Volume 3, Issue 6 (June, 2014) Online ISSN-2277-1166 Published by: Abhinav Publication Abhinav National Monthly Refereed Journal of Research in PROFITABILITY ANALYSIS OF SELECTED COMPANIES IN SUGAR INDUSTRY BASED ON THEIR MARGIN ON SALES Devdatta Tare 1 Assistant Professor, Datta Meghe Institute of Management Studies, Nagpur, India Email: devstare@ymail.com Fakhruddin Sunelwala 2 Assistant Professor, Datta Meghe Institute of Management Studies, Nagpur, India Email: fakhruddindmims@rediffmail.com Akash Agrawal 3 Assistant Professor, Datta Meghe Institute of Management Studies, Nagpur, India Email: agrawalhello.2008@rediffmail.com ABSTRACT Sugar is one of the most important commodities; produced and consumed around the world. Sugar is derived mainly from sugarcane and sugar beet. India is the second largest producer of sugar in the world having a share of over 16 percent of world s sugar production after Brazil s 22 percent. This article is an attempt to study Indian sugar industry and to analyze Profitability of Selected Sugar Companies Based on Their Margin on Sales. For studying the same one way Annova has been used. Net profit Margins, Total Asset Turnover and Return on Equity are the variables studied and used for the study. Keywords: Net Profit Margin; Total Assets Turnover; Return on Equity INTRODUCTION Indian sugar industry can be broadly classified in to two sub sectors, the organized sector i.e. sugar factories and the unorganized sector i.e. manufacturers of traditional sweeteners like gur and khandsari. India has been known as the original home of sugar and sugarcane. India is the largest single producer of sugar including traditional cane sugar sweeteners, khandsari and Gur equivalent to 26 million tonnes raw value followed by Brazil in the second place at 18.5 million tonnes. Even in respect of white crystal sugar, India has ranked No.1 position in 7 out of last 10 years. Indian mythology supports the above fact as it contains legends showing the origin of sugarcane. Presently, about 4 million hectares of land is under sugarcane with an average yield of 70 tonnes per hectare. Indian sugar production is characterized by a cyclic production pattern with typical sugar cycles lasting 2-3 years, as production adjusts to fall in price which in turn leads to lower supplies, price increase and higher production. India has improved the sugar export in last decades thanks to various initiatives by the government to increase production. Domestic Scenario India is the largest consumer and second largest producer of sugar in the world (Sthece: USDA Available online on www.abhinavjournal.com 13
Foreign Agricultural Service). In year 2006-2007 India produced 28.5 million tons and consumed 20 million tons of sugar. India has exported around 1.5 million tons of sugar after the ban on sugar exports was lifted in January, 2007. With an opening stock of 4 million tons in 2005-06, India will end the year with stocks of more than 11 million tons. The Indian sugar industry is the second largest agro-industry located in the rural India. The Indian sugar industry has a turnover of Rs. 700 billion per annum and it contributes almost Rs. 22.5 billion to the central and state exchequer as tax, cess, and excise duty every year (Sthece: Ministry of Food, Government of India). It is the second largest agro-processing industry in the country after cotton textiles. With more than 600 operating sugar mills in different parts of the country, Indian sugar industry has been a focal point for socio-economic development in the rural areas. About 50 million sugarcane farmers and a large number of agricultural labtheers are involved in sugarcane cultivation and ancillary activities, constituting 7.5% of the rural population. Besides, the industry provides employment to about 2 million skilled/semi skilled workers and others mostly from the rural areas. (Sthece: ISMA) Sugar Production and Consumption in India Indian sugar production now exceeds 24 million MT during 2012-13 from 11 million MT in 1989-90. But this growth in sugar production is cyclical and shows wide fluctuations in recent decades particularly in 2003-04, 2004-05 and 2008-09. During these years the sugar production has shown a trend of deficit followed by surpluses in 2005-06 and 2009-10 as sugar crop area expanded on the back of higher prices. Surpluses stem predominantly from world production exceeding consumption and export availability exceeding import demand. Sugar production in India registered a fall of 2 Million MT from 26 MT in 2011-12 to 24 MT in 2012-13, primarily due to a drop in output from the major sugarcane growing states of Maharashtra and Karnataka. This fall in production has been attributed to the drought like situations which persisted in many parts of these two states during 2012-13 monsoon seasons. An expected larger proportion of ratoon crop will reduce Maharashtra s sugarcane yields, and as a result, in 2012-13 average cane yield has dropped in India. Regardless of the frequent fluctuations in sugar production domestic sugar consumption has shown a consistent growth. Indian sugar consumption is rise to 23.50 million MT