Rajashekhar Chimilagi

Shree Renuka Sugars Ltd
INDUSTRY PROFILE:
1.1 Introduction THE HISTORICAL BACKGROUND OF THE INDIAN SUGAR INDUSTRY: The sugar industry is proud to be an industry, which spreads the taste of sweetness to the mankind. The history of origin of this industry is as old as the history of main it-self. Sugar is generally made from sugarcane and beet. In India, sugar is produced mainly from sugarcane. India had introduced sugarcane all over the worlds and is a leading country in the making sugar from sugarcane. Saint Vishwamitra is known as the research person of the sugarcane in religious literature. We can find the example of sugarcane in Vedic literature also as well as sugarcane. We can also find the reference of sugar and the sugarcane in Patanjalis Mahabashya and the treaty on the grammar of Panini. Greek traveler Niyarchus and Chinese traveler Tai -Sung have mentioned in their travelogue that the people of India used to know the methods of making sugar and juice from sugarcane the great Emperor Alexander also carried sugarcane with him while returning to his country. Thus from different historical references and from some Puranas it can be concluded that method of making sugar from sugarcane was known to the people of Bihar. The historical Evidences of sugar industry prospering in ancient India concrete and this has helped to develop and prosper the co-operative sugar movement in India.
Premier Association of the Sugar Industry in India The oldest industrial association in the country was established in 1932 when tariff protection was granted to the industry. It is recognized by the Central and State Governments as the Central Apex Organization to voice the cause of the sugar industry. Sugar mills in the private sector as well as the public sector are eligible to become members. Adept institute of Management studies and research Dharwad Page 1

1.2 Global Scenario
The bullish sugar market seen in 2009 lost the momentum in early 2010 as production looked set to exceed demand significantly in 2010-11 seasons. This was mainly on account of anticipated surge in production in both Brazil and India, the two largest producers of the commodity. However, the dynamic Capital Structure of sugar market started changing rapidly towards the middle of the year in wake of poor weather affecting production in many countries including Pakistan and China and Brazils production outlook weakened as well. The bullish tendencies continued to increase throughout the second half of 2010 and the market is currently in a red hot and extremely volatile state.
India and Brazil are two dominant players in the world sugar market and account for around 40% of the world sugar production. Any shift in sugar production from India or Brazil has severe impact on the world sugar prices. Global sugar output is expected to beat demand for the first time in four years thanks to favorable weather in the Brazil and India, the two biggest sugarcane growing nations. Global sugar production, raw value, for the 2011/12 marketing year is forecasted at 168 million metric tons (MMT), up 8 MMT over the previous year. Concerns that Adept institute of Management studies and research Dharwad Page 2

global supplies will trail demand after crop damage from a storm in Australia and drought in Russia cut output have been undermined by higher production in Brazil, China, India, and Thailand. Global exports are forecasted at 56 MMT, up 3 MMT over the previous year. Consumption is estimated at a record 162 MMT, up 2.7 MMT from a year earlier and ending stocks are forecast at 29 million tons, down over 400,000 tons.
1.3 Indian sugar industry:

India is the largest consumer and second largest producer of sugar in the world (Source: USDA Foreign Agricultural Service). In SY 2007-08 India, produced 26.3 million tons and consumed 22.5 million tons of sugar. With an opening stock of 9.55 million tons in 2008-09, India will end the year with stocks of around 4 million tons. India is the world's largest sugar consumer, accounting for 15% of global consumption. It is also a huge 'swing producer' - severe year-to-year production fluctuations affects its trade status (and often the world's net balance by extension), as it alternates as a massive importer to small sugar exporter. The following table shows the supply demand imbalance since 2004-05. India had swung itself from a net importer to a potentially big exporter in two years. It has once again become a net importer and is importing in 2009. This demonstrates the domestic sugar industry's extreme cyclicality.
Adept institute of Management studies and research Dharwad
Page 3

The main contribution to the world sugar deficit this year is the large production shortfall in India. Latest estimates from India's Sugar Mills Associations suggest sugar output will fall to about 15 MT, down 43% from the 26.3 MT achieved in 2007-08. Following unprecedented output growth, India is now entering the down phase of its production cycle. Higher alternative crop prices began influencing cane growers back in 2006-07, causing a large switch to other crops like paddy and wheat. India's cane area fell 16% to 4.41million hectares in 2008-09 from the record area in 2007-08 of 5.29 million hectares.
The Indian sugar industry remains the second largest rural agro-industry, with a Rs. 700 billion annual turnover, contributing almost Rs. 22.5 billion to the central and state exchequer as tax and excise duty annually (Source: Ministry of Food, Government of India). It is the second largest agro-processing industry in the country after cotton textiles. With over 600 operating sugar mills across India, the industry remains a potent rural economy driver. About 50 million sugarcane farmers and a large number of agricultural labourers are involved in sugarcane cultivation and ancillary activities, constituting around 7.5% of the rural population. Besides, the industry employs around 2 million rural skilled/semi-skilled workers, among others (Source: ISMA).
Page 4
1.4 Current industry status:

In 2005-06, there were 581 sugar mills across India's 18 states with a cumulative 190 lakh MT sugar capacity, of which only 455 are now operating. Around 312 of the total installed mills were in the cooperative sector, 205 in the private sector and 64 in the public sector (Source: Directorate of Sugar). The number of factories in the private sector increased by more than 15%, indicating the corporatization. But majority of the industry is still fragmented with more than 50% of the industry represented by co-operatives.
1.5 Main problems of sugar industry: Sugar industries in India Suffering from inadequate supply of sugarcane. Sugar industry was initially unevenly distributed in the country. It has the high cost of production. The crushing season is very short. It runs for nearly 100 to 110 days in a year. Inefficient management. By product of sugar industry like bagasse, molasses, press mud etc are not properly
utilized.
Recovery of sugar juice from sugar cane is very low. The sugar mills are badly located from the point of raw material supply and also market
etc.
Page 5

2. COMPANY PROFILE:
2.1 Background and inception of the company

Name of the Company : Shree Renuka Sugars LTD Founder Incorporated Registered Office Corporate Office Key People : Mrs. Vidya Murkumbi and Mr. Narendra Murkumbi. : 1995 : Belgaum : Mumbai : Mrs. Vidya. M. Murkumbi Executive Chairperson Mr. Narendra Murkumbi Vice Chairman & MD Parent plant Products Revenue Net profit Total Employees Website : Munoli (Karnataka) : White Sugar, Ethanol, Distillery, power and bio fertilizer. : : 63,620.99 Million 1350.53 Million
: 2000 plus : www.renukasugars.com Page 6

MILESTONES OF SHREE RENUKA SUGARS LTD (SRSL): 1995-SRSL was incorporated. 1998-Initially it acquired a 1250 TCD sick unit from the Nizam Sugars Limited. 1999-The commissioning and trail production took place. 2000- Commencement of 11.2 MW Co-generation plant at Munoli. 2001- Start of 60 KLPD distillery at Munoli. 2002- Establishment of 250 TPD sugar refinery at Munoli. 2003- Leasing of First Co-operative mill. 2004- SRSL IPO Launched. 2005- Acquisition of green field project at Athani (Karnataka). 2006- Acquisition of sugar mill in Shindkheda and relocated to Havalga (Karnataka). 2007- Acquisition of KBK Chem Engineering Private Limited. 2008- Commissioning of 2000 TPD port based refinery at Haldia. 2009- Commissioning of Co-generation plant in Panchganga co-operative sugar mill. 2010-acquired 100% stake in Renuka Valve do Ivai S/A and 50.34% stake in Renuka do Brasil S/A (Equipav). 2011 Commissioned a 3000 tonnes per day port-based refinery in Gujarat 2012-Increased stake in Renuka do Brazil S/A to 59.4% with a further investment of $115 million.
Page 7

2.2 NATURE OF BUSINESS:
SRS has plants located in the states of Maharashtra and Karnataka, with Maharashtra presently accounting for 27% of its capacities. At present, 10,250 tcd capacities are on lease with the balance owned by the company. Also, being located at Maharashtra and Karnataka generates the advantage while exporting/ importing sugar during times of surplus / deficit production. Nature of business carried out in SRSL, is involved activity of manufacturing white crystal sugar products which is the main product. The process of production involve convention of-Raw sugarcane to sugar, Raw sugar into refined sugar, Molasses, Bagasses are its by products.
1) Molasses : Molasses is mainly used for the manufacture of ethyl alcohol (ethanol), yeast and cattle feed. 2) Bagasses: Bagasses is usually used as a combustible in the furnace to produce steam, which in turn is used to generate power; it is also used as a raw material for production of paper and as feed stock for cattle. 3) Power generation plant: Power plant uses the fiber of the processed sugarcane (Bagasses) as a fuel to generate electricity in an environmental friendly manner. An integrated 11.2 MW power generates and applies electricity to the state grid produced from sugar cane waste used to rotate turbines 7 MW power is utilized plant remaining power is supplied to KPTCL. 4) Distillery plant: This facility uses the byproduct of sugar mills viz; Molasses as a raw material for the production of spirits and alcohol namely spirit, ethanol and extra neutral alcohol. SRS, with a capacity of 600 KLPD (900 KLPD by Mar09), has one of the largest distillery capacities in India. Of its post expansion capacity, 67% will be located at Karnataka with balance based in Maharashtra.
Page 8

COMPANY OVERVIEW:
The Company was originally incorporated as Shree Renuka Sugars Limited vide certificate of incorporation no. 08-16046 dated October 25, 1995 with Registrar of Companies, Karnataka at Bangalore and received the certificate for commencement of business on January 5,1996. The Company was formed by Mr. Narendra Murkumbi and his mother Mrs. Vidya. Murkumbi, not just dreamers but doers in their own right. It is a fully integrated sugar company focused on sugar manufacturing and trading with by-products such as power, ethanol and bio-fertilizers. The Company has 9 subsidiaries, out of which 3 are in India, 2 in Brazil, 2 in Sharjah, 1 in Dubai and 1 in Mauritius. The Company has a total crushing capacity of 92500 TCD, distillery of 930 KPLD, Cogeneration capacity of 376 MW, and Refinery of 4000 TPD. The Company is currently the 5th largest producer of sugar in the world, leading sugar manufacturers in India & one of the largest refineries globally. It has a significant presence in South Brazil, the most cost efficient and scalable production area with a total cane crushing capacity of 14 million tons at its 4M.
2.3 VISION, MISSION STATEMENT AND QUALITY POLICY

a) VISION STATEMENT: To become the most efficient producer of sugar and the largest marketer of sugar and ethanol in India with a renewable fuel business component.
b) MISSION STATEMENT: Its mission in meeting these objectives are to expand its installed capacity, achieve end-to-end integration for all its plant to improve margins and reduce cyclicality of business achieve greater raw material security, increase its focus of corporate and Adept institute of Management studies and research Dharwad Page 9

high value customers to reduce price risk in sugar by hedging, maintain a strong presence in export market and expand a market for Ethanol. To become a provider of the world class products to the nation To enhance the shareholders wealth by sustained profitability and financially sound growth with prudent risk management system. To fulfill national and social obligations as a responsible citizen.
c) QUALITY POLICY: Producing the best quality sugar with an integrated approach to satisfy all ranks consumers. Bringing overall productivity and efficiency throughout of organization. Efficient waste management system Creating and maintaining continues learning and motivating atmosphere, participating in the all round development of community.
d) GOALS AND OBJECTIVES:

