Manju Final Report

5/24/2018 Manju Final Report

1/68

Davanagere sugar company

SAMBHARM ACADEMY OF MANAGEMENT STUDIES, BANGLORE.

CHAPTER 1

INDUSTRIAL PROFILEIt is thought that it cane sugar was first used by man in Polynesia from where

it spread to India. In 510 BC the emperor Darius of what then Persia invaded India

where he found the reed which gives honey without bees. The secret of cane sugar,as with many other of mans discoveries, was kept a closely guarded secret whilst the

finished product was exported for a rich profit.

It was the major expansion of the Arab peoples in the seventh century AD that

led to a breaking of the secret. When they invaded Persia in 642 AD they found sugar

cane being grown and learn how sugar was made. As their expansion continued they

established sugar production in other lands that they conquered including North

Africa and Spain.

THE INDIAN SUGAR INDUSTRY

India is the largest consumer and second largest producer of sugar in the

world. The Indian sugar industry is the second largest agro-industry located in the

rural India. It is the second largest agro-processing industry in the country after cotton

textiles. With 566 operating sugar mills in different parts of the country, Indian sugar

industry has been a focal point for socio-economic development in the rural areas.

About 65 million sugarcane farmers and a large number of agricultural laborers are

involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the

rural population. Besides, the industry provides employment to about 2 million

skilled/semi skilled workers and others mostly from the rural areas.

India is the only country in the world that produces plantation white sugar. All other

countries are producing either raw sugar or refined sugar or both. Thus the processing

capacities are quite different and so also is the quality of sugar.


2/68



Sugar production commenced in 1920's but it got industry status in late

20's/early 30's when India had 29 sugar mills producing just 100,000 tons of sugar.

The industry facing competition from imported sugar sought tariff protection. Sugar

production picked up under the Sugar Industry Protection Act passed in 1932 and

country became self Sufficient in 1935. Also cane-pricing act was enforced to provide

good cane price to farmer. This was followed by land reforms putting ceiling on land

holdings to protect small farmers, formation of cane grower co-operatives and setting

up of sugar mills jointly with farmers called as co-operative mills on ownership and

sharing basis. Today this sector produces 60% of country's production.

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 sugarcane as input; hence sugar

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

Maharashtra, Karnataka, Gujarat, Tamil Nadu, and Andhra Pradesh. . In Sugar Year

(SY) 2006-2007, sugar production in the country is provisionally estimated at 283.28

lakh tones which were 194.94 lakh tones in the year 2005-2006. The production of

sugar was 271 lakh tones during the year 2006-07. During the current season (2007-

08) the production is 265 lakh tones.

The centers original sugar production estimate of 220 lakh tones for 2008 -

09.The Government de-licensed the sugar sector in August 1998, thereby removing

the restrictions on expansion of existing capacity as well as on establishment of new

units, with the only stipulation that a minimum distance of 15 kms would continue tobe observed between an existing sugar mill and a new mill. There are 566 installed

sugar mills in the country with a production capacity of 180 lakh MTs of sugar, of

which only 453 are working. These mills are located in 18states 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.


3/68



STRUCTURE OF PRODUCTION DEPARTMENT:

D.G.M.

MECHANICAL

CHIEF CHEMIST ELECTRICAL

ENGINEER

CHIEF ENGINEER SHIFT CHEMIST SUPERVISOR

DEPUTY CHIEF LAB CHEMIST ELECTRICIAN

SENIOR

ENGINEER

OPERATOR HELPER

ASST.SHIFT

ENGINEER

HELPER

INSTUMENTATION

HELPER

TECHNICIAN

FOREMAN

OPERATOR

HELPER

GENERAL

MANAGER


4/68



MARKET PLAYERS

The Mysore sugar company ltd. (MYSORE) The Godavari sugar mills ltd. (GODAVARI) Gangavathi sugars ltd.(GANGAVATHI) Bannari Amman sugars ltd. Sri Renuka sugars ltd. Sri Prabhuligeshwara sugars and chemicals ltd. Shamanur Sugars ltd.(DUGGATHI) Sirguppa Sugars and chemicals.(SIRGUPP)

CURRENT POSTION OF SUGAR INDUSTRY /SCENARIO IN INDIA

However the likely sustenance of firm global prices would permit export of

around 20 lakhs MT of sugar P.A for the next two sugar seasons. There by easing the

pressure on domestic stocks. Sugar year 2007-08 on words sugar year refers to the

period October to September.

INTERNATIONAL

Sugar prices likely to remain firm over the medium term for most of the late

1990s and clearly 2000s sugar prices in the international market remained in the range

of US$ 200-250MT but 2004 prices have firmed up and are currently at around US$450 MT.

KEY SUCCEESS FACTORS

1. Cane development activities2. Level of integration3. Capital structure4. Regulatory risks


5/68



PROBLEMS OF SUGAR INDUSTRY

1. Weak representative farmers institutions.2. Poor & patronage based management system at all levels3. Lack of accountability4. Excessive deduction and taxation of farmer income5. Delayed payment to farmers6. Inefficiency in service provisions and payment7. Poor accountability systems8. Poor marketing and distribution policy9. Negative effects of regional trading system

Sugarcane Availability

Sugarcane is the main raw material for sugar production. Sugar can also be

produced by sugar beet. About 70% of world sugar is produced by sugarcane and

the remaining by sugar beet. Indian sugar factories production is based only on

Sugarcane. Sugarcane is a yearly crop. There are varieties of sugar seeds available to

farmers which differ from their sugar content and time taken for growing. Sugarcane

is a genus of tropical grasses which requires strong sunlight and abundant water for

satisfactory growth. As growing of sugarcane requires abundant water the major areas

which grow sugarcane are having sufficient irrigation facilities.

Sugarcane occupies about 2.7% of the total cultivated area and it is one of themost important cash crops in the country. In India, sugarcane is utilized by sugar mills

as well as by traditional sweeteners like gur and khandsari producers.

Indian sugar companies have sufficient sugarcane for production of sugar.

Strongly established companies, facilities of irrigation, less restrictions of government

on establishment and expansion, market opportunities, strong demand for by-products

Encouraging farmers to grow sugarcane. Today sugarcane is characterized as an

energy crop.


6/68



Brazil and India are the largest sugar producing countries followed by China,

USA, Thailand, Australia, Mexico, Pakistan, France and Germany. All these countries

are producing more sugar than they internally consume. The supply of sugar in world

market is more than the actual demand.

The worlds largest consumers of sugar are India, China, Brazil, USA, Russia,

Mexico, Pakistan, Indonesia, Germany and Egypt. According to USDA Foreign

Agriculture Service, the consumption of sugar in Asian countries has increased at a

faster rate, as a direct result of increasing population, increasing per capita income

and increased availability of sugar.

HISTORICAL INDUSTRIAL DEVELOPMENT

India has been known as the original home of sugarcane and sugar. Indians

knew the art of making sugar since the fourth century. However the advent of modern

sugar industry in India dates back to mid 1930's when a few vacuum pan units were

established in the sub-tropical belts of Uttar Pradesh and Bihar.

Until the mid 50s, the sugar industry was almost wholly confined to the states

of Uttar Pradesh and Bihar. After late fifties or early sixties the industry dispersed into

Southern India, Western India and other parts of Northern India.

India is the largest consumer and second largest producer of sugar in the

world. The sufficient and well distributed monsoon rains, rapid population growth and

substantial increases in sugar production capacity have combined to make India the

largest consumer and second largest producer of sugar in the world.

The Indian sugar industry has not only achieved the singular distinction ofbeing one of the largest producer of white plantation crystal sugar in the world but has

also turned out to be a massive enterprise of gigantic dimensions. With over 450 sugar

factories located throughout the country, the sugar industry is amongst the largest

agro processing Industries, with an annual turnover of Rs150bn. It plays a major role

in rural development and its importance for India stretches far beyond the role of a

sweetener supplier.

