WIESSNER AIR TECHNIC LTD.

STANDARD GENERAL FINANCE LTD.

AN OVER VIEW OF SUPER SPINNING GROUP OF MILLS

Super Spinning Mills are the one of the largest group of spinning mills in India. The

Super Spinning Mills limited was incorporated on1962.The Super spinning mills is noted

for its progressive outlook and technical excellence. They excel in their endeavor for

quality.

The corporate office of the mills is located at Coimbatore, Tamilnadu. The corporate

manager takes all financial decisions of the firms. It has authority to appoint various

Auditors, Managers etc. and also deals with export activities to various countries.The

communication between manager and the firms flow top to bottom and bottom to top.

The company managers and auditors must be responsible to all the activities of Super

spinning group of mills. They must submit quarterly and annual reports to the corporate

office.

Super spinning mills Limited takes immense pride in perceiving its role as the

comprehensive architect of every single yarn and garments that its produces.

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The company was incorporated as a public limited company in 1962 under the Indian

companies Act 1956 and began its operations with an initial capacity of 12,000 spindles

and has grown to 5 units with capacity of 1,50,000 spindles on the date .

Super spinning group of mills constitutes five spinning mill units, two garment units and

one TFO unit.

The company has expanded both regionally and internationally over the years. Manufacturing Units at three places ensures that each product that reaches the market is a wondrous example of unmatched quality.

Corporate Office at Coimbatore, Tamilnadu

A Unit at Hindupur, Andhra Pradesh

B Unit at Hindupur, Andhra Pradesh

SUPER SARA Unit at Hindupur, Andhra Pradesh

C Unit at Karur, Tamilnadu

D Unit at Udumalpet, Tamilnadu

SARA APPARELS Unit at Coimbatore, Tamilnadu

Unit Super – A

Kirikera – 515 211 Hindupur

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Ananthapur DistrictAndhra Pradesh Tel : (08556) 220522 / 220194Fax : (08556) 220997Email supera@ssa.saraelgi.com

Unit Super - B

Kotnur – 515 213 Hindupur Ananthapur DistrictAndhra Pradesh Tel : (08556) 220182 / 220187Fax : (08556) 220585Email superb@ssb.saraelgi.com

Unit Super Sara

M.Beerapalli – 515 212 Hindupur Ananthapur DistrictAndhra Pradesh Tel : (08556) 249687 / 249786Fax : (08556) 249744Email supersara@sss.saraelgi.com

Unit Super – C

D-Gudalur 624 620Dindigul DistrictTamil Nadu Tel : (04551) 225310 / 22530Fax : (04551) 225229Email superc@ssc.saraelgi.com

Unit Super - D

No.119 – Dhally Road, Udumalpet 642 126 Coimbatore DistrictTamilnadu Tel : (04252) 223606 / 227611 Fax : (04252) 223658 Email superd@ssd.saraelgi.com

COMPANY DETAILS

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EXECUTIVE BODY

FOUNDERS OF SUPER GROUP : MR.VN.RAMACHANDRAN

MR. DAMODHARAN

MR. BALAKRISHNAN

MR. RAMAMURTHI

CHAIRMAN OF THE COMPANY : MR. L.G. RAMAMURTHI

VICE CHAIRMAN AND MANAGING DIRECTOR : MR. SUMANTH RAMAMURTHI

BOARD OF DIRECTORS : MR.CSK PRABHU

: MR. C R

RAMAMURTHI

: MR. SARATH

CHANDRAN

: MR.SUDARSAN

VARADARAJ

: MR. VIDYAPRAKASH

: MR. VIJAYAKUMAR

: MR. KR

SEETHAPATHY

: MR. VIJAYA

VENKATASWAMY

DATE OF ESTABLISHMENT OF THE MILL : 1-4-1964

REGISTERED AND CENTRAL OFFICE : “ELGI TOWERS” P.B.NO.7113.

GREEN FIELDS, 737-D,

PULIAKULAM ROAD, COIMBATORE – 641

TAMILNADU.

COMPANY REGISTRATION NO. : 181-001200

STOCK LISTED IN : BOMBAY,CHENNAI & COIMBATORE

STOCK EXCHANGES

BSE STOCK CODE : 521180

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SUPER SPINNING MILLS

A- UNIT

The first unit, super-a is situated at kirikera on the Bangalore-anantapur state high way

near hindupur in anantapur district,AP. This mill was registered in 1962 and went into

production 1964 with an initial capacity of 12,096 spindles. The present capacity of this

unit is 59,172 spindles manufacturing yarn 24hrs a day and seven days a week spinning

hosiery yarn, ware yarn and 2ply in counts ranging 10s to 90s of cotton varieties. This

unit PRODUCES one the finest quality yarns in the country.

This unit produces different qualities of yarn to suit different end-users. The selection

purchases supply of raw materials is done by its central office at Coimbatore .One of the

important keys of mill is very careful selection and purchase of raw materials. which is

done it meticulous care under the able super vision of the managing director. The

wastage of cotton in the production process of the mill is negligible. The mill has

provision to store the cotton much enough to 4 months.

The yarn produced in the mill is used to manufacture banians, t-shirts, dhotis, lungies,

saries and curtains etc. The yarn of the mill has wide market all over india and abroad.

The customers of the yarn are spread over india, in thripura, Calcutta, Mumbai, Varanasi,

delhi,chalkarangi, mangalagiri, cheeraala, gadag, Bangalore, kopal, hubli and many more

places.the firm even exports its products to abroad.

DOMESTIC MARKET : 50’S, 60’S, 80’S COMBED YARN

EXPORT MARKET : 60’S/162/1 COMBED YARN, 80/2 COMBED

YARN

Being inspired and encouraged by the success full running of the mill later. Two more

spinning mills , spinning mill ‘B’ unit at kotnur, hindupur. Precot mill at moda village,

hindupur, were brought into being in the early 1980’s.

B-UNIT

the second unit,super-b was established on 26 march 1983 by L.G.Balakrishnan at kotnur,

near hindupur in anantapur district of AP. This plant is 6kms from hindupur and is a part

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of hindupur town. This is located in an area of around twelve acres and around 80 acres

around the factory is beautifully with green culture.

This mill is situated at an elevation of 2020 feet above sea level on the broad gauge

section of southern railways connecting as many as eight important capital cities –

Bangalore, Hyderabad, Mumbai, new delhi, trivendram blessed by cool congenial and

salubrious climate, imbued by dynamic and enterprising mercantile industrial and

entrepreneurial community intent upon and ushering an era of rapid industrialization and

artfully welded with an effective media of transport and communication facilities,

hindupur the southern most mandal head quarter of the southern most ceded district in

A.P, bordering Karnataka state.

The mill started its production with and an initial capacity of 28,880 spindles and in

expanded to 58, 176 spindles.

Thanks to the pioneering made by no less a personage of entrepreneurial eminence, Late

Sri L.G.Balakrishnan, more popular as LGB.

The total employees of the company around 1575 in which 55 are staff. 720 permanent

labours and 800 are employed on casual and contract basis. The co. is maintaining sound

industrial relation for the past several years through various timely negotioations,

effective grievances, structured welfare measures, floor lend committies, employees

participation schemes besides all HRD mechanisms. In addition, HRD is particularly

interested in developing the “Quality Work ship” and company has taken several

measures continuously to create quality culture.the production is seventeen tones per day.

The mills manufacturers yarn of the fine quality supplying to different regions in India.