Encouraging study of the goals of materials management is proved to be
significant. It mainly emphasizes on the following objectives or goals: Ensure an uninterrupted flow of fair required quality materials for the purchase of production and rendering of services. Procurement of required materials at fair and reasonable price keeping in view the price trends and market conditions. To expand its installed capacity to achieve end to end integration for all its plants To improve margins and reduce cyclicality of business Achieve greater raw material security Increase its focus of corporate and high value consumers Maintain a strong presence in export market and expand for ethanol.
2.4 PRODUCTS / SERVICE PROFILE:

Basically Shree Renuka Sugars Limited is in manufacture of Various Sugar and its by products. It is not a services oriented industry. SRSL is today stand for top 10- Sugar manufacturing and exporters list. These following are the products produced by the Shree Renuka Sugars Limited:SUGAR: SRSL is one of the few fully integrated sugar companies, which have capabilities to extract maximum value from sugarcane. Sugar is the primary product of sugarcane. However,
Page 10

sugarcane crushing yields by-products like molasses that are used in facilities for the generation of power and production of ethanol and fuel ethanol. Shree Renuka Sugars produces EC II grade refined sugar which confirms to EU norms. SRS uses phosphorisation process which produces sulphur less sugar. It is considered a higher end product mostly used for direct consumption in European and African countries as well by corporate for Industrial usage.
(MADHUR, A SUGAR BRAND OF SRSL) This white crystal sugar is manufactured in the following grades: 1) L-30 [Large size sugar] 2) M-30 [Medium size sugar] 3) S1-30 [small size sugar] 4) S2-30 [very small size]
Page 11

ETHANOL: SRSL produces alcohol from the molasses (Molasses is the brown coloured residue after sugar has been extracted from the juice. Molasses still contains some quantity of sugar, but this sugar cannot be extracted by usual technology) left after the extraction of sugarcane juice, which can be used both for potable purpose as well as an Industrial chemical. Further this alcohol can be again purified to produce fuel grade ethanol that can be blended with petrol. MOLASSES: Molasses is the final effluent obtained in the production of sugar by repeated crystallization. Molasses is brown colored residue after sugar has been traced from the juice. Molasses still contains some quantity of sugar, but this sugar cannot be extracted by usual technology. BAGASSE: It is a fibrous residue of cane stalk that is obtained after crushing an extraction of juice. It consist of water, fiber a relatively small quantities of soluble solids, the composition of Bagasse varies based on sugarcane quality and method of crushing it. The composition of it is given below POWER: In the process of crushing of sugar cane, Bagasse, a fibrous by-product is produced which is used in the boilers to generate steam. We produce power from Bagasse, which is used in the manufacturing process as well as sold to the state electricity boards. Further this Bagasse based cogeneration plant is eligible for carbon credit compensation under the Kyoto protocol
2.5 AREA OF OPEARATION

Renuka sugars Ltd manufacture is originally from Karnataka. The Head office of SRSL is in Belgaum district. It expanded its business to the state of Maharashtra, Andra Pradesh, Uttar Pradesh, Gujarat, Tamil Nadu, and West Bengal. And through-out the India. Belgaum and Munoli plant are main manufacturing plant and Ajara and Arag are the other manufacturing
Page 12

(leased) units of SRSL. It is operated in other countries like Brazil. Besides having plant in various locations such as They have wholly owned subsidiary for sugar trading at Dubai DMCC. They have market for the sugar outside India also with exporting sugar to countries like UK, Middle East, North Africa, Russia and Japan.
2.6 OWNERSHIP PATTERN:

Shree Renuka Sugars Limited is one of the privatized sugar manufacturing companies. Under the Entrepreneurship of Vidya Murkumbi, established its branches in various parts of Karnataka and Maharashtra with the share capital of 200 millions of Indian Rupees. BOARD OF DIRECTORS: Smt. Vidya M. Murkumbi Shri Narendra M. Murkumbi Shri Sanjay K. Asher Mr. Vijendra Singh Shri Surender Kumar Tuteja Shri Hrishikesh Parandekar Mr. Robert Taylor Shri J. J. Bhagat Shri Sidram Kaluti Shri Nandan Yalgi Executive Chairperson Vice Chairman & Managing Director Independent Director Whole Time Director Independent Director Independent Director Independent Director Independent Director Non Executive Director Whole Time Director
Page 13

The current capacities of SRSL are as per the table below:
Unit Location Sugar(TCD) Power(MW) Distillery(KLPD) Sugar Refinery(TPD)
Owned Units I IV V Munoli Karnataka Athani, Karnataka Havalga, Karnataka Pathri, Maharashtra Gokak, Karnataka Khopoli, Maharashtra Haldia, West Bengal Kandla, Gujarat Panchganga, Maharashtra Ajinkyatara, Maharashtra Arag, Maharashtra 8000 10000 7500 35.5 68 25.5 150 300 180 1500 2000 1000
VII IX EI
1750 2500 -
14 -
300
RI R2 VII
6000
15 45 30
2500 3000 -
VI II
24 15 Unit acquired on lease
X TOTAL
Raibag, Karnataka
2500 38250
Capative 272 930 10000
Page 14

2.7 COMPETITORS INFORMATION:
Bajaj Hindustan Limited
Godavari Sugar Limited
Ugar Sugar Limited
Competitor of
Shree Renuka Sugars

Bannari Amman Sugars Limited Balrampur Chini Mills Limited
Shree Prabulingesh war Sugars. Limited
EDI Parry (India) Limited
DKSSK, Chikkodi Loka Mangal Sugars fPvt. Ltd. (Bhandarkote) Siddeshwar Co-op Sugars. Ltd, (Solapur) Shree Santh Damaji Co-op Sugars Ltd. (Mangalaweda) Hira Sugars Co-op Ltd. (Hirebenur), are the major players in the sugar industry.
CUSTOMERS
Hindustan Coco Cola Beverages Private Limited. PepsiCo ITC Limited Britannia Industries Limited Nestle India Limited Cadbury India Limited Hindustan Unilever Limited Pantaloons (Big Bazaar) Page 15

2.8 INFRASTRUCTURAL FACILITIES:
1) Self contained residential quarters are constructed for officers & worker. 2) The workers & their dependents are provided with free medical facilities. 3) Formed a cooperative consumer society. 4) Established at the factory site the employee cooperative credit bank. 5) Primary School, Balawadi & Anganawadi are run by the factory. 6) Arranged a mini-bus for transporting the school going children from colony to the schools. 7) Issued identity cards incorporating name of the blood group of each employees, computerized punching cards to ensure discipline in & out. 8) Provided a well equipped ambulance to employees. 9) The factory has provided a playground at the colony. 10) For the entertainment of the colony residents, the factory has provided with TV antenna.
Page 16

2.9 ACHIVEMENTS AND AWARDS:
1995 1998 1999 1999 2000 2002 2003 2004 2004 2004 2005 Maharashtra 2005 Memorandum of understanding (MoU) with Haripriya Sugar Works Limited. SRSL was incorporated. Acquisition of assets of Nizam Sugars Limited. Shifting of plant from Hindupur to Munoli Commencement of commercial Production Commencement of 11.2 MW cogeneration plant Commencement of 60 KL distillery at Munoli in Karnataka Increase in co-generation capacity to 20.5 MW Expansion of refinery capacity to 1000 TPD Lease for operation of Unit II at Ajara in Maharashtra setting up subsidiary in Dubai Lease for operation of Unit III at Mohan nagar in
AWARDS:
SRSL has been awarded TWICE TWO STAR EXPORT HOUSES in 2005 and TWO STAR EXPORT HOUSES in 2006, for its operational efficiency.
Page 17

2.10 WORK FLOW MODEL (END TO END):
Page 18

SUGAR MANUFACTURING PROCESS:
The sugar commonly used is White Crystal Shape at Shree Renuka sugars Ltd the organization follows an integrated system of manufacture. The conventional method was the old method followed to produce sugar . The basic difference between integrated and the conventional method is that it uses the waste to produce something productive. Like molasses is used to produce alcohol and mud is used to produce Bio-Fertilizer for the crops.
Page 19

To produce different types of sugar different methods are used in the sugar factory. The present system of sugar manufacturing is sub division into following stages. 1. Extraction of juice from sugarcane by milling 2. Clarification of juice. 3. Concentration of juice by evaporation to syrup. 4. Crystallization of sugar by vacuum pan boiling. 5. Centrifugation or separation of sugar and molasses from the massecuite. 6. Drying and cooling of sugar. 7. Sugar grading and packing. Initially sugarcane weighted on the weigh bridge & is crushed in six mill tandem. The mixed juice coming out of the mills is automatically weighed on the weighing machine. The weighed juice is treated with lime & SO2 (sulphur dioxide) gas at about 75 degree centigrade & heated further in the juice heater to about 102 degree centigrade finally. This treated juice is send to settler known as Dorr clarifier where the juice is taken out from the top & mud is drawn out continuously from the bottom of the Dorr. The clear juice thus, taken for further process. The settled mud is filtered through Oliver filters & filtrated mud juice from the Oliver is again mixed with mixed juice for further processing & mud passed out from the Oliver from the mud chutes. The clear juice having the brix of 17 degree is sent to evaporators containing series of bodies for concentration of juice, thus during this period of evaporation thick syrup is formed of about 55 to 58 degree brix. The boiling is done under vacuum, thus the vacuum is the last evaporator body is of 25 degree. The final syrup is again treated with SO2 gas in syrup sulphiter. Where syrup PH is maintained at about 5.0. This sulphited syrup is used for crystilation process in the vacuums pans in which crystal are continuously formed & developed to a desired level by charging the syrup as mother liquor under constant vacuum of 25 degree of mercury. This mass of crystals along with mother liquor is called as A massecuite which is dropped in the crystallizer & cooled. This massecuite from the crystallizer is future subjected to centrifugal machine for separation of crystals from mother liquor. The white sugar is taken on the hopper for drying. The size & color Of the sugar is compared with I.S.S. standard bottles from time to time before it is being finally taken to godown for storage.
Page 20