The sugar factories located in various parts of the country work as nuclei fordevelopment of rural areas by mobilizing rural resources and generating employment,


7/68



transport and communication facilities. Over 45mn farmers, their dependants and a

large mass of agricultural labor are involved in sugarcane cultivation, harvesting and

ancillary activities constituting 7.5% of the rural population. The sugar industry

employs over 0.5mn skilled and unskilled workmen, mostly from the rural areas.

GLOBAL SCENARIO (INTERNATIONAL TRADE OPPORTUNITY)

International trade is of strategic importance to India as it can help maintain

stability in the domestic market, despite the cyclicality in production. If there is a

sugar surplus either due to excess production or due to greater economic

attractiveness of cane for ethanol and cogen in the future, exports could be used if the

surplus cannot be managed in the domestic market. Acceptability as a credible

exporter will provide the Indian sector an alternate set of markets for diverting surplus

production. Similarly, in case of deficits, raw sugar imports could help bridge the

supply gap.

Globally, in most of the key geographies like Brazil and Thailand, regulations

have a significant influence on the sugar sector. Perishable nature of cane, small farm

landholdings and the need to influence domestic prices; all have been the drivers for

regulations. In India, too, sugar is highly regulated. Since 1993, the regulatory

environment has considerably eased, but sugar still continues to be an essential

commodity under the Essential Commodity Act. There are regulations across the

entire value chain land demarcation, sugarcane price, sugarcane procurement, sugar

production and sale of sugar by mills in domestic and international markets. However,

fundamental changes in the consumer profile and the demonstrated ability of thesector to continuously ensure availability of sugar for domestic consumption has

diluted the need for sugar to be considered as an essential commodity. According to a

recently conducted nationwide survey, nearly 75 percent of the total non-levy sugar is

consumed by Industrial, small business and high income household segments.

Further, even for a low income household, 10 percent increase in sugar price would

result in less than 1 percent increase in the 3 monthly food expenses.


8/68



INDIAN SUGAR INDUSTRY SCENARIO

In an era where there is a need for inclusive growth, the sugar industry is

amongst the few industries that have successfully contributed to the rural economy. It

has done so by commercially utilizing the rural resources to meet the large domestic

demand for sugar and by generating surplus energy to meet the increasing energy

needs of India. In addition to this, the industry has become the mainstay of the alcohol

industry. The sector supports over 50 million farmers and their families; and1 delivers

value addition at the farm side. In general, sugarcane price accounts for 2

approximately 70percent of the ex-mill sugar price. The sector also has a significant

standing in the global sugar space. The Indian Domestic sugar market is one of the

largest markets in the world, in volume terms. India is also the second largest sugar

producing geography. India remains a key growth driver for world sugar, growing

above the Asian and world consumption Growth average.

INDUSTRY PROFILE

1.1 INDUSTRY STRUCTURE:-

Indian sugar industry can be broadly classified in to two sub sectors, the

organized sector i.e. sugar factories and the unorganized sector i.e. manufacturers of

traditional sweeteners like guru and khandsari. The latter is considered to be a rural

industry and enjoys much greater freedom than sugar mills.

The production of traditional sweeteners gur and khandsari is quite substantial.

Though the trends indicate a progressive shift from traditional sweeteners to white

sugar over the years, they still account for about 37% of total sweetener consumption

in India. The breakup of consumption of sugar, guru and khandsari is as given below.

Since the sugar industry in the country uses only sugarcane as an in input, sugar

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

Maharashtra, Tamil Nadu, Karnataka, Punjab and Gujarat. Uttar Pradesh leads the

tally by contributing 24% of the countrys total sugar production and Maharashtrastands next with 20% contribution.


9/68



The farmers co-operatives own and operate the largest chunk of the industry's

total capacity. They are concentrated primarily in Maharashtra and eastern Uttar

Pradesh. The largest number of sugar companies in the private sector is located in

southern India, in the states of Tamil Nadu, Andhra Pradesh and Karnataka.

Out of 453 sugar mills in the country, 252 are in the co-operative sector, 134 are in

the private sector and 67 are in the public sector. Besides 136 units in the private

sector are in various stages of implementation. A Few such units are under

implementation in the co-operative sector as well

GOVERNMENT POLICY

Sugar is a controlled commodity in India. It is covered under the purview of

the Essential Commodities Act, 1955. The government controls sugar capacity

additions through industrial licensing, determines the price of the major input which

sugarcane, decides the quantity that can be sold in the open market, fixes the prices of

the levy quota sugar, etc.

Government control over all aspects of the production and sale of sugar

extends to the level of wholesalers in the distribution chain. All sugar wholesalers

need to obtain a license issued by the government before they can begin to operate.

Also they should confirm to government notifications for the amount of inventories

they can maintain.

The government policies for the sugar industry are broadly classified in the

following section for the better understanding.

Licensing policies: Till recently sugar is used to be amongst the 9 industries under

licensing provision. The major criterion for issuing new licenses were as follows

New sugar factories should have minimum economic capacity of 2500 TCD with no

maximum limit on capacity. However in industrially backward areas, co-operative &

public sector new units are allowed with an initial capacity of 1750 TCD subject to

the Condition that the units would expand their capacities to 2500 TCD within a

period of 5 years of going into production.


10/68



New sugar factories are permitted subject to the minimum distance of 15

kilometers between the proposed new sugar factory and an existing / already licensed

sugar factory.

Other things being equal, preference in licensing is given to proposals from

the co-operative sector, public sector, private sector, etc. in that order.

The past policies have helped in planned development of sugar industry taking into

account economic size and availability of sugarcane and simultaneously avoiding

unhealthy competition. The mushrooming growth of co-operatives, whose

performance is worsening of late, is also an offshoot of these policies.

Further, a large number of parties have obtained licenses during 1990s but are not

implementing them due to several reasons, leading to a blocking of the entry of other

interested parties. To tackle this problem, the government has reduced validity of

Letter of Intent (LoI) from three years to one year. The sugar industry is unlicensed

since August 1998 and any interested party/person is allowed to set up a sugar mill in

the country provided they satisfy few conditions. The new sugar factory is at a

minimum distance of 15 kilometers from an existing already licensed sugar factory.

No incentive will be provided and new units have to adhere to levy quota regulation

from first year of operations.

Pricing of sugarcane: Government of India regulates & controls the rates of sugarcane

supplied to the mills by farmers. The Statutory Minimum Price (SMP) announced by

GOI year on year is used as a benchmark by the state governments to fix their State

Advised Price (SAP). The SAP could be a recovery linked average or just a flat rate.The above said pricing procedure has been adopted so as to protect the farmers &

ensure them a good price for cane. Also it reduces the impact of cane prices on the

cost structure of different mills depending on their location.

7 S FRAME WORK MODEL

The 7S framework for management analysis was developed by Mckensys and

company. 7S model provides an effective way analyzing an organization, in terms of


11/68



dynamic relationship among 7 key elements namely- structure skill, style, strategy,

system, staff, shared value.

Richard Pascal identified these factors in his book The art Japanese

management according to Pascal it was because of these factors the Japanese

companies excelled over American firms. A very important feature of this modal is

that Mckinseys consultantsin their studies of several firms have extensively tested it.

7S model is very good tool available to the mangers, to study the organizations. This

study is important from a strategic, marketing, organizational behavior and

competitive perspective. A major premise of the model is that many performances

related issues are rooted among the 7 factors outlines. The 7S are interconnected,

aligned and working together in high performing organizations.

The 7 Ss are

Structure Skill Style Strategy System Staff Shared


12/68



SUGAR PRICING & DISTRUBITION:

Government enforces a dual pricing policy for the sugar industry. Presently

10% of the production is sold at a fixed price to the government which is used for

PDS and other market operations. The new & expanded sugar plants are exempted

from the levy quota for a period of five to eight years which makes the new sugar

units more profitable. But mills under levy are free to sell the remaining 90 % of

sugar (as 10% is supplied to government) in the open market at the market determined

price. The government controls supply of sugar in the open market through monthly

sugar release notifications based on market conditions and thus influencing the open

market prices to a great extent. Though, the incentive scheme has achieved the

objective of attracting more players, due to better margin than existing players, the

returns for older units reduces substantially due to low increase in levy prices for

controlling fiscal deficits. However new units face the problem of procuring

sugarcane from the farmers and sometimes end up paying a premium to SAP.