in 2012-13 on improved domestic supplies and strong demand from bulk consumers (figure.8). The growth rates of sugar production, consumption and per capita sugar consumption during 1989-90 to 2012-13 has grown steadily by 4.38 percent per annum, 3.76 percent per annum and 2.05 per cent per annum respectively in India. Global Sugar Scenario Worldwide, 123 countries are producing sugar of which only sugar beet is grown in 43 countries and only sugarcane is grown in 71 countries while both sugarcane and sugar beet are grown in 9 countries. Brazil and India are the world s two largest sugar producers. Together, they have accounted for over half the world s sugar cane production for the past 40 years. The EU is the thirdlargest producer and accounts for around half the world s sugar- beet production. The largest producer of sugar in the world is Brazil with an annual production of around 38 million MT in 2010-13(22.25 percent). India at the second place with production of 27 million MT(16.25 percent) of sugars and European Union (9.72 percent)standing at the third place with approximately 15.00 million MT of sugar production. Supply and Demand During the 2010/11 crop cycle, production exceeded consumption by over 10 million tons. Global cane sugar production shot up to 131 million tons from 110 million tons in 2005/06, a jump of 19%. World sugar production totaled 162.6 million tons, balance contributed by Beet Sugar. Global consumption grow by 5.3 million tons to 152.4 million tons. The year on year consumption growth increased to 3.5% from 1.8% in 2005/06. 2006/07 saw a major swing from deficit to surplus, with VOL. 3, ISSUE 6 (June 2014) 14
much of the growth in production coming from the Asian countries, especially India which turned into an exporter in January, 2007 and has thus swung the world sugar balances in the other direction. Currently 69% of the world s sugar is consumed in the country of origin whilst the balance is traded on world markets. India is the largest consumer of sugar and consumption has grown faster in Asia than across the world. Long-term potential for consumption growth, particularly in South African countries, remains positive. Consumption growth in China has increased as a result of the buoyant economic conditions currently being experienced in that country. According to the International Sugar Organization (ISO) said that 2013-2014 sugar production would reach 265.6 million tons, up 4 million tons on the year. It also said the 2013-2014 surpluses would be around 15.8 million tons. World consumption is projected at 259.4 million tons, up 2.3% from 2011-2012. The ISO also predicted that India would become the world s largest sugar producer in 2013-2014, replacing Brazil. They forecast India s production at a record 33.15 million tons, up 2.55 million tons on the year. Government Norms in Sugar Industry Sugar is a regulated industry in India sugar is an essential commodity, and is covered by the Essential Commodities Act, 1955 and consequently, its production supply and distribution are regulated by the state and central government. The Cane Commissioner of each state reserves and assigns areas for the supply of sugarcane to factories on an equitable basis. The purchase price of sugarcane is regulated and the central government fixes the SMP, which must mandatorily be paid by sugar producers to sugarcane growers, within a specified time. The Government of India, through the Sugar Directorate, can further fix the quantity and quality of sugar that may be produced by a factory during any year and can also regulate the sale of sugar. Sugar mills must sell a specified percentage of sugar (free sale sugar), which is currently at 90 per cent of their production in the open market and are therefore subject to the forces of demand and supply. However, the quantity of free sale sugar to be sold is based on the release mechanism governed by the Sugar Directorate. 10% Levy sugar must be sold as per government directions through fair price shops and the public distribution system at government notified prices, which may be set below the cost of production, however exports are not subject to this release mechanism as stated above. Various taxes and levies are also imposed on the purchase, use, consumption and sale of sugarcane. Any change in government policies or present regulations to the detriment may adversely affect the business, financial condition and results of operations. Under the Sugarcane (Control) Order 1966, the Government of India fixes the Statutory Minimum Price ( SMP ) for sugarcane each year based on the recommendations of the Commission on Agricultural Costs and Prices, which takes into account factors such as the cost of cultivation, return to factories and average recovery for previous year. The SMP is fixed for a given base level of recovery and is the minimum price that is required to pay the farmers from whom we purchase cane. A portion of the sugar manufactured by sugar companies is bought by the Government of India as levy sugar at a price that is fixed by the Government of India. The remaining sugar is known as free sale sugar and is sold at a price that is determined by market factors such as availability. The free sale sugar prices are also controlled to some extent by the monthly release mechanism ( MRM ), which is dependent on demand and supply of sugar. OBJECTIVES OF THE STUDY 1. To study Indian sugar industry: Domestic & International Scenario. 2. To analyze Profitability of Selected Sugar Companies Based on Their Margin on Sales. VOL. 3, ISSUE 6 (June 2014) 15