A heavy molasses that is separated from A massecuite in centrifugal is used for B massecuite boiling & A light of higher purities is used for A boiling again. Similarly B massecuite is purged in centrifugal & B heavy molasses coming out is used for C boiling for low massecuite. B sugar is used as A footing for boiling A grade massecuite. Similarly C massecuite is plugged in two stages where in the first final molasses coming out is weighted & send to distillery for spirit manufacture as a by-product, & first cured sugar is mixed with C light or water if necessary. This magma is future cured in 2nd stage in the centrifugals. C sugar thus obtained is either used for B footing or melted suitably. C massecuite boiling as low grade massecuite. The granning method is adopted for C footing. Thus the cycle of processing continue till the closure of the season.
2.11 FUTURE GROWTH AND PROSPECTS:

Entered into a 5 year lease agreement to operate a 2,500 TCD plant of Balaghat Shetkari Sahakari Sakhar Karkhana Ltd., having its plant at Latur, Maharashtra. Acquired Ratnaprabha Sugars for Rs238mn, a company with a crushing capacity of 1,250 tcd and 30 KLPD distilleries. The unit is located in central Maharashtra. Acquired 87% in Gokak Sugars Ltd., which has a capacity of 2,500 tcd along with a 14 MW Co-gen plant (6 MW saleable). The acquisition cost of Rs693mn includes assumed debt of Rs650mn. Thus, actual cash outflow for the acquisition was limited to Rs43mn. Awarded 30-year lease of Raibag SSKN, a Karnataka based co-operative mill for a total lease payment of Rs1.26bn over the lease period. The unit has a capacity of 2,500 tcd. National Ethanol Programme. Access to the national power grid for cogeneration under the open-access system.
Page 21

3. MC KINSEYS 7-S FRAMEWORK:
Developed by Waterman, Peters and Phillips (1980), the 7-S model can be used as a framework for thinking constructively about the complexity, interdependence and fragmentation of a change programme. It is based on the concept that there are seven areas of an organization that need to work in harmony with one another. The 7-S-Model is better known as the McKENSYS 7-S, developed by Tom Peters and Robert Waterman.
1. Structure:
The basic structure refers to organizational arrangements of various departments and reporting lines and responsibility centers. It is one of the key variables for managing the company, SRSL comprises of various plant facilities at various locations spread across India. In SRSL the structure is centralized functional division use to control entire organization work flow. It has implemented top down management system. It has nearly seven fully operational units and two subsidiaries overseas. Purchase Department
1) Purchase of material. 2) It enquires required material in the store. 3) Maintaining the purchase account. Adept institute of Management studies and research Dharwad Page 22

Cane Department
The cane department manages cane procurement through dedicated cane procurement teams. Cane managers issue cutting orders or harvesting permits, based on data wise cum pre harvesting maturity surveys. The Cane Department acts as a mediator between the Company and the farmers where the Company purchases sugarcane directly from farmers through Cane Department. Process Department:
The process department is responsible for looking after all the production activities. The process department consists of major technicians who are responsible for carrying out the various activities required to manage the process of conversion of raw material available as sugarcane to the conversion of sugar. Store Department
1) To make the material requisitions for the purpose of knowing the quantity material. 2) To make purchase order or in simple terms the tender. 3) To make approval memo for verification of materials. 4) The store department issued material with reference with store requisition. 5) To make classification & codification of materials. 6) Receipt of material. 7) Inspect it with ordered quantity, quality & if any other specifications. 8) Some of the material like chemical is to be sent to laboratory for incepatation & testing. 9) Getting indents from departmental head & issuing it.
10) To make purchase return if the material are rejected. 11) To maintain minimum level of materials. 12) Informing purchase department when material required. Sales Department:
In the sugar industry sugar is sold according to central govt. guidance & release. Marketing & advertising is not necessary in sugar industry. Anyhow customer relationship is necessary to convert the stock into cash Adept institute of Management studies and research Dharwad Page 23

1) Getting order from parties. 2) Arranging for delivery to parties. 3) Maintaining record of sales. Engineering Department:
1) Planning for new project. 2) Water supply to the factory & quarters. 3) Looking over cleanliness of the factory. 4) Making arrangement for the functions. 5) Maintenance of factory building. Administrative Department
Overseeing & carrying out office operations, preparing, systematizing& preserving written communication, Distributing information, collecting accounts. Admin helps in HR functions like employees pay, leaves, attendance, formalities in joining organisation etc. General Account Department:
Finance is the lifeblood of business one cannot imagine a business without finance department because it is the central point of all business activities. Finance dept. of Hira sugar factory plays a very important role, as it is here that decision with to procurement & utilization of funds are taken. Such decision includes the preparation of various budgets, allocation of funds for various activities or division of the firm as well as distribution of profits etc. An account section is also including in the finance dept. it helps in achieving the objectives of the company. Proper management of the fund is necessary for effective management. HR Department:
Human resource department helps out in recruitment, selection, training and development, performance appraisal, rewards and recognition, compensation etc.
Page 24

THE ORGANISATION STRUCTURE OF SRSL:
2. Skills:
These are the set of abilities needed to perform the job which employee possess at work place. T&D ensures the necessary skills sets are acquired by the employees. People in the organization need various skills, such as managerial, functional, marketing, finance and planning, analysis and interpretations.
Page 25

Some of the methods SRSL uses to upgrade the skills are: On the job training methods o Job rotation o Training by experts Off the job training methods Demonstrations Virtual training exercise
3. Style:
Style has been observed in the organization that the behaviors of superior the subordinates in pleasant they motivate fresher who are working under them. Style and its application: Developing people: SRSL believes and works to develop the organization by developing its people, whom it considers as valuable asset. man in the right place is way of SRSL operates.
Empowerment and autonomy to employees after putting right SRSL has two approaches to style,
a) Top to bottom The SRSL follows the top to bottom system of controlling and managing the HR with relates to functioning of day to day activities set to them. Functions are carried under the participative manner.
Top level Bottom level
Second level
Third level
b) Authorization Decision making is centralized with the Head office. Authority is given to unit in-charge to take decisions concerning of day to day affairs. Decision making is coordinated one and done with wide consolation of top management of department manger.
Page 26

4. Strategy:
The integrated vision and direction of the company, as well as the manner in which it derives, articulates communication and implements that vision and direction. Enhancing the capacity of our existing sugar mill. We intend to increase the capacity of our existing sugar mill at Munoli from 2500 TCD to 7500 TCD. This would be a brown field expansion. Intend to use all the by-products of sugarcane like Bagasse and molasses to produce value-added products like electricity, Ethanol and Fuel Ethanol, for all our plants. Fully integrated manufacturing facilities Acquisition, expansion and leasing out units to achieve operational efficiency. Prominent trading presence. Focus towards corporate and industrial buyers Superior technology.
5. System: It refers to the regulations and also procedures both formal and in formal that complement the organizational structure. System applies to many aspects of the firm. The system includes following committees at SRSL Audit committee Remuneration committee Investors grievances committee Price risk management committee
6. Staff:
Staff is one of key asset of the company. Hiring selecting, training and motivating them is a crucial work of management. Staffing is process starts from collection of right people to placing them at right place. Adept institute of Management studies and research Dharwad Page 27

Similarly SRSL follows effective staffing norms wherein forms like identification of skill sets required, training and motivating them. The managerial position of staffing in organization is done by- Recruitment policies, Training and development and Performance appraisal meeting.
7. Shared value:
Shared values are guiding concepts, fundamental idea on which company is based. These values must be simple and easy to implement and follow. Some shared values at SRSL Customer satisfaction Responsibility Commitment to quality Trust and team spirit Respect for the individual Integrity Work ethiCapital Structure
Code of conduct for all employees working in the SRSL:

Board members, officials of senior ranks, subordinate staff and other members of the company must comply with the laws Conflicts of interest Protecting companys assets Integrity and honesty Confidentiality
Page 28

4 SWOT ANALYSIS OF THE COMPANY:
SWOT is the acronym for the strength, weakness, opportunities and threats. Strengths and weaknesses are internal to the company and threats and opportunities are external to the concern. STRENGHTS: Better leadership and direction. Integrated mechanism for the sugar manufacturing. Unique business model. Plant load and capacity. Good yield of sugar cane. Major part in sugar export of India. Can enhance cane crushing capacity by acquiring / taking on lease poor performing /loss making /sick sugar mills in the region. Can produce sugar from not only cane but also from raw sugar. Higher capacity utilization and asset turnover as compared to industry due to longer operating season in this region, higher sugar content in available cane, and dual raw material capability Largest sugar refinery in the region with 1000 TCD capacity. WEAKNESSES: Obsolete cane cultivating technique. SRSL is specialized in manufacturing the refined sugar, but Indian market has less demand of it, which leads to extra cost. Less availability of raw sugar Less concentration on domestic market Labor turnover and attrition rate. Company has not adopted effective marketing channel.
Page 29

OPPORTUNITIES:
Expansion and acquisition of major players domestically and also cross country. Scope to implement ERP and SAP. Equipped with superior technology. Haldia SRSL has acquired a majority stake in KBK, an
engineering company primarily engaged in providing turnkey solutions in the field of distilleries, Ethanol plants and bio-fuels.
Expansion and increased market share due to major stake

in Grupo Equipav one of the biggest conglomerates in Brazil which will help company to make a presence in global market. THREATS: Competition prevailing in market. Changing job profile Technological development and changes Inflation and deflation & Pricing policy of government for sugar, cane and other products
Page 30