Import Export Policy: Sugar exports were governed by the Sugar Export Promotion

Act, 1958, which stipulates that the Government can use 20 per cent of the countrys

total production for sale abroad. Till a very recent past imports and exports were

routed through Indian Sugar and General Industry Export Import Corporation Limited

(ISGIEC), a consortium of apex organizations of private and co-operative sugar mills

and government agencies. The imports and exports are mainly resorted to when there

is mismatch in domestic sugar production. The government decimalized exports in

1997 allowing private parties to export sugar. The government has also put sugarimports on Open General License (OGL) allowing private parties to import sugar. The

imported sugar has been subjected to a customs duty of 20% from January 1999, so as

to provide a level playing field to the domestic industry, which supplies sugar at levy

prices to GOI, for PDS supply.

Excise and taxes: Some of the state governments impose purchase on the sugarcane

purchases made by the sugar mills, which varies from state to state. The states of


13/68



Assam, Nagaland, Rajasthan, Orissa, West Bengal & Goa which produce small

quantities of cane, however, do not levy cuss on the sugarcane purchases.

1.1.2 MARKET SHARE:-

The policy of the Government is to export sugar on a continuous basis and

since 1960 India has been mostly a net exporter of sugar. Until early-1997 the

decision to export or not was taken each year, based on expected production and

domestic demand, with the surplus, if any, being allowed for export, irrespective of

world market conditions. Until then the Indian Sugar and General Industry Export

Import Corporation Limited, an organization of the sugar industry, was the only

agency appointed by the Government of India under the Sugar Export Promotion Act

of 1958 to handle exports. The Corporation was authorized to recover from all

factories on a proportionate production basis any losses suffered on exports when

world prices were below costs of production. However, since early-1997 trade has

been deregulated, and exporters may register freely for export quotas. Despite ample

availabilities from the previous seasons peak output, exports in 1996/97 were not

expected to increase because of relatively low prices in international trade as

compared to the domestic market.

Sugarcane area, production and productivity in different States of India for 2001-02

State Sugarcane

area (000

ha)

Sugarcane

production

(000

tonnes)

Sugarcane

productivity

(tonnes/ha)

Andhra

Pradesh

210 17610 82.3

Assam 30 1010 37.8

Bihar 120 5820 48.1

Gujarat 180 12450 70.9

Haryana 160 9330 57.5

Maharashtra 530 45140 78.1


14/68



Madhya

Pradesh

50 2090 48.2

Karnataka 410 33750 82.5

Orissa 10 650 53.3

Punjab 140 8820 61.6

Tamil Nadu 330 36340 111.4

Uttar

Pradesh

2000 116220 58.0

WestBengal

20 1580 85.1

Others 30 1320 -

INDIA 4400 300100 63.1

1.1.3 SWOT ANALYSIS

Strength and weaknesses are essentially internal to the organization andrelate to the matter concerning resources, programs and organization in key areas such

as

Sales Marketing Capacity Manufacturing cost etc

Opportunity and Threat are external to the organization and can exist or develop

in the following areas

Size & Segmentation Growth pattern and maturity International dimensions Relative attractive of segments New Technologies etc.


15/68



WEAKNESSES

Sr. Key Word Description

1 SKILLED LABOR

Lack of skilled labor as the

company is situated in rural

areas

2 CAPACITY

The capacity of sugarcane

crushing is less compare to

supply of sugarcane.

3 INFRASTRUCTUREThe infrastructure is not is

developed

4 FINANCE Lack of financial funds

STRENGTHS

Sr. Keyword Description

1 AUTOMATIZEDThe production of sugar plant is fully

automatized

2 COST lowest cost producer

3 EXPERIENCE 36 years of experience

4 BRAND Brand name established

5 SPEED Faster decision making


16/68



THREATS

Sr.No Keyword Description

1 RECOVERY

The percentage recovery is

comparatively less than other areas

in the country.

2GOVERNMENT

INTERVENTION

The price & quantity of supply of

sugar is fixed by Govt.

3 EXPORT

The competition is very high in

foreign market & the cost of

production is high than other

foreign companies. The global

price is not favorable.

OPPORTUNITIES

Sr. No Key Word Description

1 SUGARCANE The supply of sugarcane is abundant.

2 FREE MARKETThe ratio of free market is increased by

90%

3FOREIGN

MARKET

The central Govt is encouraging for

foreign market.

4CENTRAL

GOVERNMENT

The central Govt is giving subsidy.


17/68



PEST ANALYSIS:-

It is very important that an organization considers its environment before

beginning the marketing process. In fact, environmental analysis should be continuous

and feed all aspects of planning. The organizations marketing environment is made

up of:

1. The internal environment e.g. staff (or internal customers), office technology, wagesand finance, etc.

2. The micro environment e.g. our external customers, agents and distributors, suppliers,our competitors, etc.

3. The macro environment e.g. political forces, Economic Forces, Socio-cultural Forces,and Technological Forces. These are known as PEST Factors.

The political environment of sugar industry is not stable it keeps on changing

as per the government change because of the production capacity and the price

fluctuations as per the government changing pattern. The government polices affects

the industry because the policy is framed by government gives the guide line to the

operation of the industry. The government has restricted the open sale of sugar. The

sale must be packed so that there will be less amount of wastage.


18/68



POLITICAL ANALYSIS:

1) Pricing Regulation:The price and supply of sugar to free market is fixed by the Government. Even

the price of sugarcane is fixed by the Government. So, there is more influence of

political environment in sugar industry.

2) Taxation:The taxation policy of the government changes with time & this change effects

the industry to a larger extent. Any increase in the tax policy will decrease the profit

margins of the industry & vice-versa. And sugar industry is enjoying the taxation

policy as there are more tax exemption & reduction in sugar industry.

3) Wage Legislation:The government has taken several initiatives in the welfare of the workers.

The government has came with the acts of Minimum Wages Act, which regulates a

company to pay a certain fixed amount of wages to their workers. The government

also has introduced the Work Limit for the manufacturing companies.

4) Mandatory employee benefits:

Political

PEST

Social Technological

Economic


19/68



The government has made it mandatory for the companies to provide their

employees with certain benefits like Insurance, provident fund, allowances, etc. if any

company who doesnt follow it will be legally charged.

5) Industrial safety regulations:It has been made mandatory for the industry to provide their employees with

the training to handle the equipments & must also provide some safety accessories

like eye gears, helmet, shoes, etc. to ensure the safety of the employees & workers

and if the sugar company has COGEN plant then the company has more safety policy

which has to be followed.

6) Environmental safety act:The viscose industry is viewed as the one of the polluting company. The

government has taken several measures to prevent the industry from polluting the

environment. Any industry not following the rules of this policy will be closed down

by government.

7) Export-Import policy:The government has made it very easy to export the sugar to the other

countries. There excise duty is less & in fact Government is promoting the industries

to export more sugar.

Economic Analysis:

1. Type of economic:The performance of an industry depends upon the market & economy in which

it performs. As sugar is a essential commodity which we use in our daily life.

2. Infrastructure quality:The infrastructure of the country affects the performance of the industry. As

India is lacking in infrastructure the industry is facing the problems like

transportation, warehousing, etc

3. Skill level of workforce:We find labor force abundant in India but the majority of the labors are not

skilled, their efficiency level is poor & must be trained especially for this type of

manufacturing activity.

4.

Labor cost:


20/68



The human resource is abundant in India & it is also cheap. This is one of the

factors which control the cost of the industry. But today we find that as the country is

developing this resource is also being expensive.

5. Economic growth rate:The current growth of the country is 9% which is very encouraging for the

development of these industries.