The different qualities of raw materials is used by these mills are:

ORGANIC COTTONS

INDIAN COTTON

PIMA BLENDS

SUPIMA

GIZA BLENDS

GIZA

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It produces cotton sewing thread to cater to the needs of hosiery

market. There are same local centers of sales of these yarn and sewing threads in Tripura,

Calcutta, Varanasi. Tenali and Mangalagiri. The mill produces high quality of yarn and is

able to with stand and growing competitors in the international markets.

FAVORABLE CONDITIONS TO SS MILLS LTD. B-UNIT

During the last 10years, Cotton cultivation consistently increased in a.p. and it

assured them of a consumer supply good quality of cotton.

The climate conditions of this area are very suitable for a spinning mill.

Infact, Hindupur has a sub-station of 132KW.

There are plenty of consumer centers with in the 200 KMS. From, Hindupur

mainly handloom sector.

There is abundance supply of labor from surrounding villages since it is a draught

area.

Hindupur is only 100Kms from bangalore and good infrastructural facilities are

available.

Sufficient water available at the site.

C - UNIT

In the year 1992 the companies settled up its 3rd unit at D. Gudalur near karur in

tamilnadu .this is located in an area of around 25 acres , build up an area of 9,600 Sq Mts.

This unit produces the finest quality yarn for domestic market as well as for export

market. The present installed capacity of this unit is 16,130 spindles.

D-UNIT

It was located in the Dhally Road ,udumalpet near coimbatore(dist) Tamilnadu.

UNIT SUPER SARA

It as located near beerapalli,from the Hindupur town it was 5 KMS, near Anantapur(dist).

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After its success with backward integration, it was but a natural corollary that the

company should go in for forward integration into garment manufacture as well. And

thus came into being SARA APPARELS & FASHIONS, a massive styling unit situated

at Coimbatore.

The unit specializes in manufacturing single and double mercerized 100% cotton -

knitted polo T-shirts with collars and cuffs. These are either in solid shades or in yarn-

dyed fabric or both, which in turn are mercerized and silicon softened in tubular knit

form. Also in the range are regular T-shirts in the non-mercerized range.

GARMENTS

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BUSINESS EXPANSION OF SUPER SPINNING MILLS

Integrated Cotton Cultivation Program

COTTON SEED DEVELOPMENT

It became obvious that the best way to ensure the highest standards of raw material was

for the company to integrate backwards. In this direction, a massive expansion was

launched to establish a full-fledged research facility to develop new varieties of cotton

seeds. This would go to ensure that the company supplied itself with a quality of material

that matched its objective of superlative finished product.

The result of the project was the development of high yielding hybrid cotton seeds

christened SARA - I, medium and long-staple and SARA - II, extra-long staple

varieties. Two more hybrids SARA - 33, SARA - 39 completed the trials and ready for

commercial launch.

Apart from fulfilling SSML’s social obligation in improving the standards of the

farmers, by providing low cost inputs of fertilizer, chemicals & assured buy back of

their produce at a premium price in collaboration with them, the company derives the

best quality raw material right from the field for its own manufacturing requirements.

Contamination Control

Elimination of raw material contamination has been identified as the major factor of

quality control. This is effectively tackled by adopting a three-pronged approach:

Close interaction with each supplier to ensure conformance to pre-set standards of

consistent, contamination-free cotton

Rigorous segregation of raw cotton at the ginning as well as mills to eliminate

contaminated material

Installation of Vision Shield contamination remover at the cotton stage and SIRO

clearer at the yarn stage to ensure purity of processed yarn.

WORLD WIDE CUSTOMERS TO WHICH THE UNITS MANUFACTURE THE GARMENTS

ARE :

• ARROW

• AUREUS

• BAY HILL

• BUGATCHI

• COLOR PLUS

• CUTTER BUCK

• EURO OPEN

• LIABEL

• LONE CYPRESS

• PEBBLE BEACH

• PING

• PGA TOUR

• TRICOTS ST RAPHET

• WILSON

SPINNING

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Constant commitment to high quality standards and innovation has been the secret of

success ever since the company was founded. Superior Spinning units ensure the supply of

consistent quality yarn to manufacture the garments. Our Spinning Units leads the quality

of yarn in the market. Ultimately, the crunch lies in the infusion of hi-tech, state-of-the-art

machinery that aids in the production of high quality 100% combed yarn, in counts that

range from NE 20s to 120s in single and doubles. The testimony to modernization and up

gradation lies in the fact that the oldest machine in the plant is less than 10 years.

Coupled with global standards of process manufacturing that turn out year of superior

quality in durability as well as finish. To produce superior quality garments, we ensure that

every kilogram of yarn supplied from our Spinning unit conforms to International standard

and with zero complaint.

Production Capacity - 50,000 Kgs per day

Superior Quality imported machines installed at Super Spinning Mills include:

RIETER

Vision Shield Foreign Fibre Remover in Blow Room

Unifloc – A10, A11

Drawframe – RSB 851 & D30

Unilap E32, Combers – E 7/5 A, E 7/6, E62

Suessen Elite Compact Ring Frame

LAKSHMI RIETER

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Flexifloc, Varioclean, Unimix

Cards – LC 300 A, LR C 1/3

Drawframes – RSB 851

Combers – LK 250 & E 7/4

Speed Frames – LF 1400 & 1400A

Ring Frames – G 5/1, LR6

TRUTZSCHELER : Cards – DK 803 & 903

CROSOL : Cards MK 5A & 5B

KIRLOSKAR TOYODA : Ringframe

MURATA 21 C :

Auto Coner with Uster

Quantum foreign fibre clearer

SCHALAFHORST 338:

Autoconers with Loepfe and Uster Quantum Foreign

fibre clearers

ELGI WELKER: Yarn Conditioning

VEEJAY LAKSHMI : Two-for-one Twister (TFO)

JEETSTEX / TEXTOOL : Ring Doubling

BATLIBOI : Fully Automatic Humidification Plant

SSM : Gassing Machine

PRODUCTS

We believe that quality products are not only by promises but also by proven results.

Development of new textile products is done through - Innovation in defining production

processes of higher quality and making available modern technologies and professionals with the

highest level of competence.

The following advantages which have always been our ultimate goals: -

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High Efficiency

The Most Competitive & Reasonable Price

Products Quality Guarantee

Prompt & Superior Service

Punctual Delivery

We manufacture:

100% Combed Cotton Yarn for Knitting and Weaving

NE 20s to NE 120s

Regular Grey Yarn

Single / Double (Ring Double / TFO)

Compact Single & Double, Elitwist

Gassed Yarns

Open-End Yarn

Core-Spun Yarn

Slub-Yarn

Zero Twist Yarn

Knitted Garments (Specialized in single/double Mercerized Cotton knit in polo T-shirts)

Woven Fabrics

POLICIESEnvironmental Policy:

Super Spinning Mills Limited is committed to comply with the requirements of relevant

environmental regulations and standards by implementing environmental management

system and continuously improve its effectiveness.

Employees should be trained on environmental aspects to minimize the pollution and

conserve natural resources.

Quality Policy :

“Quality leading to customer satisfactions shall be our top priority”. This shall be

achieved by complying t the requirements of the quality management system and

continually improve its effectiveness. Employees shall be systematically trained and

motivated to enhance improve the quality of their work.

21

The Mill is having fully equipped quality Assurance Laboratory managed by well trained

technicians to ensure quality, continuous modernizations and timely expansion has given

competitive edge and on other companies. As a result of this, the company has

established itself as a leader in most of its products.

According to surveys conducted by South Indian Textiles Research association (SITRA),

the performance of this company has been maintained consistently in production and

quality over the past. During the 25th survey conducted by SITRA out of 270 mills this

unit’s productivity performance ranked as 10th.