5. FINANCIAL STATEMENT ANALYSIS (Amounts in Million) 1) CURRENT RATIO: YEARS CURRENT ASSETS CURRENT LIABILITIES CURRENT RATIO 31-march-2012 19973.53 12102.39 1.65 30-sep-2010 15450.5 19028.20 0.814
#REF!
1 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0 #REF!
Intrepretation: It can be inffered from the data that has been a step increase in the ratio which is mainly due to increase in the level of inventory and debtors.
Page 31
2) DEBT EQUITY RATIO: YEARS OUT SIDERS FUND SHAREHOLDERS FUND DEBT-EQUITY RATIO 31-march-2012 38952.38 22211.22 1.75 30-sep-2010 16922.15 18030.73 0.94
2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 1 2
Intrepretation: The data infers that the firm has a sound debt-equity ratio as compared to the year 2010 it can be understood that the firm has got good debt capacity.
Page 32
3) DEBTORS TURNOVER RATIO: YEARS NET CREDIT SALES AVERAGE DEBTORS DEBTORS TURNOVER ATIO 31-march-2012 1765.12 2462.26 0.7230 = 22 days 30-sep-2010 3159.4 2101.025 1.530 = 45 days
50 45 40 35 30 25 20 15 10 5 0 1 2
Intrepretation: The companies suggest that the firm presently has improved on its collection from its debtors this indicate a healthy credit policy of the firm.
Page 33
4) CREDITORS TURNOVER RATIO: YEARS NET CREDIT PURCHASE AVERAGE CREDITORS CREDITORS TURN OVER RATIO 31-march-2012 7805.26 12881.965 0.6130 = 18 days 30-sep-2010 17950.82 12782.125 1.40430 = 42.13 days
45 40 35 30 25 20 15 10 5 0 1 2
Intrepretation: It can be inferred from the data that the firm is in a position to pay its creditors easily and early which is indicated a very good sign for the firm.
Page 34
5) INVENTORY TURNOVER RATIO: YEARS COST OF GOODS SOLD AVERAGE INVENTORY INVENTORY TURNOVER RATIO 31-march-2012 17646.56 14275.5 1.2430 = 37.2 days 30-sep-2010 15039.87 10691.35 1.430 = 42.2 days
43 42 41 40 39 38 37 36 35 34 1 2
Intrepretation: It can be inferred that the firm is in a position to process the raw material in to finished goods which is positive indicator.
Page 35
FINANACIAL STATUS: The financial status of the company can be ascertained based on the ratio analysis. Ratio Analysis is a systematic use of ratios to interpret or assesses the performance of the firms, it is used as a tool for financial analysis. Considering above calculated ratios, it can be ascertained that the company has a very good financial standing and all the ratios fall within that of the industry norms There has been an improvement in current ratio which is healthy sign, and depicts the liquidity position of the company. Debt /equity ratio is as per prevailing industry norms and it is a composition which helps the company to have more profits and less losses. Other ratios relevant to the current assets, such as debtor turnover ratio and creditors turnover ratio are also very much favorable and depicts a sound financial position of the company.
Page 36
6. LEARNING EXPERIENCE AT SHREE RENUKA SUGAR:

I had a good experience at Renuka Sugar limited; it was a great knowledge based and an excellent training program in SRSL. All the staff members of SRSL I found were very cooperative and friendly in their approach. Whenever I visited to any functional departments, the higher authority of respective department had allocated their precious time, and explained me each process carried in there. The project incorporated various aspects like analysis of industry, factory and its various functions, McKENSYS 7s framework and SWOT analysis helped me to bring in theoretical aspects in practice. I am very fortunate in having completed my training at such a company. As a result of which I got to learn a lot of different things that will help me in future. It has also helped me to great extent to have an insight into practical realities of the subjects. As a person we tend to become more disciplined when we are in an actual plant working under our superior. It helped me to get basic skills that we could require for making better decision. The company is able to meet the ever-increasing demand for its product. If management is the art of getting things done through people, it can be experienced fully in this company. It utilizes human, financial, raw material and technological resources to the fullest extent through sufficient planning, organizing, leading and controlling.
Page 37

I have learnt a lesson of how HRD department can day to day monitor manpower and absenteeism, how it identifies training needs and how it organizes training programme for its employees and monitor performance appraisal how it conducts interviews. The efficiency of the workers is assured by all these steps. Leadership in the company focuses on staying connected to employees and its customers. It is flexible and adaptive to the needs of the situation. The company work is a team work and the leadership here carries out efficiently team building process. It has contributed a lot in the development of the organization. The plant has become successful in meeting the challenges of market and globalization. The quality of the product and it has become the basis for competition with other companies. It takes utmost care for presenting the best quality product to its customers. In spite of this, if customer complaint, they are received and corrective action is taken on these complaints immediately. The Inplant training has given me a chance to witness actual production process in Sugar business, I have observed what raw materials they use, in what way machinery and technology they utilize and how they inspect the final products. While going through maintenance department, I experienced the importance of looking after various machines and tools used in the plant. I realized how reduction in breakdown percentage increases the efficiency of machines. I observed how the machines and tools can be maintained in good condition. I got the knowledge of how the purchase department negotiates and procures the material from various vendors. The well being of the company rest on its financial aspects. I have gone through its ways of fund raising, the method they use to calculate depreciation, their main receipts and payments etc. The measures are taken to minimize the wastage. It leads to more productivity. Reduction in breakdown reduces the cost of production, controlling pollution and providing security to its worker increase manpower productivity. Altogether the inplant training in this company has taught me how management can lead a company on path of progress and proper development.
Page 38
Page 39

GENERAL INTRODUCTION: Dictionary meaning of the term leverage refers to an increased means for accomplishing some purpose. It is a kind of instrument used to get a desired result. For example, while lifting an heavy object, it is the leverage that helps which would otherwise be impossible. In simple terms, leverage refers to influence or power or effect. In financial analysis, leverage signifies influence of one financial factor over some other related financial factor. According to Christy & Roden leverage is the tendency of the profit to change at a faster rate than the sales. Thus, leverage measures the kind of relationship that exists between two different financial variables. It shows how one dependent financial variable changes to the changes in the independent financial variable. How does change in the sales or fixed cost or variable cost influence earning before interest and tax or earnings before tax is revealed by leverages. Following are the various kinds of leverages: Financial leverage Operating leverage Total leverage
Financial Leverage
The financial leverage may be defined as the tendency of the residual net income to vary disproportionately with operating profit. It indicates the change that takes place in the taxable income as a result of change in the operating income. It signifies the existence of fixed interest / fixed dividend bearing securities in the total capital structure of the company. Thus, the use of fixed interest / dividend bearing securities such as debt and preference capital along with owners equity in the total capital structure of the company, is described as financial leverage. Where in the capital structure of the company, the fixed interest / dividend bearing securities are greater as compared to the equity capital, the leverage is said to be higher. In a reverse case the leverage will be said to be lower
Page 40

Favorable & Unfavorable Financial Leverage:
Financial leverage may be favorable or unfavorable depending upon whether the earnings made by the use of fixed interest or dividend bearing securities exceed the fixed cost, the firm has to pay for the employment of such funds, or not. The leverage will be considered to be favorable so long the firm earns more on assets purchased with the funds than the fixed costs of their use. Unfavorable or negative leverage occurs when the firm does not earn as much as the funds cost. The degree of financial leverage may be expressed as below: Financial Leverage = EBIT/PBT Where, EBIT = Earnings before Interest & Tax or Operating profit PBT = Profit before Tax but after Interest
Utility / Importance: Financial leverage helps considerably the finance manager while
devising the capital structure of the company. A high financial leverage means high fixed costs and high financial risk. A finance manager must plan the capital structure in such a way that the firm is in a position to meet its fixed financial costs. Increase in fixed financial costs requires necessary increase in EBIT level. In the event of failure to do so, the company may be technically forced into liquidation.
Operating Leverage:
The operating leverage may be defined as the tendency of the operating profit to vary disproportionately with sales. It is said to exist when the firm has to pay fixed cost regardless of volume of output or sales. The firm is said to have a high degree of operating leverage, if it employs a greater amount of fixed cost and a small amount of variable cost. On the other hand a firm will have low operating leverage when it employs a greater amount of variable costs and a smaller amount of fixed costs. Thus, the degree of operating leverage depends upon the amount of fixed element in the cost structure. Operating leverage in a firm is a function of three factors: 1. The amount of fixed costs 2. The contribution margin 3. The volume of sales Of course, there will be no operating leverage, if there are no fixed operating costs. Adept institute of Management studies and research Dharwad Page 41

Favorable & Unfavorable Operating Leverage: Operating leverage may be favorable
or unfavorable. In case the contribution (i.e. sales less variable cost) exceeds the fixed costs, there is favorable operating leverage. In a reverse case, the Operating leverage will be termed as unfavorable. Operating leverage can be calculated by the following formula: Operating Leverage = Contribution or C/Operating profit EBIT Where, EBIT = Earnings before Interest & Tax Operating leverage indicates the impact of change in sales on operating income. If a firm has a high degree of operating leverage, a small change in sales will have a large effect on operating income. In other words, the operating profit of such a firm will increase at a faster rate than the increase in sales. Similarly, the operating profits of such a firm will suffer a great loss as compared to reduction in its sales. Generally, the firms do not like to operate under conditions of a high degree of operating leverage. This is very risky situation where a small drop in sales can be excessively damaging to the firms efforts to achieve profitability.
Total / Combined leverage:

This leverage is also known as combined leverage or Composite leverage. As explained above, operating leverage measures percentage change in operating profit due to percentage change in sales. It explains the degree of operating risk. Financial leverage measures percentage change in taxable profit on account of percentage change in operating profit (EBIT). Thus, it explains the degree of financial risk. Both these leverages are closely concerned with the firms capacity to meet its fixed costs (both operating and financial). In case both the leverages are combined, the result obtained will disclose the effect of change in sales over change in taxable profit. Composite leverage, thus, expresses the relationship between revenue on account of sales (i.e., contribution or sales less variable cost) and the taxable income. It helps in finding out the resulting percentage change in taxable income on account of percentage change in sales. Total leverage can be computed as follows: Total leverage = C X OP OP PBT =C PBT Page 42