Porters Five Force Model:

Michael Porter provided with a framework that explains how an industry gets

influenced by the five forces. The strategic business manager seeking to develop an

edge over rival firms can use this model to better understand the industry context in

which the firm operates

Bargaining Power of Suppliers


21/68



The price of raw-materials (sugarcane) is fixed by the Government. The

suppliers are farmers and the total of suppliers is very high. So, there is no such

bargaining power of suppliers in sugar industry.

Bargaining Power of Customers

The bargaining power of customers determines how much customers can impose

pressure on margins and volumes. But in sugar industry the price of sugar is fixed by

the Government. So, there is no bargaining power of customers in sugar industry.

Threat of New Entrants

The competition in an industry will not be so higher, as sugar is essential

commodity; but the Government is encouraging & taking more interest in developing

& increasing the number of Sugar Company. So it is easier for other companies to

enter this industry. In such a situation, new entrants could change major determinants

of the market environment (e.g. market shares, prices, customer loyalty) at any time.

There is always a latent pressure for reaction and adjustment for existing players in

this industry. The threat of new entries will depend on the extent to which there are

barriers to entry.

These are typically

Economies of scale (minimum size requirements for profitable operations), High initial investments and fixed costs, Scarcity of important resources, e.g. qualified expert staff Access to raw materials is controlled by existing players, Distribution channels are controlled by existing players, Existing players have close customer relations, e.g. from long-term service contracts, Legislation and government action- the sugar industry is totally controlled by strict

regulation of government.

Threat of Substitutes


22/68



A threat from substitutes exists if there are alternative products with lower

prices of better performance parameters for the same purpose. They could potentially

attract a significant proportion of market volume and hence reduce the potential sales

volume for existing players. This category also relates to complementary products.

Similarly to the threat of new entrants, the treat of substitutes is determined by factors

like

Current trends- this is most important because the sugar industry do not have anytrend for consumption of sugar.

The substitutes products like gur & khandasri which are substitutes of sugar.But there is no such impact of substitutes which create a threat to sugar

industry.

Competitive Rivalry between Existing Players

This force describes the intensity of competition between existing players

(companies) in an industry... Competition between existing players is likely to be high

when

There are many players of about the same size- the sugar industry have many playersalmost many are of same size, so there exist the competition between the existing

players.

There is not much differentiation between players and their commodities, but there ismuch price competition- the commodity sugar is similar but the quality of are

different so the prices followed according to the size & quality ex: large size, medium

size or small size.

There is no much competition between competitors as sugar is controlled commodity

& the prices, the quantity of sugar supplied to market is fixed by the Government.

1.1.4 INDUSTRY COMPETITION:-

The international scenario of sugar is highly favorable for another 4to 5 years.

This is an account of the following reasons.

The W.T.O. has banned the dumping of D grade sugar to the world market. The petroleum industries are in need of ethanol for blending with the petrol hence the

sugar factories are diverting to ethanol manufacturing gradually.


23/68



On amount of the above reasons the availability of the sugar in the international markethas been reduced substantially.

Demand in more at international market, but supply is deficit hence the prince hassugar an international level is soaring up.

This trend is giving to be continued for another 4 to 5 years. As

1.2 COMPANY PROFILE

1.2.1 COMPANY INFORMTION:

DAVANGERE SUGAR COMPANY was started in 1970s. The company is

situated in kukkuwada near DAVANGERE. Firstly the nature of the company was

public limited, then in 1996 the company became private limited company i.e. the

administration and management of the company came under SHAMANUR GROUP

OF INDUSTRIES. Now the company is totally privatized and named as

DAVANGERE SUGAR COMPANY PRIVATE LIMITED.

HISTORY:

The proposal to set up a Sugar Factory at Kukkuwada took a concrete shape

with the development of vast irrigation facilities created by network of canals of

Bhadra Dam in the Taluk of Davangere, Channagiri, Honnali and Harihar and nearly

1, 20,000 hectares of the land brought under irrigation in 1970-80 within radius of 100

Km from the present location of DAVANGERE SUGAR COMPANY PRIVATE

LIMITED, at Kukkuwada village to exploit this vast irrigation potential, a Sugar

Factory with a crushing capacity of 1250 TCD was established by the name

DAVANGER SUGAR COMPANY LIMITED, as a Joint Sector Government

Company in the year 1970 at the initiative of the local Farmers, Leaders of the above

Taluks with the active financial participation and guidance of Karnataka Agro

Industries Corporation and KSIIDC, who substantially contributed to the Equity

Funds of the company. The other financial institutions like IDBI, IFCI and ICICI alsoparticipated in the Equity of the company to some extent.


24/68



1.2.2 MISSION AND VISION STATEMENT

VISION:

It is proud on the part of the company that about 20000 acres of land has been

brought under sugarcane cultivation for the ensuring season 2007-08. The company

could able to achieve this on account of co-operation of the farmers. The management

has a vision to bring at least 25,000 acres of land under sugarcane cultivation for the

season in the next coming years. This is with a view to crush at least 8.00,000 tones of

sugarcane to achieve the prosperity of the company

MISSION:

1. To provide guidances and early warnings to Cane and Sugar Industry includingSugar-related Industries.

2. To support Cane and Sugar industry including Sugar-related Industries to developtheir competitiveness capacity and sustainable growth with balances.

3. To supervise sustainable growth of Cane and Sugar Industry.4. To increase their sales.5. To achieve the recovery level of 11% at the end of 20096. During 2009-2010 company has a target to crush a sugar cane of 280000 MT.7. To increase quality of the product & fulfill the needs of the customer.

1.2.3 GENERAL OBJECTIVES:-

OBJETIVES:

To increase quality of sugar.

To increase their sales.


25/68



Increase the sales by conducting many programs like consumer information programs. To increase the members of the union To regularly supply there product all the customers according to customer needs.

1.2.4 ORGANISATION STRUCTURE:-

1.1.5 DEPARTMENTAL STUDY:-

FINANCE :-

MANAGING

FINANCE SALES H.R.DEPT

CANE

DEVELOPMENT

VICE

CHAIRMAN

PRODUCTION

&

MAINTENANCE


26/68



The Financial Department is plays an important role as everything that

company does is revealed in this matter in the sense of financial statement and reports

of the company. And this is the department which constitute towards the shareholder

and the investors of the company so to maintain this department prior concentration

must be there and this must be prepared only by the accountants who have the

knowledge or by company secretary or by charted accountant appointed by the

company which must be reviewed by the company auditor. This report shows the

performance of the company and by keeping this department accurate and transparent

they can attract more investors or can get competitive advantage.

A business concern means a concern, which undertakes trading, or

manufacturing activities of goods/services. The basic criteria for starting a business

unit are to make profit from that. There are so many trading activities in a financial

year. There for the company has to make the records of all these activities. So these

arises the used for book-keeping.

Now a day every business has to keep books of accounts. It is the

requirements of the law. Generally the companies are required to maintain mainly

two types of accounts.

1. Trading and P&L Account.2. Balance sheet and even cash flow statement.

The same process is followed in DSCL as mentioned above.

NEEDS FOR ACCOUNTING SYSTEM:

To ascertain the profit and loss of the business.

To ascertain the financial position of the business.

To providing control over assets and properties of the company.

To providing information to tax authorities like, sales tax, income tax, control exciseetc.\

Assistance to management on


27/68



a) Decision-making

b) Forward planning and budgeting.

MARKETING:-

INTRODUCTION:

CHIEF SALES

CASHIER

GODOWN

GODOWN

ASSISTANTS


28/68



DSCL has marketing cum sales department. Sugar is controlled

commodity & the price of the sugar & quantity of sugar that should be released in

market is fixed by the government. So, there is much influence of government on

sugar pricing & releasing.

In DSCL there are seven employees working in sales cum marketing

department.

CURRENT SCENARIO:

Every sugar industry has a dual policy that is Free & Levy.

a) Free market:Free market means the company can sell sugar directly to the market, but the

quantity of sugar that should be sold is fixed by the government. The government will

fix the quantity of sugar that should be sold on monthly basis.

b) Levy:The government will fix the ratio of levy which means in total production

some percentage of sugar should be supplied to PDS( Public Distribution System) and

the percentage is fixed by the government.

a) The current ratio is 90:10, which means 90% of sugar can be sold in sugar market &10% should be sold to government.

b) The current market price of sugar in international market is 229Dollars per metric tonthat is 900 per quintal.

c) The current market price of sugar in domestic market is Rs. 1180 per quintal.As the international price is not favorable the company is selling its

commodity in Indian market.