TPM POLICY:

They are committed to maximizing over all plant effectiveness to make Super Spinning

Mills a World-class company through Total Productive Management by:

• Promoting autonomous maintenance culture.

• Involving all employees and building culture.

• Encouraging continuous improvement through small group activities.

VISION, MISSION AND QUALITY POLICY

VISION STATEMENT OF SS MILL:

The cotton yarn industries fortunes are closely linked to fluctuations in the cotton market.

Any upward or downward movement of cotton prices put pressure on the profit margins

of mills operating in the intensely competitive yarn market.

At the same time new entrants with modern mills have advantage of achieving better

productivity and quality off lower prices and credit facility to achieve market entity. This

has increased customer expectation in terms of quality, price and delivery. Hence they

have to

Strength the business system for cotton purchase.

Reduce operational cost by improving productivity of machinery and employees.

Retaining leadership by improving and consistently maintaining high quality.

22

Maintaining the temp of continuous modernization of plant and machinery.

To achieve the above they have to improve the performance by reengineering

business process.

All employers shall be educated on significance of re-engineering. Success of this

program will depend on involvement of employees.

S-Super

U-Upgraded quality

P-Profitability

E-Efficiency and Employees Satisfaction

R-Reduction in cost

R & D ACHIEVEMENTS:

The R & D efforts of the company are directed towards improvement of

manufacturing process, yarn quality and productivity. Efforts are continuing to enlarge

the scope of R & D facility to as many areas as possible. Revenue expenditure on R & D

amounts to Rs.5.70 lakhs. No capital expenditure was incurred on R & D during the year.

QUALITY

The company has a long reputation for quality,

performance and innovation. Quality of final product is

determined with quality of raw material. In Super

Spinning Mills, we take meticulous care in the selection

of cotton. Our dedicated, committed and involved cotton selectors at

different stations headed by experienced supervisors,

spares no pain in the selection of Kapas or Raw cotton

available in the market.

There are quality checks at every stage of manufacturing starting from Raw Cotton.

After each lot of fabric is cut, 100% cut parts inspection is conducted to ensure that

23

only good quality pieces move to the stitching units. To ensure that the garments are

packed as per the requirements of our valued customers, we can even track and check,

which case the garment, has been packed in.

Investments in sophisticated instruments from world-renowned manufacturers like

Zellweger USTER are an integral part of the plan to implement Total Quality

Assurance.

In conformance with industry norms worldwide, the company has established

laboratory facilities at each unit, equipped with ultra-modern testing instruments.

SPINLAB HVI 900

USTER AFIS

USTER CLASSIMAT

USTER TENSOJET

PREMIER TENSOMAX 7000

PREMIER AQURA L&N

PILOT SPINNING

KNITTING FACILITIES

RECOGNITIONS

Super Spinning Mills has dedicated itself to providing customers with the best products

and garments. Our energetic team of professionals is behind every award we receive. We

are dedicated to delivering quality products that advance our customer's goals.

24

Breif information pertaining to the group companies

ELGI BUILDING PROUDCTS LTD.

As a part of its continuous growth and diversification, SARA ELGI in association with

Techno plast of Austria. brings internationally acclaimed polymer window and doors with

a view to change the face of architectural system and design. ELGI Visage’s innovative

excellence in designing the window and doors system not only enhance and beautify the

building but also overcome the short comings of using conventional wood and aluminum

material.

Product Range:

Casement – outside opening system Sliding – two track system

Doors

Swing Door

Hinged Door

Curtain Walling System

Structural Glazing

Slim line system

Product Features:

Health Insulation

CERTIFICATIONS

BVQI ISO 9001 – 2000 ISO 14001 CERTIFICATION OKEO - TEX

CERTIFICATION

25

Sound Insulation

Weather resistance

Fire resistance

Impact ressistance

water resistance

Corrosion resistance

Chemical resistance

Low thermal resistance

Architectural aesthetics

Low maintenance

Environment friendly

Economical

26

ELGI Electric & Industries Ltd.

ELGI Electric, a significant player in the engineering industry, manufactures electrical

engineering machines, control automation switchgear, textile machinery, sepecial

purpouse machines & plant automation solutions.

ELGI Electric has over four decades of expertise in Engineering. Its prodducts have won

worldwide acclaim for their international quality standards and innovative technology. An

ISO 9001 Certification only stands, as testimony strengths of ELGI Electric has made for

itself in the engineering industry. One of the major strengths of ELGI Electric has been

the company’s ability to adapt its technology to suit changing customers needs.

PRODUCT RANGE:

Rotating Machines

A C and D C Motors

Alernators

Textile Machinery and Accessories

Over Head Cleaners

Yarn Conditioning System

Fire protection system for Blow Room Lines

Central Vacuum Cleaning System

ELGI Software & Technologies Ltd.

Elgi Software and Technologies Limited, eSTEL, was originally developed as an

independent IT enabling service company to cater to the various information and data

processing needs of SARA ELGI group.

Today eSTEL has built strong technical expertise to Design and develop information

appliances, multimedia services, business process solutions and web-enabled services

creating seamless and efficient digital interaction free of boundaries.

eSTEL can offer comprehensive solution in the field of IA product development, Smart

Homes, intelligence buildings and Industrial cross media development.

27

eSTEL represents a select group of IT development establishments with powerful domain

expertise. The design, documentation, testing and benchmarking are carried out by

eSTEL engineers at Chennai and Coimbatore. Application study, onsite integration of

modules and performance compliance are carried out at client premises.

SARA ELGI Industrial Research & Development Ltd.

In keeping with the vision of the founders of the ELGI group, SARA R&D has been

created to incubate technology which will pioneer the next generation growth for the

group.

SARA R&D is conceived to build processes and solutions which work in harmony with

the environment for sustainable growth and to be socially conscious and sensitive.

SARA Environment technologies co. Ltd

The application of scientific development in rapid industrialization and urbanization has

resulted in a significant increase in environmental degradation. Specific solutions are

required for mobilization and deplyment of naturaal without detriment to their re-

utilisation.

SARA ETC has pioneered investments in research and state-of-the-art infrastructure for

development of cleaner technologies. By combining innovation and technology a range of

core modules have been developed for treatment and abatement of water and air based

pollution.

Products

Ozone systems for air and water treatment

Filtration and recovery systems

Open and closed cycle reactors

Ultra-Violet Stabilizers

Multiple effect evaporators

Reverse osmosis Plants

Wet and dry in-plant sterilizers

28

Working hours of Super Spinning mills ltd

The mill works round the clock in three-shifts. Following are the shift timings.

I shift : 8.00am to 4.00pm with 30 min interval

II shift : 4.30pm to 1.00am with 30 min interval

III shift : 1.00am to 8.00am with 30 min interval

General shift : 8.00am to 5.00pm with one hour interval

Performance appraisal

All the employees will be evaluated once in every six months that is in June and

December of every year. the appraisal system shall be used to identify needs, career

development, increments and exgratia. The appraisal shall be done by the immediate

supervisor as per performance appraisal system.

Labor Legislations

These units are maintaining very cordial relationship with their worker unions. they are

also successful in implementing productive linked wages. this company is also paying

bonus and exaratia to the workers.

Trade unions

The management has one independent trade union consisting of 11 office bearers. regular

structure meetings with the union take place to resolve problems, if any, and to maintain

cordial relations.

CAPITAL STRUCTURE

29

Introduction

In order to run and manage a business, funds are needed. Right from promotional stage up

to end, finance plays an important role in company’s life. If funds are inadequate, the

business suffers and if funds are not properly managed, the entire organization suffers. It

is there fore necessary that correct estimate of the current and future need of capital be

made to have an optimum capital structure which shall help the organization to run its

works smooth and with out any stress.