Where, C = Contribution (i.e., Sales Variable Cost) OP = Operating profit or EBIT PBT = Profit Before Tax but after Interest
Total leverage helps in understanding the extent of change that take place on profit before tax on account of change in sales value or quantity. Similarly, combined leverage also helps in measuring total risk. The total risk refers to the variability of earnings per share as a result of change in sales. Greater the degree of total leverage, greater is the variability of EPS. Fixed costs also are considered in this leverage.
Utility / Importance
Total leverage helps in understanding the extent of change that take place on profit before tax on account of change in sales value or quantity. Similarly, combined leverage also helps in measuring total risk. The total risk refers to the variability of earnings per share as a result of change in sales. Greater the degree of total leverage, greater is the variability of EPS. Fixed cost also are considered in this leverage
Cost of Capital:
The term cost of capital refers to the minimum rate of return a firm must earn on its investment so that the market value of the companys equity shares does not fall. This is in consonance with the overall firms objective of wealth maximization. This is possible only when the firm earns a return on the projects financed by equity shareholders funds at a rate which is at least equal to the rate of return expected by them. If affirm fails to earn return at expected rate, the market value of the shares would fall and thus result in reduction of overall wealth of the shareholders. Thus a firms cost of capital may be defined as the rate of return the firm requires from investment in order to increase the value of the firm in the market place Computation of cost of capital Computation of cost of capital involves: (i) Computation of cost of cash specific sources of finance termed as computation of specific costs; and (ii) Computation of composite cost termed as weighted average cost.
Page 43

Cost of Debt / Debenture Capital:
In measuring cost of capital, the cost of debt should be calculated first. For determining the real cost of debt, it is necessary to consider not only contractual cost, but also imputed costs. Generally cost of debt (debentures and long term debts) is defined in terms of the required rate of return that the debt, investment must yield to protect the share holders interest. Hence cost of debt is contractual interest rate, adjusted further for the tax liability of the firm as per formula. Debt may be issued at par, at premium or discount. It may be perpetual or redeemable. The technique of computation of cost in each case has been explained in the following slides. Kd = (1-T) R Where, Kd = Cost of debt capital T = Tax rate applicable to the company R = Contractual interest rate
Cost of Equity Capital:

The computation of the cost equity capital is a difficult task. Some people argue, as observed in case of preference shares, that the equity capital does not involve any cost. The argument put forward by them is that s not legally binding on the company to pay dividends to the equity shareholders. This does not seem to be a correct approach because the equity shareholders invest money in shares with the expectations of getting dividend from the company. The company also does not issue equity shares without having any intention to pay them dividends. The market price of the equity shares, therefore, depends upon the return expected by the shareholders. Ke = D/P*100 Here, Ke = Cost of equity D = Current dividend rate P = current market price
Page 44

Cost of Retained Earnings:
The companies do not generally distribute the entire profits earned by them by way of dividend among their shareholders. Some profits retained by them for future expansion of the business. Many people feel that such retained earnings are absolutely cost free. This is not the correct approach because the amount retained by company, if it had been distributed among the shareholders. By way of dividend, would have given them some earning. The company has deprived the shareholders of these earnings by retaining a part of profit with it. Thus, the cost of retained earnings is the earning forgone by the shareholders.
In other words, the opportunity cost of retained earnings may be taken as the cost of the retained earnings. It is equal to the income that the shareholders could have otherwise earned by placing these funds in alternative investments. For example, if the shareholders could have got a return of 10% this return of 10% has been forgone by them because of the company not distributing the full profits to them. The cost of retained earnings may, therefore, be taken at 10%. The above analysis can also be understood in the following manner. Suppose the earnings are not retained by the company and passed on to the shareholders, are invested by the shareholders in the new equity shares of the same company, the expectation of the shareholders from the new equity shares would be taken as the opportunity cost of the retained earnings. In other words, if earnings were paid as dividends and simultaneously an offer for the right shares was made, the shareholders would have subscribed to the right shares on the expectation of certain return. This expected return can be taken as the cost of retained earnings of the company. Cost of retained earnings is calculated by using the following formula: Kr = Ke (1 T) (1-B) Where, Kr = Cost of retained earnings Ke = required rate of return to share holders T = Tax Rate B = Brokerage on purchase of securities
Page 45

Weighted Average Cost of Capital
After calculating the cost of each component of capital, the average cost of capital is generally calculated on the basis of weighted average method. This may also be termed as overall cost of capital. The computation of the weighted average cost of capital involves the following steps: 1. Calculation of the cost of each specific source of funds. This involves the determination of the cost of debt, equity capital, preference capital, etc., as explained in the preceding pages. This can be done either on before tax basis or after tax basis. However, it will be more appropriate to measure the cost of capital on after tax basis. This is because the return to the shareholders is an important figure in determining the cost of capital and they can get dividends only after the taxes have been paid. 2. Assigning weights to specific costs. This involves determination of the proportion of each source of funds in the total capital structure of the company. This may be done according to any of the following methods:
Marginal weights method - In case of this method weights are assigned to each source of funds, in proportions of financing inputs the firm intends to employ. The method is based on this logic that our concern is with the new or incremental capital and not with capital raised in the past. In case the weights are applied in a ratio different than the ratio in which the new capital is to be raised, the weighted average cost of capital so calculated may be different from the actual cost of capital. This may lead to wrong capital investment decisions. However, the method of marginal weighting suffers from one major limitation. It does not consider the long- term implications of the firms current financing. A firm may should give due attention to long-term implications while designing the firms financing strategy. For example, a firm may accept a project giving an after-tax return of 6% because it intends to raise funds required by issue of debentures having a cost of 9%, it will have to reject a project which gives a return of only 8%. Thus, marginal weighting method does not consider the fact that todays financing affects tomorrows cost.
Historical weights method: According to this method the relative proportions of various sources to the existing capital structure are used to assign weights. Thus, in case of this method the basis of weights is the funds already employed by the firm. This is based on the assumption that the firms maintained in the future also. Weights under historical system may be either (i) book Adept institute of Management studies and research Dharwad Page 46

value or (ii) market value weights. The weighted average cost of capital will be different, depending upon whether book value weights are used or market value weights are used. The use of market value weights for calculating the cost of capital is theoretically more appealing on account of the following reasons: (i) The market values of the securities closely approximate to the actual amount to be received from the sale of such securities (ii) The cost of each specific sources of finance which constitutes the capital structure is calculated according to the prevailing market price However, the use of market value as weights is subject to the following practical difficulties. The market values of the securities may fluctuate considerably. Market values are not readily available as compared to the book values. The book values can be taken from the published records of the firm. The analysis of the capital structure of the company, in terms of debt equity ratio, is based on the book values and not on the market values. Thus, market value weights are operationally inconvenient as compared to book value weights. However, market value weights are theoretically consistent and sound; hence they are a better indicator of the firms cost of capital. 3. Adding of the weighted cost of all sources of funds to get an overall weighted average cost of capital.
CAPITAL STRUCTURE:
It is the proportion of debt and preference and equity shares or a firms balance sheet. Given the objective of the firm to maximize the value of the equity shares, the firm should select a financing mix/capital structure/financial leverage, which will help in achieving the objective of financial management. As a corollary, the capital structure should be examined from the viewpoint of its impact on the value of the firm. It can be legitimately expected that if the capital structure decision affects the total value of the firm, a firm should select such a financing mix as will maximize shareholders wealth. Such a capital structure referred to as the optimum capital structure. The optimum capital structure may be defined as the capital structure or combination of debt and equity that leads to the maximum value of the firm. Adept institute of Management studies and research Dharwad Page 47

The importance of an appropriate capital structure is thus, obvious. There is viewpoint that strongly supports the close relationship between leverage and the value of a firm. There is an equally strong body of opinion, which believes that financing mix or the combination of debt, and equity has no impact on the shareholders wealth and the decision on financial structure is irrelevant. In other words, there is nothing such as optimum capital structure. In theory capital structure can affect the value of the company by affecting either its expected earnings or cost of capital or both. While it is true that financing mix cannot affect the total operating earnings of a firm as they are determined by investment decisions, it can affect the shares of earning belonging to ordinary shareholders. The capital structure decision can influence the value of the firm through the earnings available to the shareholders. But the leverage can largely influence the value of the firm through the cost of capital. In exploring the relationship between the leverage and value of firm we are concerned with the relationship between leverage and cost of capital from the standpoint of valuation.
An appropriate capital structure is a critical decision for any business organization. The decision is important not only because of the need to maximize returns to various organizational constituencies, but also because of the impact such a decision has on an organizations ability to deal with its competitive environment. The prevailing argument, originally developed by Modigliani and Miller (1958), is that an optimal capital structure exists which balances the risk of bankruptcy with the tax savings of debt. Once established, this capital structure should provide greater returns to stockholders than they would receive from an all-equity firm. Despite its theoretical appeal, researchers in financial management have not found the optimal capital structure. The best that academiCapital Structure and practitioners have been able to achieve are prescriptions that satisfy short-term goals. For example, in a recent Harvard Business Review article, readers were left with the impression that the use of leverage was one way to improve the performance of an organization. While this can be true in some circumstances, it fails to consider either the complexities of the competitive environment, or the long-term survival needs of the organization. It is argued that the use of leverage either to discipline managers or to achieve economic gain is the easy way out, and, in many instances, can lead to the demise of the organization. The fact that an optimal capital structure has not been found is an indication of some flaw in the logic. It Adept institute of Management studies and research Dharwad Page 48

is believed that the original question was framed incorrectly. Rather than: What is an optimal mix of debt and equity that will maximize shareholder wealth; it should have been: Under what circumstances should leverage be used to maximize shareholder wealth? Why? Because debt and equity have profound long-term implications for corporate governance that far exceed the exigencies of the moment. A better understanding of the issues at hand requires a look at the genesis of the concept of using debt to control managers and to reconcile this thinking with the need to survive in the competitive environments of today.
Factors influencing Capital Structure

Following factors influence the capital structure of a company: Seasonal needs: A firm needs funds for a short period during certain seasons that runs about 2 to 3 months. It would be expensive to use long term financing that requires interest or dividend to be paid on annual basis and hence a firm may prefer to borrow from any financial institutions instead of collecting funds through shares and debentures. Degree of risk: Borrowed funds increase the risk of a firm because, interest has to be paid regularly whether firm makes profits or not. On the contrary, the equity shares reduce the risk, since they are not to be repaid during the life time nor the dividend be paid compulsorily. A firm that does not like to run the risk of business may prefer to have more equity share capital Ability to increase owners profit: A firm which is capable of running the business successfully and increasing the profits, may prefer to have more quantity of borrowed funds in its capital structure, so that, after paying interest at fixed rate whatever surplus remains goes to equity share holders. Desire to control: A firm that does not like to surrender operational control to a few more equity share holders by issuing further shares that affects the interest of existing share holders would like to collect funds by issuing debentures, bonds and other long term borrowings. The equity shareholders have voting rights whereas, the debenture holders do not have voting rights (they do not interfere with the management of the affairs of the firm).
Page 49