MARKET SEGMENTATION:

DSCL has 900 dealers across the country. The company has a market share of0.37%. There are mainly 6states where DSCL is concentrating they are:


29/68



a) KARNATAKAb) TAMIL NADUc) ANDRA PRADESHd) WEST BENGALe) BIHARf) KERALA

HUMAN RESOURCES -


30/68



INTRODUCTION:

The Human Resources Department is performing a vital role in the

organization. Human Resources Management is concerned with people dimensions in

management. As every organization is made up of people, acquiring their services,

developing their skills, motivating them to higher levels of performance and ensuring

their commitment to the organization.HRM is the qualitative improvement of human

beings who are considered the most valuable assets of an organization. In DSCL also

Human Resources are given more importance, cared & always motivated towards

organization goal.

PROCESS OF HR DEPT IN DSCL:

The process followed in DSCL as follows

HR

Deputy HR

Officers

Assistants


31/68



a) Acquisition of Human Resources:In DSCL acquisition process is concerned with securing & employing people

who are required by the organization, according to the hierarchy level in the

organization keeping in mind organizational objectives.

b) Development of Human Resources:In DSCL development process is concerned with improving the skills of

employees, molding their behavior according to organization needs & changing their

skills, knowledge, aptitude,& values. All this process is done to improve the quality of

service which he renders for the organization & these qualities of employees are

improved to achieve organization goal.

c) Motivation of Human Resources:As DSCL is situated in rural areas where the motivational expenses( expenses

made on employees to motivate them) are low compare to urban areas.

For example: if you increase salary or if you give a gift/ incentive of Rs.250 to 500

the employee gets motivated. In case of workers if you give a incentive of Rs. 150 to

250 then he will be motivated. In DSCL most of the employees are self motivated are

they are working in the organization from past 15 to 25 years. Nearly 85% of

employees in DSCL are working from past 15 years.

d) Maintenance of Human Resources:The maintenance function is concerned with providing those working

conditions that employees believe are necessary in order to maintain their

commitment to the organization. The HR dept is also continuously working to

improve the working conditions of the employees.

For example:

As the working conditions were not good in Administration and Management

block of the organization & the employees were disturbed with the workingconditions. So, they requested to HR dept to improve the working conditions of the


32/68



office. All this happened 2 years back & this problem was solved by the HR dept

within a span of 6months. That is, A new building was build were Administration &

Management block was shifted. Now the employees are happy and HR dept Head said

that after this action the efficiency of employees is increased by 20%.

HOW HR DEPT WORKS IN DSCL:

The sugar plant works on seasonal basis, so HR Dept has two different

policies & procedures to acquire, develop, motivate & maintain Human Resources of

the organization. There is a committee named TRIPRIATE COMMITTEE, which

makes policies & procedures for the welfare of employees in whole Sugar Industry.

ABOUT TRIPRIATE COMMITTEE:

TRIPRIATE COMMITTEE is a body which functioned for the welfare of

employees and it is regulated by the:

a) Government-( Sugar Ministry, Labor Ministry, labor commissioner, joint laborcommissioner etc)

b) Members of Co-operative Sugar factory and Government Sugar Factory ( Fewselected members)

c) Karnataka State Sugar Federation-(President, General Secretary, Treasurer, etc).The above committee is functioned for the welfare of employees in sugar

industry. It solves problems between workers & management in the organization.

The functions as follows

a) The committee fixes the salaries of workers, employees and others who renderedservice for the organization.

b) The committee conducts employee welfare & safety programs.c) Over all the committee look after the employees in sugar industry.

EMPLOYEES WELFARE:

DSCL has conducted many programs for the welfare of employees. The

different allowances paid by the company to the employees according to employeesact as follows;


33/68



1. Provident fund:The company pays 12% on Basic + DA as provident fund.

2. Gratuity:The company pays 15days salary (per year) for permanent employees and

7days salary for seasonal employees.

3. EDLI (Employees Deposit Linked Fund):The present rate of EDLI is Rs.67000. EDLI means if any employee expired

during the course of employment, then Rs. 67000 is paid to his dependents.

4. Workmen Compensation Payment:The company pays compensation, if any employee met with an accident while

working and the payment is done according to the act.

5. Medical Allowances:The company pays Rs 250 per month for all the employees as Medical

Allowances.

6. Traveling Allowances:The company pays traveling allowances according to the distance traveled by the

employees.

0.1to 4.9 kilometers Rs. 175 per month

5 to 9.9 kilometers Rs. 225 per month

10 to 14.5 kilometers Rs. 275 per month 15 and above Rs.325 per month.

The company also has transportation facility for employees.

7.

Uniform:


34/68



The company also provides uniforms for the employees. The company

provides 3 pairs of uniform for 2years to permanent employees & 2 pairs of uniform

for seasonal employees. The company also pays stitching allowances and washing

allowances. The stitching allowances are Rs.87.5 per pair and washing allowance Rs.

25 per month.

8. Night Shift Allowances:The company pays Night Shift Allowances to the employees. (Rs. 5 per night).

9.Canteen Facility:

The company has clean & hygiene canteen facility. The company charges

Rs.0.60 for tea, Rs.1.20 for Tiffin & Rs.3.50 for full meals.

10. Safety Training Programmers:-

The company has conducted many safeties training programmed in both sugar

plant & cogen plant. In cogen plant the safety training programmed is conducted once

in two months. The company has done many others programmers for the welfare of

employees and there are many other allowances made by the company for the welfare

of employees.

TIME OFFICE:

As every organization has Time Office, even DSCL has Time Office were

attendance register of the employees is maintained.

TIME OFFICE PROCESS:

The company has three shifts & there are different workers in different shift.

Each shift is of 8hours. In time office has installed Electronic Punching Machine

where each employee has given a punching card & when an employee enters into the

organization goes through this process and the data is saved.


35/68



CHAPTER 2

2.1 PRODUCTS AND SERVICES MARKETING

In DSCL the major production is sugar. The company has to produce two

types of sugars. They are,

1. Brown sugar2. Raw sugar.

1. Brown sugar

In the form of dry, brown sugar crystals (the colour being due to the presence

of impurities) obtained from the evaporation of clarified sugar cane juices imported

for processing into refined sugar, this product is not sold to customers because it does

not meet Canadian standards for health and hygiene.By products

The chief by products of sugar manufacturing are,

Bagasse Molasses Press mud

BagasseBagasse is the byproduct left behind after crushing of sugar cane. It is used as

a fuel in the sugar boilers. Excess Bagasse finds use as a raw material in paper

manufacture.

MolassesMolasses is a byproduct of sugar refining chiefly used for alcohol production

the entire molasses output is routed to the distillery unit and acetic acid plant.


36/68



Press mudPress mud is the byproduct generated by cane juice filtration during sugar

manufacture currently press mud is used as a fertilizer in sugarcane cultivation.

Distillery effluents are mixed with press mud that comes from sugar factory to make

bio fertilizers a substitute for chemical fertilizer.

Full exploitation of these potentials would besides significantly contributing to

the energy of the country and there by immensely benefiting sugar cane formers.

Hence central government shows keen interest in setting up many more sugar units as

it uplifts the rural masses and helps to generate eco- friendly renewable energy. The

major product by the company is sugar. Apart from producing sugar the company also

produces liquor, acetic acid, arrack etc.

2.2 AREA OF OPERATION

The DSCL area of interested/operation in the districts of Chitradurga,

Davanagere, Shivamoga. Chikamanglur and Bellary has brought considerable

prosperity to the formers. For the purpose of maintain the phase of economic growth

the promoters have setup a plant for manufacturing white sugar at Davanagere. The

plant will also meet the demands from the agricultural community for establishing a

sugar factory in the region. The company as accordingly with the active support of the

state government KSIIDC and KAIC the central government to issue a license to

setup the sugar factory at Davanagere. The DSCL export white sugar to the other

places and countries like Bangladesh and Srilanka.