Estimation of capital requirement is necessary, but the formation of a capital structure is

important. According to Gerestenbeg, “capital structure of a company refers to the

composition or makeup of its capitalization and it’s include all long –term capital

resources like loans, reserves, shares and bonds.

The capital structure is made up of debit and equity securities, and refers to permanent

financing of a firm. It is composed of long term debit, preference share capital and share

holder’s funds.

Capitalization, Capital structure and financial structure

The terms, capitalization, capital structure and financial structure, don not mean the same.

While capitalization is quantitative aspect of the financial planning of an enterprise,

captital structure is concern with qualitative aspect. Capitalization refers to total amount

of securities issued by a company while capital structure refers to kinds of securities and

proportionate amounts that make up capitalization. For rising long – term finance, a

company can issue three types of securities. Equity shares, preference shares, and

debentures. A decision proportion among these types of securities refers to the capital

structure of an enterprise.

Some authors on financial managements define capital structure in board sense so as to

include even the proportion of short – term debit. In fact, they refer to capital structure as

a financial structure.

A financial structure means the entire liabilities side in the balance sheet. in the

words of Nemmers and Grunewald “Financial structure refers to the all the financial

30

resources marshaled by the firm short as well as long term , and all forms of debit as well

as equity. “ Thus, financial structure, generally, is composed of a specified percentage of

short – term debit , long – term debit and share holder’s funds.

Importance of Capital Structure

The term ‘Capital Structure’ refers to the relationship various long-term forms of

financing such as debentures , preference share capital and equity share capital ,

Financing the firms asset’s is a very crucial problem in every business as a general rule

there must be a proper mix of debit and equity capital in financing the firms assets. The

use of long – term fixed interest baring debit and preference share capital along with

equity shares is called Financial leverage or trading on EQUITY. the long-term fixed

interest baring debit is employed by a firm to earn from the use of these sources than their

cost so as increased the return on owner’s equity. It is true that a capital structure cannot

affect the total earning of a firm but it can affect the shares of earning available for equity

share holders.

Optimal Capital Structure

The capital structure decision can influence value of the firm through the cost capital and

trading on equity or leverage . the optimum capital structure may be defined as “the

capital or the combination of debit equity that leads to the maximum value of the firm”.

Optimal capital structure ‘maximizes the value of the company and hence the wealth of

its owners and minimizes the company cost of capital. Thus, every firm should aim at

achieving the Optimal capital structure and then to maintain it.

The following considerations should be kept in mind while maximizing the value of the

firm in achieving the goal of Optimum capital:

If the return on investment is higher than the fixed cost of funds, such as debentures,

loans and preference share capital. it will increase earning per share and market value of

the firm. thus, a company should, make maximum possible use of leverage.

When debit is used as source of finance, the firm saves a considerable amount in payment

of tax as interest is allowed as deductable expenses in computation of tax. Hence, the

31

effective cost of debit is reduced, called tax leverage. A Company should, therefore, take

advantage tax leverage.

The firm should avoid undue financial risk attached with the use of increased debit

financing. If the share holders perceive high risk in using further debit – capital, it will

reduced the market price of shares

The capital structure should be flexible.

Theories of Capital Structure

Different kinds of theories have been propounded by different authors to explain the

relationship between capital structure, cost of capital and value of the firm .The main

contributors to the theories are Durand, Ezra, Solomon, Modigliani and Miller. The

important theories are:

Net Income Approach

Net Operating Income Approach

The Traditional Approach

Modigliani and Miller Approach

Net Income Approach

According to this approach, a firm can minimize the weighted average cost of capital and

increase the value of the firm as well as market price of equity a share by using debt

increase its value and reduces the overall costs of capital by increasing the proportion of

debt in its capital structure. This approach is based upon the following assumptions:

i. The cost of debt is less than the cost of equity.

ii. There are not taxes.

iii. The risk perception of investors is not changed by the use of debt.

The line of argument in favour of net income approach is that as the proportion of a

cheaper source of funds increases. This results in the decrease in overall cost of capital

leading to an increase in the value of the firm. The reasons for assuming cost of debt to be

less than the cost of equity are that interest rates are usually lower than dividend rates due

to element of risk and the benefit of tax as the interest is a deductible expense.

32

Net Operating Income Approach

This theory as suggested by Durand is another extreme of the effect of leverage on the

value of the firm. It is diametrically opposite to the net income approach. According this

approach, change in the capital structure of a company does not affect the market value of

the firm and the overall cost of capital remains constant irrespective of the method of

financing. It implies that the overall cost of capital remains the same whether the debt –

equity mix is 50:50 or 20:80 or 0:100. Thus, there is nothing as an optimal capital

structure is the optimum capital structure. This theory presumes that:

I. The market capitalizes the value of the firm as a whole.

II. The business risk remains constant at every level of debt equity mix.

The reasons propounded for such assumptions are that the increased use of debt increases

the financial risk of the equity shareholders and hence the cost of debt remains constant

with the increasing proportion of debts remains constant with the increasing proportion of

debt as the financial risk of the lenders is not affected.

Thus, the advantage of using the cheaper source of funds, i.e., debt is exactly offset by the

increased cost of equity.

The Traditional Approach

The traditional approach, also known as Intermediate approach, is a compromise between

the two extremes of net income approach and net operating income approach. According

to this theory, the value of the firm can be increased initially or the cost of capital can be

decreased by using more debt as the debt is a cheaper source of funds than equity. Thus,

optimum capital structure can be reached by a proper debt equity mix. Beyond a

particular point, the cost of equity increases because increased debt increases the financial

risk of the equity shareholders.

The advantage of cheaper debt at this point of the capital structure is offset by

increased cost of equity. After this there comes a stage, when the increased cost of equity

cannot be offset by the advantage of low-cost debt. Thus, overall cost of capital,

according to this theory, decreases up to a certain point, remains more or less unchanged

for moderate increase in debt thereafter; and increases or rises beyond a certain point.

Even the cost of debt may increase at this state due to increased financial risk.

33

Modigliani and Miller Approach

M & M hypothesis is identical with the Net Operating Income approach if taxes are

ignored. How ever, when corporate taxes area assumed to exist, there hypothesis is

similar to the net income approach.

In the absence of taxes:

The theory proves cost capital is affected by the capital structure are say that the debt-

equity mix is irrelevant in the determination of the total value of a firm. The reason

argued is that though debt is cheaper to equity, with increased use of debt as a source of

finance, the cost of equity increases . this increase in cost of equity offsets the advantage

of the low cost debt. Thus , although the financial leverage affects the cost of equity the

overall cost of capital remains constant . the theory emphasizes the fact that a firms

operating income is a determinant of its total value. The theory further propounds that

beyond a certain equity falls there by again balancing the two costs. In the opinion of

Modigliani & Miller , to identical firms in all respects except their capital structure cannot

have different values or cost of capital because of ‘Arbitrage process’. In case two

identical firms except for their capital structures have different market values are cost of

capital Arbitrage will take place and the investors will engage in personal leverage, and

this will again render the two firms to have the same total value.

The M & M approach is based upon the following assumptions:

1. There are no corporate taxes.

2. Investors act rationally.

3. The expected earnings of all the firms have identical risk characteristics.

4. The cut-off point of investment in firm is capitalization rate.

5. Risk to investors depends upon the random fluctuations of expected earnings and

the possibilities that the actual value may turn out to be different from their best

estimate.

6. All earnings are distributed to the share holders.

When the corporate taxes are assumed to exist:

34

M & M , in their article of 1963 have recognized that the value the firms will increase or

the cost of capital will decrease with the use of debt on account of deductinility of interest

charges for tax purpose. Thus , the optimum capital structures can be achieved by

maximizing the debt mix in the equity of a firm .