Future flexibility: A firm is required to maintain balanced mixture of debt and equity share capital. Excessive debt reduces its ability to borrow still further and thus reduces the flexibility in borrowing. Issue of excessive share capital also restricts the flexibility. General level of business activity: If the general level of business activity is rising, additional funds may be required for the expansion of the business that may be raised through long term borrowings or issue of equity shares. On the contrary the general level of business activity is declining, the available cash may be used in redeeming the debenture loans. Level of interest rates: If the rate of interest on debentures or other long term loans is higher, the firm may prefer to collect the funds through the issue of equity shares and other short term borrowings. On the contrary if the rate of interest is low, it would prefer debentures to equity shares. Trading on equity: It means increasing the return on investment of equity share holders by using the funds on which fixed rate of interest or dividend has to be paid. When a firm desires to trade on equity, its capital will be made-up of equity shares, preference shares and / or debentures. Nature of business: The nature & type of business also affects the capital structure of a firm. For example, a public utility concern that enjoys monopoly market for its product, and has a stable earning, can easily raise capital by the issue of preference shares and debentures. On the other hand, firms engaged in manufacturing and selling the products under competitive environment and changing market conditions have to collect funds by issuing equity shares only. Purpose of finance: If the funds are needed for productive purposes such as, setting up of a new factory or new business, firm can collect funds by issue of equity shares or preference shares or debentures. On the other hand, if the funds are required for unproductive purposes such as, promoting art and culture or employee welfare programmes, it would be difficult to raise funds through debentures or preference shares. Period of finance: If the funds are needed almost permanently, then it would be advisable to issue equity shares and if the funds are to be used for a short period, issue of debentures or borrowings may be considered.
Page 50

Legal requirements: Capital structure is often influenced by requirements. For example, under banking regulations act 1949, a banking company cannot issue any other type of shares other than equity shares Stock market conditions: During boom period, investors are interested in speculative dealings, and it is the right time for issue of equity shares. Whereas, during depression period the investors look to the security of their investment and hence, debenture may be issued. Investor preference: Equity shares are best suited to investors expecting higher rate of return on their investments. Debentures meet needs of such investors who are interested in the safety and security of their investments. Such investors feel satisfied with whatever fixed income they get without exposing themselves to any business risks. Government policies: Policies framed by central or state govt. also affect the capital structure. Monetary policy, fiscal policy, capital control act, etc., directly or indirectly influence the capital structure of a firm.
Optimum Capital Structure

Optimum capital structure is one that maintains an ideal ratio between different types of securities issued by a firm (company) constituting total capital that maximizes the market value of equity shares and minimizes the average cost of capital. While determining appropriate capital structure, finance manager has to aim at maximizing the long term market value of equity shares and minimizing the average cost of capital.
Features of Optimum Capital Structure

A sound capital structure must possess the following features: Profitability: An ideal capital structure should result in the maximum return to the equity share holders and at the same time minimize the cost of capital Solvency: Although, borrowed funds are cheaper, excessive debt damages the solvency of the company. Hence capital structure should not contain more debt. Debt / equity ratio should be such as to ensure solvency of the company
Page 51

Control: A sound capital structure should be such as to help the present management to retain the control over the company, because, if the equity shares are more in number, the right of control gets spread over quite a large number of equity share holders . Flexibility: It implies adjustability. Capital structure should be adjustable according to the changing conditions. There cannot be an ideal static capital structure. Ratio may change depending upon changing circumstances.
Capital Structure with equity shares, preference shares & debentures Merits
Less costly: Financing with debentures is cheaper than preference shares and equity shares. Benefit of trading on equity: Capital composed of equity shares, preference shares and debentures facilitates trading on equity. Interest on debentures: For taxation purpose, interest on debenture is treated as charge against P&L a/c. Interest on debentures is an expenditure and debited to P&L a/c.
It helps to retain control: Use of debentures in capital structure helps to retain control
over the company by the existing equity share holders.
Capital Structure with equity shares, preference shares & debentures Demerits
Creation of charge: Secured debentures require charge to be created on assets and property of the company that may affect the good will of the company. Regular payment of interest: Regular payment of interest may impose burden on the part of the company especially during depression. Interest has to be paid whether company makes profit or not. Fear of insolvency: Excessive issue of debentures threatens the solvency of the company.
Capital structure theories

1. Net Income Approach Adept institute of Management studies and research Dharwad Page 52

2. Net Operating Income Approach 3. Traditional Approach 4. MODIGIIANI- MILLER Approach
General Assumptions
1. There are only two sources of funds used by a firm: perpetual risk less debt and ordinary shares. 2. There are no corporate taxes. 3. The dividend payout ratio is hundred i.e., the total earnings are paid out as dividend to the shareholders and there are no retained earnings. 4. The total assets are given and do not change. The investment decisions are, in other words, presumed to be constant. 5. The total financing remains constant. The form can change degree of leverage (capital structure) either by selling shares and use the proceeds to retire debentures or debt and reduce the equity capital. 6. The operating profits (EBIT) are not expected to grow. 7. All investors are assumed to have the same subjective probability distribution of the future expected EBIT for a given firm. 8. Business risk is constant over time and is assumed to be independent of its capital structure and financial risk. 9. Perpetual life of the firm. by raising more
1. Net income approach

According to the Net Income approach, suggested by the Durand, the capital structure decision is relevant to the valuation of the firm. In other words, a change in the financial leverage will lead to a corresponding change in the overall cost of capital as well as the total value of the firm. If, therefore, the degree of financial leverage as measured by the ratio of debt to equity is increased, the weighted average cost of capital will decline, while the value of the firm as well as market price of ordinary shares will increase. Conversely, a decrease in the leverage will cause an increase in the overall cost of capital and a decline both in the value of firm as well as the market price of equity shares. The Net income approach to valuation is based on three assumptions: 1. There are no taxes Adept institute of Management studies and research Dharwad Page 53

2. Cost of debt is less than equity capitalization rate or the cost of equity. 3. The use of debt does not change there is perception of investors. That the financial risk perception of the investors does not change with the introduction of debt or change in leverage implies that due to change in leverage, there is no change in either the cost of debt or the cost of equity. The financial leverage, according to net income approach is an important variable to the capital structure of a firm. With a judicious mixture of debt and equity, a firm can evolve an optimal capital structure which will be the one at which value of the firm is highest and the over all cost of capital is lowest. At that structure, the market price per share would be maximum. If the firm uses no debt or if the financial leverage is zero, the over all cost of capital will be equal to the equity capitalization rate. The weighted average cost of capital will decline and will approach the cost of debt as the degree of leverage reaches one.
2. Net Operating Income Approach

Another theory of capital structure suggests by Durand, is the Net operating income approach. This approach is diametrically opposite to the Net Income approach. The essence of this approach is that capital structure decisions of a firm are irrelevant. Any change in leverage will not lead to any change in the total value of firm and the market price of shares as well as the overall cost of capital is independent of the degree of leverage.
The NOI approach is based on the following propositions: 1. Overall cost of capital/ capitalization rate (Ko) is constant The NOI approach to valuation argues that overall capitalization rate of the firm remains constant, for all the degree of leverage. The value of the firm, given the level of EBIT, is determined by. V = EBIT/Ko V = Value of the Firm EBIT= Earnings Before interest & Tax Ko = Cost of Capital In other words, the market evaluates the firm as a whole. The split of the capitalization between debt and equity is, therefore not significant.
Page 54

2. Residual value of Equity The value of equity is residual value, which is determined by deducting the total value of debt (B) from the total value of the firm (V). Symbolically total market value of equity capital (S) =V-B. S= total market value of equity capital V= total value of the firm B= total value of debt
3. Changes in cost of equity capital The equity capilisation rate / cost of equity capital (Ke) increases with a degree of leverage. The increase in proportion of debt in the capital structure relative to equity shares would lead to an increase in the financial risk to the ordinary shareholders. To compensate for the increased risk, the shareholders would expect a higher rate of return on their investments. The increase in the equity capitalization rate (or the lowering of the price earnings that is P/E ratio) would match the increase in the debt equity ratio. 4. Cost of debt The cost of debt (Ki) has two parts (a) Explicit cost, which is represented by the rate of interest. Irrespective of the degree of leverage, the firm is assumed to be able to borrow at a given rate of interest. This implies that the increasing proportion of debt in the financial structure does not affect the financial risk of the lenders and they do not penalize the firm by charging higher interest. (b) Implicit cost as shown in the assumption relating to the changes in Ke, increase in degree of leverage or the proportion of debt to equity causes an increase in the cost of equity capital. This increase in Ke, being attributable to the increase in debt, is the implicit part of Ki. Thus, the advantage associated with the use of debt, supposed to be a cheaper source of funds in terms of explicit cost, is exactly neutralized by the implicit cost represented by the increase in Ke. As a result, the real cost of debt and the real cost of equity, according to NOI approach, are the same and equal Ko. 5. Optimum capital structure The total value of the firm is unaffected by its capital structure. No matter what the degree of leverage is, the total value of the firm remains constant. The market of shares will also not Adept institute of Management studies and research Dharwad Page 55

change with the change in debt equity ratio. There is nothing such as an optimum capital structure. Any capital structure is optimum, according to NOI approach.
3. Traditional Approach
The traditional approach is a mid way between the NI and NOI approach. It is also known as the intermediate approach. In one respect it shares a feature with the NOI approach that beyond a certain degree of leverage, the overall cost increases leading to a decrease in the total value of the firm. The crux of the traditional view relating to leverage and valuation is that through judicious use of debt equity proportions, a firm can increase its total value and thereby reduce its overall cost of capital. The rationale behind this view is that debt is relatively cheaper source of funds as compare to ordinary shares. With a change in leverage, i.e. using more debt in place of equity, a relatively cheaper source of fund replaces a source of funds, which involves a relatively higher cost. This obviously causes a decline in overall cost of capital. If the debt equity ratio is raised further, the firm would become financially more risky to the investors who would penalize the firm by demanding a higher equity capitalization rate. At the optimum capital structure, the marginal real cost of debt, define to include both implicit and explicit, will be equal to the real cost of equity. For a debt equity ratio before that level, the marginal real cost of debt would be less than that of equity capital, while beyond that level of leverage, the marginal real cost of debt would exceed that of equity.
Page 56