37/68



CHAPTER 3

FINANCIAL ANALYSIS

3.1 INTRODUCTION:-

The Financial Department is plays an important role as everything that

company does is revealed in this matter in the sense of financial statement and reports

of the company. And this is the department which constitute towards the shareholder

and the investors of the company so to maintain this department prior concentration

must be there and this must be prepared only by the accountants who have the

knowledge or by company secretary or by charted accountant appointed by the

company which must be reviewed by the company auditor. This report shows the

performance of the company and by keeping this department accurate and transparent

they can attract more investors or can get competitive advantage.

A business concern means a concern, which undertakes trading, or

manufacturing activities of goods/services. The basic criteria for starting a business

unit are to make profit from that. There are so many trading activities in a financial

year. There for the company has to make the records of all these activities. So these

arises the used for book-keeping.

Now a days every business have to keep books of accounts. It is the

requirements of the law. Generally the companies are required to maintain mainly

two types of accounts.

1. Trading and P&L Account.2. Balance sheet and even cash flow statement.


38/68



THE SAME PROCESS IS FOLLOWED IN DSCL AS MENTIONED ABOVE.

DSCL expanded its cogeneration capacity from 3MW to 24.45MW during

March 2008 with a capital investment of INR 6,800 lakhs.

DSCL has developed its own farm of about 30 acres for experimentation &

development of new varieties of high yield sugarcane with higher sucrose content.

During 2007-08, DSCL was successfully in bringing about 18,000 acres of land

belonging to farmers under sugarcane cultivation.

During 2008-09, as a measure of upgrading technology in sugar

manufacturing, DSCL has adopted syrup clarifier technology imported from Tate &

Lyle, London to produced carbonized refined sugar. DSCL is envisaging next phase

expansion of this project currently. The objective is to realize higher price for per kg.

of sugar sold by INR 4 to 5.

DSCL is managed by highly experienced team of technical & financial people

under the strong leadership of Mr. S. S. Ganesh, Managing Director.

Managing Director Mr. Ganesh awarded with Best Business Leadership

Cogeneration by the Solar

Energy Society of India and Win rock International for best managed power plant in

India in 2009.

Mr. S S Ganesh is working with

DSCL awarded with the honor of Industrial Excellency in technology &

management by Institute of Indian Economic Studies, New Delhi

Documentary on DSCL co-gen unit by BBC, UK.

DSCL has entered into power trading agreement with Reliance EnergyTrading Limited after grant of permission of open access by the order of CERC. The

agreement is renewable every 12 months. Due to this development, the average

realization per unit has improved to INR 7.50 during the current year.

DSCL has brought 3,000 acres of land under cultivation of high yield variety

of sugarcane by encouraging farmers.

DSCL has improved its sugar manufacturing process by implementation of re-

engineering the existing process and semi- atomizing few of the key manufacturingprocesses.


39/68



DSCL is controlled by Shamanur family.

Promoter group holds 96% stake and balance 4% is with public

Current share capital of DSCL is INR 3686.85 lakhs (equivalent equity shares

with face value of INR 10)

DSCL is listed with Bangalore stock exchange, currently trading is suspended DSCLShareholding pattern

Shamanur Group of Companies are promoted by Dr. S. Shivshankarappa. ShamanurGroup has business interest in Education, Bank, Sugar, and Power, Commodities,

Distilleries & food processing.

The group is highly influential in Karnataka particularly Davangere region with itsflagship education business under the name & style of Bapuji Educational Association

Davangere Sugar Company Limited (DSCL) is under majority control of theManaging Director Mr S. S. Ganesh.

Other sugar & power co-gen unit of the group includes:o Indian Cane Power Limitedo Shamanur Sugar Mills Limitedo Samson Distilleries Pvt. Limited

CURRENT RATIO:

This ratio measures the solvency of the company in the short term. It is the

ratio of current assets to current liabilities. It shows the firms ability to cover its

current liabilities with its current assets. It is expressed as follows;

Generally 2:1 is considered ideal for a concern i.e., current assets should be

twice of the current liabilities current assets are those assets which can be converted

into cash within a year. Current liabilities and provisions are those liabilities that are


40/68



payable within a year. Current assets includes cash in hand, cash at bank, , bills

receivable , sundry debtors, inventories, readily marketable securities, prepaid

expenses etc., current liabilities includes item such as bills payable, sundry creditors,

bank overdraft, cash credit, short term loans, occurred expenses, income received in

advance provision for income tax, proposed dividend etc.,

Current Asset

Current Ratio = Current Liabilities

Year Current Asset Current

Liabilities

Ratios

2008 77726.01 9650.07 8.05

2009 85393.95 14493.57 5.89

2010 100167.69 16501.10 6.07

TABLE NO3.3

Interpretation:

The standard current ratio is 2:1. The current ratio of the Davangere Sugar

Company is 6.07 in the year 2009 as compared to 8.05 in the year 2007. This shows

that the financial position of the Sugar Company is not good; when we observed the

0

2

4

6

8

10

2007 2008 2009


41/68



current ratio of all three years we come to the conclusion that the current ratio of

Davangere Sugar Company is less than 2. It means the company fined some

difficulties in payment of current liabilities and also day to day operations of business

may suffer

LIQUID / QUICK / ACID RATIO:

The term liquidity refers to the ability of a firm to pay its short term

obligations as and when they become due. This is the ratio of liquid assets to liquid

liabilities. It shows a firms ability to meet the current liabilities with its most liquid

assets.1:1 is considered as ideal ratio for a concern. The concern should keep the

liquid assets at least equal to the liquid liabilities at all the times. Liquid assets are that

asset which are readily converted into cash and includes cash balances, bills

receivables, sundry debtors and short term investments. Inventories and prepaid

expenses are not included in the liquid assets because the emphasis is on the ready

availability of cash in case of liquid assets. Liquid liabilities include all the items of

current liabilities except bank overdraft. This is the acid test of a concerns financial

soundness.

Quick Assets Current AssetsInventories Quick

Ratio = =

Quick Liabilities Quick Liabilities

Year Quick Asset CurrentLiabilities

Ratio

2007 3781.41 9650.07 0.39

2008 13948.34 14493.57 0.96

2009 9151.57 16501.10 0.55


42/68



TABLE NO -3.4

Interpretation:

The quick ratio was lowest during the year 2007 i.e., 0.39 and lowest during

the year 2009 i.e., 0.55 the ideal standard quick ratio is 1:1. It means the company is

in a position to meet its immediate current liabilities.

DEBT EQUITY RATIO:

This ratio is calculated to measure the relative proportions of outsiders funds

and shareholders fund invested in the company. This ratio is determined to ascertain

the soundness of long term financial policies of that company and is also known as

external internal equity ratio. Debt generally refers to long term liabilities equity

means owners fund. It consists of capital reserves and profits. It is calculated as

follows;

Debtors Turnover Ratio:

Sales

Debtors Turnover Ratio =

Debtors

0

0.2

0.4

0.6

0.8

1

2007

20082009


43/68



Year Sales Debtor Ratio

2007 4742.71 3409.54 1.39

2008 7805.8 2002.95 3.90

2009 7948.48 2398.48 3.31

TABLE NO -3.5

Interpretation:-

The high Debt Equity Ratio shows that the claim of creditors is more than that

of owners. If the ratio is very high then it is unfavorable as per the firms point of

view. In the year 2007, 2008 and 2009, the ratio was 1.39, 3.90 and 3.31.

AVERAGE COLLECTION PERIOD:

Days in a Year

Average Collection Period =

Debtors Turnover Ratio

0

0.5

1

1.5

2

2.5

3

3.5

4

2007 2008 2009


44/68



Year Days In a

Year

Debtor

Turnover

Ratio

Collection

Period

2007 365 1.39 263

2008 365 3.90 94

2009 365 3.31 110

TABLE NO -3.6

Interpretation:

The average collection period represents the number of days worth of credit

sales that locked in debtors. Low average collection period shows that companys

collection is fast and prompt. Form year 2007 and 2009 there was an increase in the

average collection period but in 2008 it was decreased. This is good sign forcompany.