According to the M & M approach , the value of a firm unlevered can be calculated as

follows :

Value of unlevered firm (Vu)

= ( Earnings Before Interest & Tax ) / ( Overall cost of capital)

= (EBIT) * (1-t) / Ko)

AND , the value of a levered firm is :

V1 = Vu + td

Where, Vu is value of a levered firm

And, t D is the discovered present value of the tax savings resulting from the tax

deductibility of the interest charges, t is the rate of the tax and D the quantum of debt used

in the mix.

Capital Structure Management

Capital Structure Management or planning the capital structure

Estimation of capital requirements for current and future needs is important for a firm.

Equally important is the determining of capital mix. Equity and debt are the two principle

sources of finance of a business. But, what should be the proportion between debt and

equity in the capital structure of a firm? how much financial leverage should a firm

employ? This is a very difficult question. To answer this question, the relationship

between the financial leverage and the value of the firm or cost of capital has to be

studied . Capital structure planning, which aims at the maximization of profits and the

wealth of the share holders, ensures the maximum value of a firm or the minimum cost of

capital . It is very important for the financial manager to determine the proper mix of debt

and equity structure but in practice it is very difficult to design the optimal capital

structure. The management of a firm should try to reach as near as possible of the

optimum point of debt and equity mix.

Essential Features of a Sound Capital Mix

35

A sound or an appropriate capital structure should have the following features:

i. Maximum possible of leverage.

ii. The capital structure should be flexible.

iii. To avoid undue financial business risk with the increase of debt.

iv. The use of debt should be with in the capacity of a firm. The firm should in a

position to meet obligations in paying the loan and interest charges as and when

due.

v. It should involve minimum possible risk of loss of control.

vi. It must avoid undue restrictions in agreement of debt.

36

CAPITAL GEARING

The term capital gearing refers to the relationship between equity capital and long-term

debt it may be planned or historically, the latte describing a state of affairs where the

capital structures a evolved over a period of time , but not necessarily in the most

advantages way. In simple words the capital gearing means the ratio between the various

types of securities in the capital structure of the company . a company is set to be in high-

gear , when it has a proportionately higher / large in use of debentures and preference

shares for raising the long-term resources , where as low gear stands for a proportionately

large issue of shares.

Significance of Capital Gearing

The problem of capital gearing is very important in a company. It has a direct bearing on

the divisible profits of a company and hence a proper capital gearing is very important for

smooth running of an enterprise. In case of low geared company, the fixed cost of capital

by way of fixed dividend on preference shares and interest on debentures is low and the

equity share holders may get a higher rate of dividend. Whereas, in a high geared

company the fixed cost of capital is higher leaving lesser divisible profits for the equity

share holders.

The capital gearing in the financial structure of a business has been rightly compared with

the gears of an automobile. The gears are used to maintain the desired speed and control.

Initially, an automobile starts with a low gear, but as soon as it gets momentum, the low

gear is changed to high gear to get better speed. Similarly a company may be started with

a high equity state, that is low gear but after momentum, it may be changed to high gear

by mixing more of fixed interest bearing securities such as preference shares and

debentures. It may also be noted that capital gearing affects not only the shareholders but

also debenture holders, creditors, financial institutions, the financial managers and others

are also concerned with the capital gearing.

37

Capital gearing and trade cycles :

The technique of capital gearing can be successfully employed by a company during

various phases of trade cycles that is during the conditions of inflation and deflation, to

increase the rate of return to its owners and thereby increasing the value their

investments. The effect of capital gearing during various phases of trade cycles is

discussed below:

During inflation or boom period:

A company should follow the policy of high gear during inflation or boom period as the

profits of the company are the higher and it an easily preference shares pay fixed costs of

debentures and preference shares. By adoption the policy of high gear, a company can

increases its earnings per share and there by a higher rate of dividend.

During the deflation or depression period:

During depression the rate of earnings of the company is lower than the rate of

interest/dividend on fixed interest bearing securities and hence it cannot meet the fixed

costs without low gearing the divisible profits and rate of dividend. It is, therefore, better

for a company to remain in low gear and not to resort to fixed interest bearing securities

as source of finance during such period.

Factors determining the capital structure

The capital structure of a firm depends upon a large number of factors such as leverage or

trading on equity, growth of the company, nature and size of business, the idea of

retaining control, flexibility of capital structure, requirements of investors, costs of

floation of new securities, timing of issue, corporate tax rate and the legal requirements. It

is not possible to rank them because of all such factors are of different importance and the

influence of individual factors of a firm changes over a period of time. Every time the

funds are needed, the financial manager has to study the pros and cons of the various

sources of finance so as to select the most advantageous capital structure.

38

The factors influencing the capital structure are as follows:

Financial Leverage or Trading on Equity:

The use of long-term fixed interest bearing debt and preference share capital along with

equity share capital is called financial leverage of trading on equity. Effects of leverage

on the shareholders return or earnings per share have already been discussed in this

chapter. The use of long-term debt increases magnifies the earnings per share if the firm

yields a return higher than the cost of debt. The earnings per share also increase with the

use of preference share capital but due to the fact that interest is allowed to be deducted

while computing tax, the leverage impact of debt is much more.

Growth and Stability of Sales:

The capital structure of a firm is highly influenced by the growth and stability of its sale.

If the sales of a firm are expected to remain fairly stable, it can raise a higher level of

debt. Stability of sales ensures that the firm will not face any difficulty in meeting its

fixed commitments of interest repayments of debt. Similarly, the rate of growth in sales

also affects the capital structure decision.

Cost of Capital:

Every rupee invested in affirm has a cost. Cost of capital refers to the minimum return

expected by its suppliers. The capital structure should provide for the minimum cost of

capital. The main sources of finance for a firm are equity, preference share capital and

debt capital. The return expected by the suppliers of capital depends upon the risk they

have to undertake. Usually, debt is a cheaper source of finance compared to preference

and equity capital due to

I. Fixed rate of interest on debt;

II. Legal obligation to pay interest;

III. Repayment of loan and priority in payment at the time of winding up of the

company.

39

Cash Flow Ability To Service Debit:

A firm which shall be able to generate larger and stable cash inflows can employ

more debit in its capital structure as compared to the one which has unstable and

lesser ability to generate cash inflows . debit financing implies burden of fixed

charge due to fixed payment of interest and the principal . when ever wants to

raise additional funds, it should estimate , project in future cash inflows to ensure

to coverage of fixed charges .

Nature and Size of a Firm :

Nature and size of a firm also influence its capital structure . A public utility concern has

different capital structure as compared to other manufacturing concern. Public utility

concern may employ more of debit because of stability and regularity of their earnings .

on the other hand , a concern which cannot provide stable earnings due to the nature of its

business will have to rely mainly on equity capital ; similarly, small companies have to

mainly upon owned capital as it is very difficult for them to raise long term loans on

reasonable terms and also can issue equity and preference shares at case to the public.

Control :

When ever additional funds are required funds by a firm, the management of the firm

warns to raise the funds with out any loss of control over the firm. In case the funds are

raised through the issue of equity shares, the control of the existing share holders is

diluted. Hence, they might raise additional funds by way fixed interest bearing debit and

preference share holders and debenture holders do not have the voting rate. Hence, from

the point of view of control, debit financing is recommended.

Flexibility :

Capital structure of a firm should be flexible, i.e., it should be such as to be capable of

being adjust according to the needs of changing conditions. It should be possible to raise

additional fund, when ever the need be, with out much of difficult and delay. A firm

should arrange its capital structure in such a manner that it can substitute on form

financing by another. Redeemable preference shares and convertible debentures may be

preferred on flexibility.