4. Modigliani- miller approach
The MM thesis relating to the relationship between the capital structures cost of capital and valuation is akin to the NOI approach. The NOI approach is definitional or conceptual and lacks behavioral significance. The NOI approach, in other words does not provide operational justification for the irrelevance of capital structure. MM proposition supports the NOI approach relating to the independence of the cost of capital of the degree of leverage at any level of debt equity ratio. The significance of their hypothesis lies in the fact that it provides behavioral justification for constant overall cost of capital and therefore total value of the firm. In other words, the MM approach maintains that the weighted average cost of capital does not change, with a change in the proportion of debt to equity in the capital structure. They offer operational justification for this and are not content with merely stating the proposition. Basic Proposition: There are three basic proposition of MM approach. 1. Overall cost of capital and the value of firm are independent of its capital structure. The Ko and V are constant for all degree of leverage. The total value is given by capitalizing the expected stream of operating earnings at a discount rate appropriate for its risk class. 2. Here Ke is equal to the capitalization rate of a pure equity stream plus a premium for financial risk equal to the difference between the pure equity capitalization rate (Ke) and Ki times the ratio of debt to equity. In other words, Ke increases in a manner to offset exactly the use of a less expensive source of funds represented by debt. 3. The cut off rate for investment purposes is completely independent of the way in which an investment is financed.
Assumptions of MM proposition
The propositions that the weighted average cost of capital is constant irrespective of the type of capital structure are based on following assumptions. 1. Perfect capital markets: The implication of perfect capital market is that (i) Securities are infinitely divisible (ii) Investors are free to buy/sell securities (iii) Investors can borrow without restrictions on the same terms and conditions as firms can. (iv) There is no transaction cost. (v) Information is perfect. Adept institute of Management studies and research Dharwad Page 57

2. Given the assumption of perfect information and rationality, all investors have the Same expectation of firms net operating with which to evaluate the value of firm. 3. Business risk is equal among all firms within similar operating environment; the term equivalent/ homogenous risk class means that the expected earnings have identical risk characteristic of Capital Structure. Firms within an industry are assumed to have the same risk characteristic of Capital Structure. 4. The dividend payout ratio is 100 percent. 5. There are no taxes.
Guidelines for capital structure decisions

The capital structure decision involves taking into consideration several factors including income, risk, flexibility, control, timing etc. The following guidelines could help managers in capital structure decisions: Exploiting the tax advantage of debt Interest on debt is a tax-deductible expense and hence reduces the tax burden. The advantage of a tax shelter motivates the company to raise more loans from the market. The market value of the firm would increase with the decreased tax burden. Ensuring flexibility Utilizing the maximum loan capacity to reduce tax expenses is not always the right decision for a company. The company should have the flexibility to borrow when the situation changes, due to changes in government policies, disruption in supplies, labor unrest etc. Unused debt capacity at such a time could enhance this flexibility. Limiting risk exposure to reasonable limits Managers need to ensure that the total risk exposure of a company is within controllable limits. Business risk is based on the proportion of fixed costs and variability in demand, price and input prices. Financial risks, which indicate the financial leverage of the company, arise from the debt portion of its capital structure. A company cannot keep both the risks at a very high level. Retaining control If more equity is issued to the public, control will get diluted for the promoters, whereas with debt issue it will be retained with the company.
Page 58

Integrating financial policies and corporate strategies Financial policy makers are from the capital market whereas corporate policy makers are from the product market. To integrate these two policies the chief executive of a company should: 1. Thoroughly check the factors underlying the financial policy 2. Ensure that the financial policy will support corporate strategy 3. Increase the involvement of operating managers in determining financial policy 4. Restrict financial policy from becoming corporate goal Issuing at the proper time Although it is difficult to predict the proper timing for raising capital in the market, the following thumb rules may be helpful in improving a companys performance in terms of timing into the market: 1. Take the best possible opportunity available at present in the market rather than waiting for a more advantageous time in the future. It may or may not materialize. 2. Follow the trend in the financial market 3. Wait till the market captures the full potential of the company and reflects it in the share price. Complying with the norms of lenders and credit rating agencies Debt can be obtained easily if backed by tangible assets as security and accompanied by good credit rating. Companies can take advantage of the same. Issuing innovative securities Subject to the guidelines issued by the SEBI from time to time, a company can issue different kinds of financial instruments for raising resources from the market. However, these should be attractive and easily understandable by investors Capital structure irrelevance Simple financial theory shows that the total value of a company should not change if its capital structure does. This is known as capital structure irrelevance or (Modigliani-Miller (MM) theory. Total value is the value of all its sources of funding; this is similar to a simple (debt + equity) enterprise value. The MM argument is simple; the total cash flows a company makes for all investors (debt holders and shareholders) are the same regardless of capital structure. Changing the capital structure does not change the total cash flows. Therefore the total value of the assets that give ownership of these cash flows should not change. The cash lows will be divided up differently so Adept institute of Management studies and research Dharwad Page 59

the total value of each class of security (e.g. shares nd bonds) will change, but not the total of both added together. Looking at this another way, if you wanted to buy a company free of its debt, you would have to buy the equity and buy, or pay off, the debt. Regardless of the capital structure you would end up owning the same streams of cash flows. Therefore the cost of acquiring the company free of debt should be the same regardless of capital structure. Furthermore, it is possible for investors to mimic the effect of the company having a different capital structure. For example, if an investor would prefer a company to be more highly geared his can be simulated by buying shares and borrowing against them. An investor would prefer the company to be less highly geared can simulate this buying a combination of its debt and equity. MM theory depends on simplifying assumptions such as ignoring the effects of taxes. However, it does provide a starting point that helps understand what is, and is not, relevant to why capital structure does seem to matter to an extent. The different tax treatments of debt and equity are part of the answer, as are agency problems (conflicts of interest between shareholders, debt holders and management). There are extensions to MM theory which suggest that the actions of market forces, together with the tax treatment of debt and equity income in the hands of investors, means that for most companies the gains that can be made by adjusting capital structure will be fairly small. Given that companies would not deliberately adopt inefficient capital structures, we can assume that all companies have roughly equivalently good capital structures so rom a valuation point of view we can reasonably assume that capital structure is irrelevant.
Page 60

1.1 STATEMENT OF THE PROBLEM: Shri Renuka sugar is the first sugar company to have a strong foothold in India and Brazil the largest sugar consuming and producing geographies in the world. It is very much required to have a proper understanding of the capital structure to be considered by the firm. Therefore to have a proper balance of the composition of the capital structure the firm has to make adequate efforts in realizing the required rate of return expected by them. Thus, the statement of the problem is A study on the Financial Leverage and Capital Structure of the firm 1.2 OBJECTIVES OF THE STUDY: To understand the meaning, types and advantages of leverages To understand the future of idle capital structure. To understand the factors affecting he capital structure. To understand the various theories of capital structure.
1.3 SCOPE OF THE STUDY: This study is exclusively conducted for Shree Renuka Sugars Limited, Belgaum. It covers: 1. Present practices being followed at Shree Renuka Sugars. 2. Detailed study of the companys financial information. 3. Financial Leverages and Ideal Capital Structure Theories and its interpretation 4. Finally findings & suggestion has been made a part of the project.
1.4 RESEARCH METHODOLOGY: This section explains how the data is collected that is from primary and secondary data. It explains what method is used to collect the data, which instrument is used for collection in order to draw meaningful inferences, the collected data is analyzed with help of financial data provided by the company, SRSL. The information collected is both through the Primary Data and Secondary Data. The preparation of this report involves several phases and they are as follows:
Page 61

DATA COLLECTION METHOD: Tools of data collection are as follows, 1. Primary data 2. Secondary data Primary Data: 1. Interaction with Finance Manager to know my study in detail. 2. Personal interview with the employees of various departments.
Secondary Data:
1. Relevant data from the website of the company. 2. Company brochures, magazines, periodical reports. 3. Financial Statement of the firm. 4. Internet. This study is based on the estimations made in annual report.
1.5 Limitation of the study:

The most important limitation of the study is that the study wholly depends on the published data and documents such as balance sheet and income statement. It was difficult to obtain the confidential data from the concerned department with the point of view of secrecy that the company would like to observe. The figure and facts claimed in the annual reports and other forms are assumed to be true. The project is just a brief study due to lack of comprehensive and practical knowledge. The outcome of the study is based on the data given in the financial statements so that there is always difference in the actual and the calculated values.
Page 62

CHAPTER 2 DATA ANALYSIS AND INTERPRETATION 2.1 LEVERAGE
2.1.1 Operating leverage = %change in EBIT / %change in sales 2010-12 6.61/15.4396 =0.4281 2009-10 85.19/146.67 = 0.5808
Intrepretation:From the data it can be inffered that there has been a drop in the operating leverage as compared to the earlier year which is due to decrease in the percentage of EBIT. 2.1.2 Financial leverage = PBIT/PBT 2010-12 5931.87/13350.53 =4.39 2009-10 5560.95/5606.45 = 0.9924
Intrepretation:It can be understood from the data there has ben an increase in the financial leverage as compared to 2009-2010 which is due to increase in the PBIT. 2.1.3 Combined leverage = OL*FL 2010-12 0.42818*4.39 =1.879 2009-10 0.5808*0.9924 = 0.5763
Intrepretation:It can be inffered from analysis that combined leverage has increased as compared to 2009-2010.this being the prouduct of opertating leverage and financial leverage helps to measure the total risk of the company both based on operating and financial risk.
Page 63

2.2 COST OF EQUITY
Ke=D/P*100 Here, Ke= Cost of equity D= Current dividend rate P=current market price So, Ke= 2/31.6*100 6.33 Intrepretation:From the analysis it can be understood that the firm has cost of equity to the tune of 6.33%.this helps the firm to estimate as to how much has to be earned to satisify the needs of the shareholders.
Page 64

2.3 COST OF DEBT
Kd= I(1-T) Here, Kd= Cost of debt I= Interest rate T= Tax rate So , 12.38(1-0375) =7.74% Term loan interest rate 1197/13276.45 =9.022 So , Kd = 7.74+9.022/2 =8.38 Intrepretation:It it can be inferred from the analysis that the firm has got 8.33% of cost towards its debt .It also indicates that this is the minimum return required to be realised by the firm firm to service its debt.
Page 65

2.4 COST OF RETAIN EARNINGS
Kr=ke(1-t)(1-b) Here Kr= cost of retain earnings T= tax rate B= brokerage rate So, Kr= 6.33(1-0.375) =3.95 NOTE: It is assumed that there no brokerage cost. Intrepretation: The data the firm has to earn a minimum 3.95% to carry the cost on retained earnings these earnings will help the firm to full fill the expanssion plans in future.
Page 66