FIXED ASSET AND CURRENT ASSET RATIO:

This ratio measures the efficiency of the assets use. The efficiency use of

assets will generate greater sales per rupee invested in all the assets of a concern. The

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2007 2008 2009


45/68



insufficient use of asset will result in low sales volume coupled with higher overhead

charges and under utilization of the available capacity. This ratio is important in case

of manufacturing concerns because the sales are produced not only by use of current

asset but also by amount invested in fixed assets. The higher is the ratio better is the

performance. On the other hand, a low ratio indicated that fixed assets are not being

efficiently utilized.

The firm may wish to know its efficiency utilizing fixed assets and current

assets separately.

Fixed Asset Turnover Ratio:

Sales

Fixed Asset Turnover Ratio =

Fixed Assets

Year Sales Fixed Asset Ratio

2007 4742.71 4870.14 0.97

2008 7805.8 6060.01 1.29

2009 7948.48 7206.42 1.10

TABLE NO -3.7

0

0.5

1

1.5

2007 2008 2009


46/68



Current asset turnover Ratio = Sales

Current Asset

Year Sales Current Asset Ratio

2007 4742.71 3781.41 1.25

2008 7805.8 13948.34 0.56

2009 7948.48 9151.57 0.87

TABLE NO -3.8

Interpretation:

The fixed asset turnover of the Sugar Company is faster than the current asset

turnover. The fixed asset turnover ratio during the year 2008 is highest i.e., 1.29

times. It implies that company generates a sale of Rs. 1.29 for one rupee investment in

fixed assets. The current asset turnover ratio during the year 2007 was highest i.e.,

1.25 times it implies that company generates a sales of Rs. 1.25 for one rupee

0

0.5

1

1.5

2007 2008 2009


47/68



investment in current assets. The high fixed assets and current assets ratio indicates

that the overtrading on assets.

NET PROFIT RATIO:

This ratio explains per rupee profit generating capacity of sales. If the cost of

sales is lower, then the net profit will be higher and then we divide it with net sales,

the result is the sales efficiency. If the lower is the net profit per rupee of sales, lower

will be the sales efficiency. The concern must try for achieving greater sales

efficiency for maximizing the ROI. This ratio is very useful to the proprietors and

prospective investors because it reveals the overall profitability of the concern. This

ratio is differ from the operating ratio in as much as it is calculated after deducting

non operating expenses such as loss on sale of fixed assets etc from operating profit

and adding non operating income like interest or dividends on investments profit on

sales of investments or fixed assets like higher the ratio, the better it is because it

gives idea of improved efficiency of the concern.

Profit after Tax

Net Profit Ratio =

Net Sales

Year Profit After

Tax

Sales Ratio

2007 8612.90 4742.71 1.82

2008 5218.10 7805.8 0.66

2009 3586.06 7948.48 0.45


48/68



TABLE NO -3.9

Interpretation:

The net profit ratio of the Sugar Company during the year 2007 was 11%, this

is because of low interest and high operating profit. The net profit is low during theyear 2009 was 4.5%, this is because of low operating profit. From 2007 onward the

net profit has been decreases. This is because the company faces the adverse

economic conditions such as price competition, low demand etc.

WORKING CAPITAL TURNOVER RATIO:

Working capital of concern is directly related to sales. The current assets like debtors,

bills receivable, cash, stock etc. The working capital is taken as; Working capital =

current assetscurrent liabilities.

Working capital turnover ratio indicates the velocity of utilization of net

working capital. This ratio indicates the number of times the working capital is turned

over in the course of a year. This ratio measures the efficiency with which the

working capital is being used by a firm. A higher ratio indicates efficient utilization of

working capital and a low ratio indicates otherwise. But a very high working capital

turnover ratio is not a good situation for any firm and hence care must be taken while

interpreting the ratio.

0

0.5

1

1.5

2

2007 2008 2009


49/68



Net salesWorking capital turnover Ratio =

Working capital

Year Net Sales Working

Capital

Ratio

2007 4742.71 6807.59 0.70

2008 7805.8 7090.03 1.10

2009 7948.48 8038.96 0.99

TABLE NO -3.10

Interpretation:

The working capital turnover ratio of the Sugar Company during the year 2008

is high (i.e., 1.10) times while compared to the working capital turnover ratio of otheryears. This high ratio indicates efficient utilization of working capital.

0

0.2

0.4

0.6

0.8

1

1.2

2007 2008 2009


50/68



PROPRIETORY RATIO OR EQUITY RATIO:

Proprietary ratio or equity ratio is also called as the shareholders to total

equities ratio or net worth to total asset ratio. This ratio establishes the relationship

between shareholders funds and total assets of the firm. This is an important ratio for

determining the long term solvency of a firm. The shareholders funds are equity share

capital. Preference share capital, undistributed profits, reserves and surplus. The total

asset denotes the total resources of the concern

Net worth

Proprietary ratio =

Total Asset

Year Net worth Total Asset Ratio2007 3702.59 1650.11 2.24

2008 4010.11 1613.51 2.48

2009 4368.71 1686.00 2.59

TABLE NO -3.11

2

2.1

2.2

2.3

2.4

2.5

2.6

2007 2008 2009


51/68



Interpretation:

The proprietary ratio was highest during the year 2009 (i.e., 2.59) while compared to

the proprietary ratio from 2007 and 2008. The ratio of 2.24: 2.48 considered as an

ideal proprietary ratio. The proprietary ratio of Sugar Company is more than the ideal

ratio. Therefore, the company financial position is very good and strong. The Sugar

Company also has long term solvency position.


52/68



CHAPTER:-4

Research Methodology of the specific project

4.1STATEMENT OF THE PROBLEM:-To evaluate the reasons leading to the declining revenue from past three years

in Davangere Sugar Company Limited (DSCL) in Davangere.

4.2 THEORETICAL BACKGROUND OF THE STUDY:-

The art of making sugar was discovered in India around 4 th century.

Sugar is an important element in mans food and definitely widely used product. It

provides employment to nearly 5lakhs of people directly. Sugar industry is an agro

based industry it is known to the second largest industry in the country, in spite of

being one of the largest producer of sugar in the world the export ratio is the lowest

among sugar exporting countries, hardly 2% of the total production is exported .Itplays an major role in the economic development of rural areas in the state.

The industry revolution introduced the concept of mass production which

revolutions the manufacturing process and technology of production. The industry

revolution mechanized the production as processing unit the method of manufacturing

led for the birth of various concepts like process engineering, process management

and process maintenance.

Sugar is a sweet white or brown usually crystalline substance obtained cheaply

from sugarcane or sugarcane beets and used commonly in food products.


53/68



4.3 LITERATURE REVIEW:-

William F. Slater(Finance Ratio Analysis):

This research paper will reveal the financial analysis techniques used to

evaluate the financial performance of sample Company, and evaluate the companys

worthiness as an investment. The paper is divided into three sections. The first

sections the memo, which is the main body of the paper. The second section.

Appendix, includes as a reference contains each of the sets of the four financial

statements that show Sample Companys performance from 1999 to 2001. The third

section, Appendix B, contains the actual financial ratio analysis techniques, showing

the companys performance.

Rune Stenbacka and Mihkel Jombak:

Both the authors developed a model of simultaneous investment and financing

decisions made by the owners of firms in the presence of capital market

imperfections. They maximize their value by determining the capital structure

simultaneously with the magnitude of the investment program. Initially the authors

characterize theoretically how the optimal combination of debt and equity financing

will depend on the firms internal funds available for investments. Their theory

identifies conditions under which there would be complementarities between debt and

new equity. Subsequently the authors tested these predictions empirically on financial

data for the year 1982 1992 on 3119 publicly traded manufacturing and

Telecommunications Corporation.