40

Requirements of investors :

The requirement of investors is another factor that influences the capital structure of the

firm. It is necessary to meet the requirements of both institutional as well as private

investors when debt financing is used. Investors are generally classified under three kinds,

i.e., bold investors, cautious investors, less cautious investors.

Assets Structure :

The liquidity and the composition of assets should also be kept in mind while selecting

the capital structure. if fixed assets constitute a major portion of the total assets of the

company, it may be possible for the company to raise more of long term debts.

Cost of floatation :

Although not very significant, yet cost of floatation of various kinds of securities should

be considered while raising funds. The cost of floating debt is generally less than the cost

of floating equity and hence it may persuade the management to raise debt financing. The

cost of floating as percentage to funds decrease with the increase in the size of issue.

DATA ANALYSIS AND INTERPRETATION

41

Rs in 000’s

Sources of funds

No Name of items 2007 2008 2009 2010 2011

1 Paid-up capital 55000 55000 55000 55000 55000

2Reserves and

surplus835324 922499 109633 1206669 1174333

3 Secured loans 1307704 1528448 2104765 2596125 2577716

4 Unsecured loans 404747 87771 121030 9428 5952

5Defferred tax

liability213456 200681 248581 251997 261240

42

Interpretation:

In super spinning mills during the last five years equity share capital remained constant

from 2005-06 to 2009-10. There are some fluctuations in the reserves and surplus during

the period. However there is an increase of 40% from 2006to2010.

Even though there are some fluctuations in secured and unsecured loans. Secured loans

increased by more than 97% in 2010 and unsecured loans decreased in the year 2010.

Deferred tax liability is increased by 23% from 2006-2010.

Interpretation:

Equity share capital, share premium capital, reserve remained constant during the period.

General reserve and P&L account were not constant due to some business expansion and

ups and downs in business expenditure.

No Name of items 2007 2008 2009 2010 2011

1 Authorized capitalEquity shares 550.00 550.00 550.00 550.00 550.00

2 Issued,subcribed& paid-up capital 550.00 550.00 550.00 550.00 550.00

3 Reserves and surplus

a)Share premium 1487.50 1487.50 1487.50 1487.50 1487.50

b)Capital reserve 48.18 48.18 48.18 48.18 48.19

c)General reserve 5998.93 6228.93 8228.93 9428.93 9047.46

d)P&L account 788.63 1460.38 1196.72 1102.07 1160.18

43

Debt capital:

Loans and funds Rs in lakhs

No Name of items 2007 2008 2009 2010 20111 Secured loans

a)Term loans 6336.67 8722.50 10717.5 17546.56 14919.51

b)Working capital Borrowings

6740.37 6561.98 10330.15 8414.71 10857.65

2 Unsecured loans 4047.47 877.71 1210.30 94.28 59.52

Total 17124.51

16162.19

22257.95

26055.94

25836.68

Interpretation:

There was a debt capital which is from debentures in 2000 only. Later they were

redeemed. Term loans, working capital ,unsecured loans were increased from the year

2006-2010. All these were increasing and decreasing due to the expansion of the

business.

The overall debt is being increased from 2007-2011 from Rs 17124.51 lakhs to Rs

25836.68 lakhs.

This is because the business expansion. They have started a firm named SARA

apparels and fashions which manufacture garments for the other companies world wide.

The expansion in garment manufacturing division was completed in Feb 2008. The

capacity of the garment unit has been increased from 700 to 2000 pieces per day after the

expansion process. This is the reason why debt is increasing.

44

Growth of owner’s funds

YearEquityShare

capitalRs in lakhs

Reserves & surplusRs in lakhs

Net worthRs in lakhs

2007 550.00 8323.24 8873.002008 550.00 9224.99 9775.002009 550.00 10961.33 11511.002010 1000.00 12066.69 13066.692011 1000.00 11743.33 12743.33

Growth of owner’s funds

Interpretation:

YearReserves and

surplusRs in lakhs

%of increase or decrease

over the previous year

Net worthRs in lakhs

%of increase or decrease

over the previous year

2007 8323.24 _ 8873.00 _2008 9224.99 +10% 9775.00 +10%2009 10961.33 +18% 11511.00 +17%2010 12066.69 +10% 13066.69 +13%2011 11743.33 -3% 12743.33 -3%

Reserves and surplus

There are fluctuations in the recent five year reserves and surplus. In 2007 there is an

10% in 2008 it has been increased by 18%, in 2009 again increased by 10% and then

finally in 2010 it has decreased to -3%.

45

Equity share capital

There is no increase in the equity share capital in the recent five years. The authorized

capital of the firm is 550 lakhs and the issued, subscribed and paid-up capital has reached

its extent that is authorized capital, because of rights issue in the year 1994-95. Earlier it

was 412.50 lakhs.

Net worth so both reserves and surplus and equity share capital resulted in net worth to

fluctuate.

Growth of debt capital

YearSecured loans

Rs in lakhsUnsecured loans

Rs in lakhsTotal debtRs in lakhs

2007 13077.04 4047.47 171252008 15284.48 877.71 161622009 21047.65 1210.30 222582010 25961.25 94.28 260562011 25777.16 59.52 25837

Growth of debt capital

46

Interpretation:

YearTotal debtRs in lakhs

% of increase or decrease over the previous year

2007 17125 _2008 16162 -6%2009 22258 +38%2010 26056 +17%2011 25837 -1%

Debt capital also exhibits an increasing trend from the year 2008-09 to 2009-10. It is

increasing by 38%, 17% respectively and it is decreased by -6% ,-1% in the year

2007-2008 & 2010-2011. The sources of the debt capital are deffered credits secured and

unsecured loans.

Secured loans: includes loans from IDBI, EXIM bank ICICI bank ltd, UTI bank,

standard charted bank, CITI bank N.A., and working capital borrowing from different

banks. There were 200000 14% and 250000 19% secured non convertible redeemable

debentures in 1999-2000 later they were redeemed now the firm super spinning mills has

no debentures.

Unsecured loans: includes fixed deposits, trade deposits, short term loans, loans from

directors or bodies corporate and foreign currency loans.

Due to expansion of the business the debt capital is being increased. They have started

producing the products from sourced units which manufacturing yarn and garments for

this firm. They have taken loans due to this for their working capital and other

miscellanies expenditures that is the reason why debt capital is being increasing in the

period.

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Percentage of owned and borrowed funds in total investment

Percentage of owner’s funds = Net worth x 100 Net worth + Total debt

Percentage of owned and borrowed funds

Interpretation:

YearDebt

Rs in lakhs

%of increase or decrease over the previous

year

Net worthRs in lakhs

%of increase or decrease over the previous

year2007 17125 _ 8873 _2008 16162 -6% 9775 +10%2009 22258 +38% 11511 +17%2010 26056 +17% 13067 +13%2011 25837 -1% 12743 -3%

The above table shows clearing the debt is gradually increasing and the net worth is

fluctuating. When debt is compared to net worth the increase % is more so that the super

spinning mills are preferring debt to equity to finance their investments.