RESEARCH METHODOLOGY Data Collection: The data is secondary in nature and has been collected from prowess for the year 2008-2012 Technique of Analysis: One way Annova has been used DATA ANALYSIS Purti Sugar Net Profit Margin (In Rs Millions) Total Asset Turnover Return on Equity Renuka Sugar Years Net Profit Net Sales NPM (Net Profit/ Net sales) 2012-58.6 1157.4-5.063072404 2011-81.9 1535.2-5.334809797 2010 79.7 1449.01 5.500307106 2009-193.3 1125.9-17.16848743 2008-457.2 447.2-102.236136 Years Net Sales Total Assets TAT (1)/(2) 1 2 NS/TA 2012 1157.4 2777.1 0.416766 2011 1535.2 2730.1 0.562324 2010 1449.01 2703.5 0.535976 2009 1125.9 2650.0 0.424868 2008 447.2 2571.0 0.17394 Years Net Assets Margin Total Assets Turnover (1)*(2) NAM*TAT 2012 2777.1 0.416 1155.274 2011 2730.1 0.5623 1535.135 2010 2703.5 0.5359 1448.806 2009 2650.0 0.424 1123.6 2008 2571.0 0.173 444.783 Net Profit Margin (In Rs Millions) Total Asset Turnover Years Net Profit Net Sales NPM Net Profit/ Net sales) 2012 51.8 6395.4 0.809957157 2011 84.1 6362.1 1.321890571 2010 410 5511.2 7.439396139 2009 143.5 2234.2 6.422880673 2008 92.7 1824.2 5.08167964 Years Net Sales Total Assets TAT (1)/(2) 1 2 NS/TA 2012 6395.4 118.9 53.78806 2011 6362.1 151.2 42.07738 VOL. 3, ISSUE 6 (June 2014) 16
Return on Equity Bajaj Hindustan 2010 5511.2 477 11.55388 2009 2234.2 175.2 12.75228 2008 1824.2 120.3 15.16376 Years Net Assets Margin Total Assets Turnover (1)*(2) NAM*TAT 2012 118.9 53.79 6395.631 2011 151.2 42.07 6360.984 2010 477 11.55 5509.35 2009 175.2 12.75 2233.8 2008 120.3 15.16 1823.748 Net Profit Margin (In Rs Millions) Total Asset Turnover Return on Equity ANOVA NPM Years Net Profit Net Sales NPM (Net Profit/ Net sales) 2012-234.57 4262.63-5.502940673 2011 12.0 4918.54 0.243974838 2010 51.76 3008.78 1.720298593 2009 154.61 1780.71 8.682491815 2008-50.17 1794.35-2.795998551 Years Net Sales Total Assets TAT (1)/(2) 1 2 NS/TA 2012 4262.63-170.63-24.9817 2011 4918.54 34.84 141.1751 2010 3008.78 70.9 42.43695 2009 1780.71 172.3 10.33494 2008 1794.35-36.03-49.8016 Years Net Assets Margin Total Assets Turnover (1)*(2) NAM*TAT 2012-170.63-24.98 4262.337 2011 34.84 141.175 4918.537 2010 70.9 42.43 3008.287 2009 172.3 10.33 1779.859 2008-36.03-49.8 1794.294 Sum of Squares df Mean Square F Sig. Between Groups 3106.104 3 1035.368 2.076.144 Within Groups 7979.248 16 498.703 Total 11085.352 19 VOL. 3, ISSUE 6 (June 2014) 17
TAT T TEST Abhinav National Monthly Refereed Journal of Research In Group Statistics Group Statistics Group Statistics CONCLUSION Sum of Squares df Mean Square F Sig. Between Groups 2.509 3.836 16.889.000 Within Groups.792 16.050 Total 3.302 19 Sum of Squares df Mean Square F Sig. Between Groups 2712902.980 3 904300.993 4.916.013 Within Groups 2942932.948 16 183933.309 Total 5655835.928 19 company N Mean Std. Deviation Std. Error Mean Purti 5 342.4558 128.62534 57.52300 Renuka 5 1357.4172 683.44899 305.64768 company N Mean Std. Deviation Std. Error Mean Purti 5 342.4558 128.62534 57.52300 Bajaj Hindustan 5 957.3354 447.17083 199.98087 company N Mean Std. Deviation Std. Error Mean Renuka 5 1357.4172 683.44899 305.64768 Bajaj Hindustan 5 957.3354 447.17083 199.98087 Indian sugar production now exceeds 24 million MT during 2012-13 from 11 million MT in 1989-90. The Indian sugar industry is the second largest agro-industry located in the rural India. The Indian sugar industry has a turnover of Rs. 700 billion per annum. Sugar is a regulated industry in India sugar is an essential commodity, and is covered by the Essential Commodities Act, 1955 and consequently, its production supply and distribution are regulated by the state and central government. Net Profit Margin of the two sugar mills is on negative side. REFERENCES 1. Aggarwal K., J.C. Karwasra, and V. Gautam, 1982, Domestic production and export performance of some agricultural commodities in India, Indian Journal of Agricultural Economics, 37(3): 327 2. Balasubramaniam, S.S.V, 2003, Problem and prospects of sugar Industry, Indian Sugar, 53(9): 643-649 3. Beate Zimmermann and Jurgen Zeddies, 2002, International Competitiveness of Sugar Production, Paper prepared for presentation at the 13th International Farm Management Congress, Wageningen, Netherlands 4. Baffes, John and Bruce Gardner, 2003, The transmission of world commodity prices to domestic markets under policy reforms in developing countries, Policy Reform 6(3), 159-180 5. Fakhri Michael, 2011, The Making of International Trade Law: Sugar, Development and International Institutions, University of Toronto. VOL. 3, ISSUE 6 (June 2014) 18
6. Website, http://www.apeda.com 7. Website, http://www.dgciskol.nic.in 8. Website, http://www.globalsugaralliance.org VOL. 3, ISSUE 6 (June 2014) 19