Kashiram Rana:

He describes that the new challenges and opportunities presented by the

rapidly changing global environment the industry has to become globally competitive

by adopting a modernization program. An important factor inhibiting the technology

up gradation is the high cost of capital required for carrying out such a programmed.

4.4 OBJECTIVES OF THE STUDY:-

For the progress of any research, objectives are must, without the objectivesthe tasks cannot be completed. The main objectives of the study are as follows;


54/68



To know the earning capacity of the Sugar company. To analyze the overall financial performance of the Sugar company. To judge the liquidity, solvency and profitability position of the Sugar Company. To examine the working capital position of the Sugar Company. To know the assets and liabilities of the company. To examine the fund flow position of the company. To examine major findings and offer useful suggestions to improve the performance.

4.5 SCOPE OF THE STUDY:-

The study mainly conducted to attempt has been made for analyzing the financial

performance of Sugar Company.

4.6 AREA OF THE STUDY:-

The study has been made with reference to Sugar Company limited,

Davangere.

4.7 LIMITATIONS OF THE STUDY:-

The study is based on secondary data such as published annual reports. During the study some important and confidential matters are not disclosed by the

respective authorities.

Due to the changes in the price level of various year comparison of ratio of such yearscannot give correct conclusion.

There is absence of standard ratio, so comparing of the ratio is misleading. As the study period is only for 3 years, so the collected and analyzed belongs to only

those years

4.7 DATA COLLECTION:-

METHODOLOGY USED FOR THE STUDY:

The methodology occupies important place for studying any problems. The

required data may be collected in two ways. They are


55/68



a) Primary Datab) Secondary Dataa) Primary Data: The data which is obtained for the first time for the statistical

investigation collected in a specified way are known as a primary data.

b) Secondary data:If the data already has been collected by some person or institutionand they made available for statistical investigation is known as the secondary data.

SOURCES OF DATA:-

SOURCES OF DATA

SECONDARY DATA

JOURNALS

ANNUAL REPORTS

TEXT BOOK

PERSONAL INTERVIEWWITH

STAFF MEMBERS

PERSONAL OBSERVATIONS

PRIMARY DATA


56/68



CHAPTER 5

SUMMARY OF FINDINGS

5.1 FINDINGS BASED ON RATIO:-

In this chapter involved brief result of the study in terms of findings and some

suggestions to improve over come the drawbacks.

Following are the findings identified from the analysis made on the working capital.

The company is large scale growth oriented company and it shows a profitable figurethroughout period of study, among the 3 years.

The company has managing its working capital is not more efficiently. Current ratio of the Davangere sugar company Ltd., decrease but increased in 2008-

09.

The firm is maintained in more efficient inventory of raw materials in next futureproduction.

The company has followed the inventory system of the company preparing on dailybasis, monthly basis and yearly basis.

The quick ratio of Davangere sugar company Ltd. has decreased year to year. Working capital turnover ratio of Davangere sugar company Ltd., was decreased in

the year 2008-09

Company has maintained sufficient cash and bank balance during the study periodexcept 2008-09.

The fixed assets turnover ratio of Davanger sugar company Ltd., has increased duringthe year 2007-08 (but slightly decreased in 2008-09.

The company failed to manage inventory turnover ratio in the year 2008-09. The company is ordered raw material by calling tenders. This is purely looked after

by the purchase department.

The company is following the economic order quantity on ordering for the rawmaterials.

The company aim is to increase the production of Sugar and power in future.


57/68



5.2 FINDING BASED ON OBSERVATION:

Growth is the main objective or goal of any organization & the organization will befrequently working on it.

The government plays an important role in framing policies & procedures for sugarindustry.

Flow of information & understanding between departments plays an important rolefor the success of an organization.

Each and every department is interlinked & acts as a source of information to oneanother.

The effect of external factors like, suppliers(farmers), government, naturalenvironment etc plays an important role in agro-based industries

The company is planning to increase its sugarcane crushing capacity. The company is planning to supply its power to TATA Company limited. The company is showing more interest towards foreign market. The company has a separate department called cane development department where

farmers are encouraged by giving loans to grow more & more sugarcane.

The company has adopted new techniques & procedures to cut the total cost.


58/68



CHAPTER 6

SUGGESSIONS, CONCLUSION AND FUTURE LINE OF RESEARCH

6.1 SUGGESTION:-

The following are few suggestion offered to the Sugar Company for

improving its performance.1) The company should raise the funds through issuing the equity share capital,

preference share capital, debentures, bonds and other sources of finance.

2) The sugar Company should improve its short term solvency position by investingmore and more in current assets.

3) The sugar Company should improve its production methods by upgrading the latesttechnologies so it helps the company to produce the product at lower cost with better

quality which can attract more and more customers.

4) For the day to day operations of the company the working capital is very essential. Sothe company should maintain the high working capital ratio.

5) The company can reduce the loss by reducing the certain position of cost of goodssold.

6) While upgrading the technology the company needs or require the fund so thegovernment should provide the fund for the development of the company.

7) Sugar Company should take the effective barriers to reduce the competition.


59/68



8) The Sugar Company should concentrate on to improve the sales. This is possible onlyby adopting the various marketing strategies.

9) While observing the balance sheets it clearly shows that there is existence of sundrydebtors. It means the company sells the goods on credit basis. Credit sales are

inevitable, but future is uncertain. So the company should improve its collection

policy.

10)It is very important for the company to control and managed the inventory in aneffective manner. The company should make an investment in inventories. The

company should try to reduce the holding period of the stock.

6.2 CONCLUSION:

Sugar industry a seasonal, agro-based industry occupies an important place in

the economy. It has an immense potential for transforming the rural economy into

self-generating one. The industry can except to grow and emerge as a key player in

the international arena.

When such is the case, safety and welfare measure observed in the industries have an

important role to play in the development of the industries.

DAVANGERE SUGAR COMPANY LIMITED has made great efforts after itsprivatization and succeeded in market from past 36 years and it is frequently working

on its objective that is growth, as DSCL believes growth as the success of the

organization.


60/68



BIBLIOGRAPHY

BOOKS

Marketing management by Philip kotler, 2005 edition

Human resource management Ashwathappa k. 2000 edition

Production and operation management Ashwathappa k.3rdedition

Company three years annual report

1. 2007-082. 2008-093. 2009-10

NEWS PAPER

Nagar vane local news paper on 14/06/2008

Prajavani news paper on 13-09-2009

LIST OF WEBSITES

Www.sugar.co.in

www.dscl.co.in

www.indiansugar.co.in

LINKS

http://www.processregister.com/Davangere_Sugar_Co_Ltd/Supplier/sid2

2751.htmLast Accessed13-04 2010

http://business.mapsofindia.com/sugar-industry/karnataka.html

Last Accessed06-05-2010

http://www.karnataka.com/industry/sugar

Last Accessed19-05-2010

http://www.projectsmonitor.com/detailnews.asp?newsid=5869Last Accessed11-06-2010
http://www.sugar.co/http://www.dscl.co.in/http://www.processregister.com/Davangere_Sugar_Co_Ltd/Supplier/sid22751.htmhttp://www.processregister.com/Davangere_Sugar_Co_Ltd/Supplier/sid22751.htmhttp://business.mapsofindia.com/sugar-industry/karnataka.htmlhttp://www.karnataka.com/industry/sugarhttp://www.projectsmonitor.com/detailnews.asp?newsid=5869http://www.projectsmonitor.com/detailnews.asp?newsid=5869http://www.karnataka.com/industry/sugarhttp://business.mapsofindia.com/sugar-industry/karnataka.htmlhttp://www.processregister.com/Davangere_Sugar_Co_Ltd/Supplier/sid22751.htmhttp://www.processregister.com/Davangere_Sugar_Co_Ltd/Supplier/sid22751.htmhttp://www.dscl.co.in/http://www.sugar.co/


61/68



http://www.business-

beacon.com/kommon/bin/sr.php?kall=wcos&tab=1010&cocode=56459

Last Accessed 17-06-2010

Documents

Manju Final Report