Year Owner’s funds Borrowed funds Total

2007 34.12% 65.88% 100%2008 37.68% 62.32% 100%2009 34.08% 65.92% 100%2010 33.39% 66.61% 100%2011 33.03% 66.97% 100%

48

RatiosA ratio indicates the relationship between two figures or expresses or variables. This can

be expressed as a simple fraction, integer, or percentage. A ratio must represent a

meaniningful relationship . the purpose of ratio will be served only when relationship is

established between figures which are connected with each other. Absolute figures are not

useful for comparison. It is easy to measure operational performance of an organization

by using ratios. The ratios that are calculated can be called accounting ratio or financial

ratios as it is used and related to financial statement analysis. Ratios indicate a

quantitative relationship, which the analyst must use to make a qualitative judgment about

operational performance of an organization. To study creditworthiness of the firm select a

set of ratios that indicate firm’s state of liquidity, profitability, asset management and debt

position. While selecting figures for calculating ratios one must be careful and see that

these figures are connected with each other. It is always better to compare ratios of

current year with that of past years. Any number of ratios can be calculated depending

upon the purpose and necessity. So the ratios that each group of people chooses to

examine will depend upon the nature of the groups interest in the firm. Some times,

ratio’s can be calculated from proforma financial statements. These ratios an be compared

with past ratios to know the relative strenghs and weaknesses in the past and future.

The profitability has to reveal ability of the firm to earn profitts(profit+ability) which is

depent upon

Utilization of resources

Margin between sales revenue and cost of production.

There are two major objectives in calculating the ratios below. They are

To know the financial position of the organization

To know the profitability of the firm.

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Debt equity ratioThis is also called as leverage ratio. This ratio would establish relationship between

borrowed capital and own capital. It is to measure the proportion of borrowed capital in

the total capital invested. The ratio shows the risk assumed by the company. If the ratio is

high risk is high. A high ratio indicated that firm has more borrowed capital than own

capital. A high ratio increased the firm’s obligation of interest payment. It indicates that

firm is very aggressive.

As long as the firm gets adequate profits it can meet its fixed obligation of interest and it

will further enhance the profits. But in case, profits are inadequate the firm will have to

pay interest out of capital and that will further enhance its loss. Moreover high ratio

indiateds low creditwothiness of the firm. Since the firm has already more borrowed

capital, financial institutions will not come forward to grant loans. If at all any institution

comes forward to finance, the terms and conditions may not be so favorable.

A low debt equity ratio indicates a low risk. The low proportion of the borrowed capital

reduces firm’s fixed obligation of interest payment.even when the firm gets low profits,

profit rate is satisfactory it can not maximize its profits with low debt equity ratio.but the

creditwothiness of the firm will be high when its DE ratio is low. Financial institutions

will come forward to finance these firms as the risk is very low.low ratio indicates that for

every rupee of borrowed capital firm has more proportion of own capital. A low ratio

indicates the firm’s risk avesion and conservative nature.

The debt equity ratio is generally calculated as follows:

D/E ratio = Long term borrowed capitalShare holder’s funds

A ratio of 1:1 may be usually considered to be satisfactory ratio although there cannot be

any rule of thumb for all types of businesses. In some businesses a high ratio 2:1 or even

more may be considered satisfactory. A low ratio is considered as favorable from the

long-term creditors’ point of view because a high proportion of owners funds provide a

larger magin of safety for them.

D/E ratio for the year 2007

= 17125 = 1.93

8873

50

D/E ratio for the year 2008

= 16162 = 1.65

9775

D/E ratio for the year 2009

= 22258 = 1.93

11511

D/E ratio for the year 2010

= 26056 = 1.99

13067

D/E ratio for the year 2011

= 25837 =2.00

12743

Debt equity ratio

YearDebt

Rs in lakhsEquity(net worth)

Rs in lakhsD/E ratio

2007 17125 8873 1.932008 16162 9775 1.652009 22258 11511 1.932010 26056 13067 1.992011 25837 12743 2.00

51

Interpretation:

The debt eqity ratio is increaseing in the last four years. The firm prefers to raise the

capital through the loans from banks and other financial institution due to

Low cost of capital compared to other forms.

Flotation charges are very less in this

The firm is getting the loans at cheaper cost and at very reasonable terms and

conditions of the financial institutions.

More over the company is in huge profits and it has no problem in paying the interest to

the creditors. The company aim is to maximize the wealth of the shareholders by

providing them high dividends.

Interest coverage ratio

This ratio establishes relationship between operating income/profit or EBIT and interest

payable annually. This ratio measures the number of times interest is coverd by the profit

available for the payment of interest. Since interet is paid out of operating profit(EBIT)it

is essential to relate them to measure the degree of risk in the payment of interest. This

ratio is calculated as follows:

Interest coverage ratio = EBIT Interest payable

Higher ratio indicates lower risk and lower ratio indicates higher risk. But higher ratio

may also indicate lesser proportion of borrowed capitalwhich means the firm is not

maximizing shareholders’ earnings by utilizing more and more borrowed capital. Lower

ratio is an indication of higher proportion of borrowed capital which amounts to higher

risk.

Ratio for the year 2007

= 4186 = 3.868

1082

Ratio for the year 2008

= 4269 = 3.683

1159

Ratio for the year 2009

= 6618 = 5.315

52

1245

Ratio for the year 2010

= 4334 = 2.008

2158

Ratio for the year 2011

= 5740 =2.636

2177

Interpretation:

YearEBIT

Rs in lakhs

Interest

Rs in lakhsICR

2007 4186 1082 3.8682008 4269 1159 3.6832009 6618 1245 5.3152010 4334 2158 2.0082011 5740 2177 2.636

Interest Coverage Ratio

Gross profit ratio

53

Gross profit ratio = Gross profit x100 Netsales

Rs in lakhs

Year 2007 2008 2009 2010 2011Gross profit 4525 2834 1039 2176 3563

Netsales 33516.26 36752.25 36316.52 38537.85 47689.72

Ratio 9.3% 8.46% 14.79% 11.47% 7.24%

GROSS PROFIT RATIO

Interpretation:

The gross profit ratio of super spinning mills is in a fluctuating trend. In the year 2006 it

was 9.3%, in 2007 it has come down to 8.46%. in 2008 there was an increase by 14.79%

again in 2009 it has reduced to 11.47% and again in 2010 it came down to 7.24%, This

was due to a hike in the expenditure.

54

Opertating profit ratio

Operating profit ratio = operating profit x 100 Net sales

Rs in lakhs

Year 2007 2008 2009 2010 2011Operating

profit5981 4610 1771 4334 5740

Netsales 40378.77 39215.27 36644.79 38537.85 47689.72Ratio 14.81% 11.75% 4.83% 11.24% 12.03%

OPERATING PROFIT RATIO

Interpretation:

The operating profit ratio of super spinning mills is in a fluctuating trend. This is also

same as the gross profit ratio curve. It says that if the operating profit goes up gross profit

also goes up and if it comes down gross profit also comes down. in the year 2007 it was

12.5% and in 2008 it has come down, in 2009 there was an increase by 18.2% in 2010 it

has been reduced to 15.2% and again in the year 2011 it was reduced to 11.7%

respectively.

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Net profit ratio

Net profit ratio = Net profit x 100 Net sales

Rs in lakhs

Year 2007 2008 2009 2010 2011Net profit 1427 172 2743 32 1391Netsales 33516.26 36752.25 36316.52 39419.28 39215.27

Ratio 3.1% 3.0% 6.1% 3.6% 0.4%

NET PROFIT RATIO

Interpretation:

The net profit ratio of super spinning mills is also in a fluctuating trend. This is also same

as the gross profit ratio curve. It says that if the gross profit goes up net profit also goes

up and if it comes down net profit also comes down. There was an increase in the year

2009 compared to the year 2008, in the year 2010 & 2011 it was decreased to 0.4%

respectively.