2.5 WEIGHTED AVERAGE COST OF CAPITAL
SOURCES AMOUNT PROPORTIONATE SPECIFIC COST Equity capital Reserve&surplus Secured loan TOTAL 671.32. 17211.62 38952.38 56835.32 0.012 0.302 0.685 6.33 3.95 8.381 0.075 1.192 5.740 7.007 WACC
Intrepretation:The analysis suggest that the firm is required to earn a minimum of 7% as a reteurn on its investments.By earning 7% the firm is not loosing its investment and the value of its investment will not get depleted.
Page 67

2.6 NET INCOME APPROACH
So, KA = Kd(D/D+E)+Ke(E/D+E) Here., kA= Cost of average capital Kd= cost of debt Ke= cost of equity D= market value of debt E= Marketvalue of equity So, KA= 8.38(40150.28/40150.28+93710.42)+6.33(93710.42/40150.28+93710.42) =6.944 or 7% Intrepretation: as per this theory one of assumption is that the cost equity is less than the cost of debt.but as per the analysis it can be found that the cost of the debt is higher than the cost of equity this analysis leads us to understand the average cost capital of the firm.
Page 68

2.7 NET OPERATING INCOME APPROACH
KE= Ka+(ka-kd)D/E Here, Ke= cost of equity Ka= cost average capital Kd= cost of debt D= market value of debt E= Market value of equity So, Ke = 6.944+(6.944-8.38)40150.28/97310.42 =6.328 Intrepretation: In this approach it is assumed that the overall capitalization rate remains the same if all degrees of leverage. see from the data that there is higher rate of debt as compared but but as per the assumption of the theory this gets neuterlized because of the implisit cost from those we can ascertain the equity capitalization rate.
Page 69

2.8 TRADITIONAL APPROACH
Operating income Less: interest Cost of equity Market value of share(X-I)/Ke Add: market value of debt Value of firm Overall cost of capital =X/S So, Here, X= operating profit I= Interest Ke= cost of equity S= Value of the firm Intrepretation:The basic assumption of this approach is that cost of capital is dependent on the capital structure .the firm can strike the optimal capital structure which would help to minimise the cost of capital.The data suggests overall cost of capital the firm. 5931.87 3364.59 0.0633 40557.34 40150.28 80707.62 7.34
Page 70

2.9 M-M APPROACH
V = O(1-tc)/k + tce Here, O = operating aprofit Tc= tax rate K= cost of equity Tce = tax*market value of equity So, 5931.87(1-0.375)/0.0633+.0375*97310.42 =58569.41+35141.40 =91710.42 OR V= NOI/KA 5931.87/6.944 =85424 Intrepretation:It can be ascertained from the analysis based on the MM approach we can always analyze the value of the firm based on the proposition one of MM approach
Page 71

CHAPTER 3 OBSERVATIONS AND FINDINGS
The Capital Structure of the company consisted of only two components namely: Equity capital & Debt capital. Firm have an opportunity to increase shareholders value with judicious use of debt in its capital structure (i.e- Long term funds sources). The Capital Structure decision had an effect on the profitability of the organization. The theories of capital structure on the basis of assumptions really reflect their importance in todays world. It is formed found from the analysis the importance of leverage which indicates significance of operation and its impact on EBIT. From the analysis it is indicated that due to the increase in component of debt the financial risk of the firm has increased and therefore the firm has to earn more to service the debt. It can be analyzed from the data that when combined leverage is considered the risk of the firm gets reduced. It is found from the analysis that the composition of capital structure has an impact on cost of the capital and also on the value of the firm. It can be found from the analysis that net operating income approach is a better theory to evaluate the cost of capital and to ascertain the equity capitalization.
Page 72

CHAPTER 4 SUGGESTIONS
Capital Structure is the proportion of different sources of finance. A firm should select a capital mix, which maximizes the share holders wealth. As per approaches, which are being used in calculating the firm value & share holders wealth, the Traditional Approach is more feasible. The firm has to consider increasing its operating leverage which will be helpful to reduce the risk and also will support to net of the financial leverage.
Page 73

CHAPTER 5 CONCLUSION
The study was conducted at Shree Renuka Sugar Limited Belgaum.The company is well equipped with modern technology. Shri Renuka sugar is the first sugar company to have a strong foothold in India and Brazil the largest sugar consuming and producing geographies in the world. This study has helped to gain exposure in the field of leverage and capital structure. This study indicates about the leverages and their implications, further it also gives an understanding about the operational and financial risk the companies face in the volatile market.
The project also lead towards understand the various theories related to capital structure considering the various assumptions which helps identify the cost of capital and also overall value of the firm.
Page 74
FINANACIAL STATEMENT
BALANCE SHEET OF SHREE RENUKA SUGAR LIMIED,BELGAUM,FOR THE YEARS 2012,2010,20092008,2007 All amounts in million Indian Rupees Particulars Months Sources of fund Total Share Capital Equity Share Capital Preference Share Capital Reserves Net worth Secured Loans Unsecured Loans Total Debt Total Liabilities Application Of Funds Gross Block Less: Accum. Depreciation
Capital Work in Progress Investments Inventories Sundry Debtors Cash and Bank Balance Total Current Assets Loans and Advances Fixed Deposits Total CA, Loans & Advances Deffered Credit Current Liabilities Provisions
2012 18 67.13 67.13 0.00 1,721.16 1,788.29 3,895.24 432.83 4,328.07 6,116.36 3,059.05 376.00 2,683.05
147.64 2,013.49 1,719.16 176.51 10.39 1,906.06 737.79 0.00 2,643.85 0.00 1,375.05 2.82
2010 12 67.04 67.04 0.00 1,712.45 1,779.49 1,692.22 23.64 1,715.86 3,495.35 1,802.50 231.45 1,571.05
410.46 1,639.28 1,135.95 315.94 4.42 1,456.31 755.23 19.05 2,230.59 0.00 2,136.36 229.66
2009 12 31.69 31.69 0.00 1,211.92 1,264.20 1,257.99 41.53 1,299.52 2,563.72 1,406.62 149.76 1,256.86
242.31 105.99 1,002.32 104.27 7.06 1,113.65 753.86 203.22 2,070.73 0.00 1,013.44 100.41
Page 75

Total CL & Provisions Net Current Assets Miscellaneous Expenses Total Assets Contingent Liabilities Book Value (Rs) Book Value (Rs) 1,377.87 1,265.98 6.20 6,116.36 1,463.08 26.64 26.64 2,366.02 -135.43 9.98 3,495.34 1,224.68 26.54 26.54 1,113.85 956.88 1.67 2,563.71 389.00 39.24 39.24
Page 76
PROFIT AN LOSS ACCOUNT OF SHRI RENUKA SUGAR LIMITED, BELGAUM,FOR THE FIVE FINANCIAL YEAR-2012,2010,2009,2008,2007 All amounts in million Indian Rupees Particulars Income Sales Turnover Excise Duty Net Sales Other Income Stock Adjustments Total Income Expenditure Raw Materials Power & Fuel Cost Employee Cost Other Manufacturing Expenses Selling and Admin Expenses Miscellaneous Expenses Preoperative Exp Capitalised Total Expenses Operating Profit PBDIT Interest PBDT Depreciation Other Written Off Profit Before Tax Extra-ordinary items PBT (Post Extra-ord Items) Tax Reported Net Profit Total Value Addition Preference Dividend Equity Dividend Corporate Dividend Tax Per share data (annualised) Shares in issue (lakhs) 2012 6,468.18 106.08 6,362.10 -88.26 284.68 6,558.52 2010 5,634.06 122.87 5,511.19 81.92 216.16 5,809.27 4,803.94 234.32 72.94 63.18 84.93 -180.55 0.00 5,078.76 648.59 730.51 92.23 638.28 81.55 0.00 556.73 -0.15 556.58 150.44 410.05 274.81 0.00 67.04 11.13 2009 2,320.64 86.43 2,234.21 5.59 581.51 2,821.31 2,241.15 176.42 51.44 47.84 55.18 -132.25 0.00 2,439.78 375.94 381.53 101.44 280.09 62.46 0.00 217.63 0.00 217.63 74.14 143.51 198.62 0.00 31.69 5.39
350.13 128.87 101.13 0.00 43.86 0.00 5,908.12 738.66 650.40 369.87 280.53 145.47 0.00 135.06 -0.01 135.05 50.99 84.05 623.99 0.00 67.13 10.89
Page 77

Earning Per Share (Rs) Equity Dividend (%) Book Value (Rs) 6,713.20 1.25 100.00 26.64 6,703.82 6.12 100.00 26.54 3,169.00 4.53 100.00 39.24
Page 78

BIBLIOGRAPHY BOOKS:
Prasanna Chandra, Financial Management-Theory and Practice. Tata McGraw-Hill Publishing Company Ltd. (2006), 6th Edition. M.Y. Khan & P.K.Jain, Financial Management-Text, Problems and Cases. Tata McGraw-Hill Publishing Company Ltd. (2005), 4th Edition. I.M. Pandey, Financial Management, Vikas Publishing House Pvt. Ltd. (1999), 8th Edition.
REPORTS:
Annual reports of Shree Renuka Sugars Limited. For three years from 2010 to 2012.
WEB SITES:
www.renukasugars .com www.sugarindustry.com www.economywatch.com www.investopedia.com
Page 79

Rajashekhar Chimilagi

Uploaded by

Copyright:

Available Formats

Rajashekhar Chimilagi

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Rajashekhar Chimilagi

Uploaded by

Copyright:

Available Formats

Shree Renuka Sugars Ltd

Shree Renuka Sugars Ltd

Shree Renuka Sugars Ltd

1.3 Indian sugar industry:

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

1.4 Current industry status:

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

2.1 Background and inception of the company

: 2000 plus : www.renukasugars.com Page 6

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

2.3 VISION, MISSION STATEMENT AND QUALITY POLICY

Shree Renuka Sugars Ltd

d) GOALS AND OBJECTIVES:

2.4 PRODUCTS / SERVICE PROFILE:

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

2.5 AREA OF OPEARATION

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

2.6 OWNERSHIP PATTERN:

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

24 15 Unit acquired on lease

Capative 272 930 10000

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Godavari Sugar Limited

Ugar Sugar Limited

Shree Renuka Sugars

Shree Prabulingesh war Sugars. Limited

EDI Parry (India) Limited

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

2.11 FUTURE GROWTH AND PROSPECTS:

Adept institute of Management studies and research Dharwad

Shree Renuka Sugars Ltd

Shree Renuka Sugars Ltd