Return on shareholders’ total equity

56

This would establish relationship between profit and equity share capital. Equity share

capital means equity and reserves (retained earnings), return is net profit after deducting

dividend on preference capital. This ratio shows the amount of profit that is earned on

own capital and also shows the profit available for distribution among equity share

holders this is calculated as follows:

ROE = Net profit--Dividend of preference capital Equity share capital + reserves

ROE for the year 2007

= 1427 =12% 8903

ROE for the year 2008

= 172 =11% 9775

ROE for the year 2009

= 2743 =19% 11511

ROE for the year 2010

= 32 = 11% 12617

ROE for the year 2011 =1391 =1% 12293

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YearNet profit

Rs in lakhs

Net worth

Rs in lakhsROE Percentage

2007 1427 8903 0.12 12%2008 172 9775 0.11 11%2009 2743 11511 0.19 19%2010 32 12617 0.11 11%2011 1391 12293 0.01 1%

RETURN ON SHARE HOLDER’S EQUITY

Interpretation:

Super spinning mills equity share capital is constant through out the four years from

2008-2010. The return on equity share capital almost constant from 2007-2008. But in the

year 2009 there was a hike in the firm’s ROE by 19% , in 2010 it reduced to 11%.and in

2011 it declined to 1%. This is because the raw materials costs rose sharply affecting the

profitability during the second quarter of the year. The average price realization also

declined due to accumulation of stock resulted out of difficulties in implementing the

cenvat procedure compounded by protracted transporters strikes. During the year the

company achieves reasonable profits neutralizing the above adverse factors

Turnover

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Turnover of SS MILLS

Interpretation:

Turnover of super spinning mills ltd is 33516, 36752lakhs respectively in the

years 2007, 2008 and is increased by 39215 in the year 2011. This is because the mill

produces the yarn of different counts as per the customers demand. So that the turnover is

increasing.

year Turnover Rs in lakhs

2007

33516

2008

36752

2009

36317

2010

39419

2011

39215

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Earnings per share

Net profit less dividend on preference capital is the profit available for

distribution. This indicates the profit earned per equity share. This can be calculated as

follows:

EPS = profits available for distribution No. of equity shares

yearNet profit

Rs in lakhsNo. shares

EPS(Earnings per share)

2007 1043 5500000 18.962008 1122 5500000 20.402009 2238 5500000 40.692010 1427 5500000 25.942011 172 5500000 3.12

EARNING PER SHARE

Interpretation:

EPS of the super spinning mills is 18.96, 20.40, 40.69, 25.94,3.12 rupees

respectively from 2007 to 2011. It is increased from 2006-2008. But it has reduced to Rs

25.94, 3.12, in the years 2010&2011 due to less net profit compared to year 2009&2010.

Dividend per share

This considers only amount paid to equity share holders but not the amount

available for the distribution of dividend. This ratio is calculated as:

DPS = Dividend declared No. of equity shares

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YearDividend declared

Rs in lakhsNo. shares DPS

2007 220 5500000 4.002008 220 5500000 4.002009 440 5500000 8.002010 275 5500000 5.002011 82 5500000 1.49

DIVIDEND PER SHARE

Interpretation:

The super spinning mill has declared Rs 4, Rs 4, Rs 8, Rs 5&Rs 1.49 as a

dividend for each share of Rs 10 in the years 2007, 2008, 2009, 2010&2011 respectively

that shares the performance of the company is good and is working for the benefit of its

shareholders. Due to these dividend only the market price of the share has increased and

around 50000 shares are being transacted daily in different stock exchanges

The dividend has reduced to Rs 1.49 from Rs 8 in the year 2011 due to less profit

in the year.

Payout ratio

This ratio establishes relationship between the profit earned on each equity share

and the profit distributed to each equity shareholder. This can be calculated as follows

Payout ratio = DPS

EPS

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PAY OUT RATIO

Interpretation:

Even the firm is earning more and more profits it is giving only some amount of its

earning and the rest is retained. This is added to the equity share capital to earn more

profits. The firm is utilizing the retained earnings to expand its business to survive in this

competitive corporate market and to produce and provide fine quality of its produces at

very cheaper price.

YearDividend per share

Rs.Earnings per share

RsPayout ratio

2007 4 18.96 21%2008 4 20.40 20%2009 8 40.69 20%2010 5 25.94 19%2011 1.49 3.12 48%

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Dividends

The net profits after taxes belong to shareholders. But the income which they really

receive is the amount of earnings distributed as cash dividends. Dividends are considered

desirable shareholders’ point of view as they lend to increase their current wealth.

YearDividendsRs in lakhs

Dividend%

2007 248 40%2008 251 40%2009 502 80%2010 322 50%2011 97 15%

DIVIDENDS

Interpretation

The super spinning mills has declared 40, 40, 80, 50&15% as a dividend for each share in

the years 2007, 2008, 2009, 2010&2011 respectively. That shows the performance of the

companyin the year2007-2009 it was benifited to its share holders and in the year 2011-

2011, it was reduced from 50% to 15% because due to some rise in the price of raw

material and in the year 2011 due to financial crisis.

FINDINGS

63

Analysis of capital structure

Equity share capital

Equity share capital remained constant during the period from the financial year 2006-

2007 to 2010-2011. No issue was made during the five years.

Reserves and surplus

Reserves and surplus is being increasing from the past five years. i.e., 2006-2007 to 2010-

2011 .There is no amount transfers to deferred tax liability from the general reserves.

Debt capital

SS Mills’ debt capital includes secured and unsecured loans.

In 2010-2011 only term loans and working capital borrowings were there. Secured loans

are from EXIM Bank, ICICI Bank Ltd, UTI Bank Ltd, CITI Bank, LIC OF INDIA and

working capital borrowings from IDBI Bank, Standard charted bank & different financial

institutions.

Unsecured loans include fixed deposits, trade deposits, short term loans from banks, loans

from directors/bodies corporate, and foreign currency loans.

Percentage of owned and borrowed capital

In the year 2008-2009, 34.1:65.8 was ratio between owned and borrowed capital but in

the year 2010-2011, it has been decreased to 33.03:66.97.

The firm is more concentrating on the debt and preferring debt to equity because of

• Low cost of flotation

64

• Cheaper cost of capital

• It is getting loans at very reasonable terms and conditions.

Analysis of profitability

D/E ratio was 1: 93 in the year 2006-2007 and 2: 00 in 2010-2011. There was a gradual

increase in the ratio during the period.

Gross Profit ratio was 14.79% (highest) in 2008-2009 and low in the year 2010-2011

i.e.7.24 %.

Operating profit ratio was least 11.6 % in 2008-2009 and highest 18.2 % in 2010-2011.

It was again reduced to 11.7% in the year 2010, due to increased expenses and raw

material costs.

Net profit ratio was highest in 2008-2009 i.e,6.1%, and lowest in 2010-2011 i.e,0.4%.

Turn over is being increased from 33516.26 lacs to 39215.27 lacs from 2006-2007 to

2010-2011.

CONCLUSIONS

65

Capital structure of SS Mills is optimum as per the analysis during the period.

Profitability is also found satisfactory after calculating ratio such as D/E ratio. Interest

Coverage Ratio, Gross profit, Net profit ratios, Earning per share and dividend per share

etc.

BIBLIOGRAPHY

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o I.M. Pandey FINANCIAL MANAGEMENT, Himalaya

Publishers, 2009 edition.

o Dr. P.N. Reddy MANAGEMENT ACCOUNTING

o M.Y. Khan & P.K. Jain FINANCIAL MANAGEMENT, Kalyani

Publishers,2008.

o Prasanna Chandra FINANCIAL MANAGEMENT

o Jain & Narang ADVANCED ACCOUNTING

Annual reports of super spinning mills

• www.sarelgi.com

• www.superspinning.com

• www.google.com

• www.fibre2.fashion.com

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