FINANCIAL PERFORMANCE OF SELECTED PRIVATE SECTOR SUGAR COMPANIES IN TAMIL NADU AN EVALUATION.

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1 Received:17,April,2014 Journal of Multidisciplinary Scientific Research, 2014,2(3):10-14 ISSN: Available Online: FINANCIAL PERFORMANCE OF SELECTED PRIVATE SECTOR SUGAR COMPANIES IN TAMIL NADU AN EVALUATION. Subramanian.G*, Visvanathan.K Dept. of Commerce,Kandasamy Kandar s College,P.Velore,Namakkal, Tamilnadu,India. E- Mail: vismah2006@yahoo.co.in Accepted:24,May,2014. Abstract India tops the list in sugar production in the world next to Brazil. Being the most populous country, India s requirements of sugar are also very large. The demand for sugar is ever on the increase on account of increasing population as well as due to an improvement in the standards of living of the masses. Tamil Nadu is one of the major sugar producing states in India and it contributes on an average of nineteen lakhs tonnes of sugar annually, which is about ten per cent of the total production of sugar in the country. The present study analysed the performance of sugar industry in Tamil Nadu through financial analysis techniques like ratio analysis. In which various ratios like short term solvency ratios and long term solvency ratios were calculated. Mean, SD, co-efficient of variation and compound annual growth rate have been computed from the ratios for further analyse the financial data. The study was concluded that the financial performance of the sugar industry had been moderate. Keywords: Finance, current ratio, quick ratio, short term solvency and long term solvency ratio. INTRODUCTION India has been known as the original home of sugarcane and sugar. Indians knew the art of making sugar since the fourth century. India is the largest consumer and the second largest producer of sugar in the world. The sufficient and well distributed monsoon rains, rapid population growth and substantial increase in sugar production capacity have combined to make India the largest consumer and second largest producer of sugar in the world. However, India is presently a dominant player in the global sugar industry along with Brazil in terms of production. The growing sugar production and the structural changes witnessed in Indian sugar industry suggest that India is all set to continue its domination at the global level. Since the sugar industry in the country uses only sugarcane as an input, sugar companies have been established in large cane growing states like Uttar Pradesh, Maharashtra, Tamil Nadu, Karnataka, Punjab and Gujarat. Uttar Pradesh leads the tally by contributing twenty four per cent of the country s total sugar production and Maharashtra stands next with twenty per cent contribution. The farmers co-operatives own and operate the largest chunk of the industry's total capacity. They are concentrated primarily in Maharashtra and eastern Uttar Pradesh.The largest numbers of sugar companies in the private sectors are located in Southern India, in the states of Tamil Nadu, Andhra Pradesh and Karnataka. Sugar mills in Tamil Nadu, unlike their counterparts in other major producing regions, did not have the luxury for last year to down-revise cane prices compatible with the downfall in sugar prices. Unchecked rise in farm labour cost and lack of mechanisation have come to hamper cane cultivation and erode profit margins for the cane crop despite higher prices. With fresh sugar capacities, there is increased competition for available cane and labour supply. There are thus systemic constraints inflicting higher costs and impeding cane supplies for sugar mills in the State. REVIEW OF LITERATURE Vijayakumar and Venkatachalam (1995) carried out a study on Working Capital and Profitability An Empirical Analysis taking thirteen firms from sugar industry covering a period from to The impact of working capital ratios on profitability was determined by using correlation and regression analysis. Major ratio s like liquid ratio, receivables turn over, inventory turnover, and cash turn over were computed to measure their impact on profitability. The study showed that inventory turnover and receivable turnover had positive correlation with the profitability and liquid ratio where as cash turnover had negative correlation with the profitability. Chandrasekaran (1999) carried out a study on Financial Performance of Indian Sugar Industry for the period covering from to in which various ratios like profitability ratios, liquidity ratios, leverage ratios and turn over ratios were calculated. It was found that financial performance of the sugar industry had been moderate to poor except during The study disclosed that the financial performance of sugar industry was affected mainly by high stocks of finished goods, average to low coverage ratios due to high variability in earnings, high leveraging and difficulty of controlling cost structure. The author concluded that tough cycle of low production, high price realisation followed by higher production and low price realisation leading to delay in payments would affect the company s performance. Mohan (2004) in his study Profitability of Sugar Industry has made an evaluation of the profitability of the sugar mills in the Thanjavur district. The study analysed the operational of the sugar mills, through operating ratios there by judging the effectiveness in using the pool of funds. The study identified the long term funds entrusted to a concern by companies and owners through return on capital employed. On concluding the study indicated that the private mill was moderate where as the public and co-operative mills did not achieve the expected performance. It also concluded that all the mills under study showed an unsatisfactory operational performance and identified that low recovery, under remunerative sugar prices in the

2 Journal of Multidisciplinary Scientific Research, 2014,2(3): free market due to the import policy of the Govt., increase cost of production, decline in the molasses and alcohol prices are the main causes for such overall poor performance of all the sample mills under study. Further, under utilisation of capacity, increased interest burden, poor recovery, losses on the fertilizer and diesel business are identified as the main determinants for the losses of the cooperative mills under study. Anuradha Rajendran (2009) under took a study on Performance Appraisal of Private Sector Sugar Companies in Tamil Nadu for the period from to The main objectives of the study are to access the production and sales performance, to analyse the financial performance and profitability analysis of select sugar mills. Financial analysis techniques like ratio analysis and trend analysis are used to analyse the financial data. The correlation analysis revealed a positive correlation between return on total assets and inventory turnover ratio during the study period. The analysis of the operational efficiency using Altman s model reveals the financial health of the selected sugar industry falls in the healthy zone. Uma Maheswari and Ramachanadra Reddy (2012) presented a paper on Working Capital Management in Sugar Mills in Chittoor District of Andhra Pradesh. The study focused on Sri Venkateswara Co-operative Sugar Factory Limited and Sagar Sugars & Allied Products Limited in Chittoor district of Andhra Pradesh. Sugar industry faces many problems such as fluctuations in the production due to inadequate availability of sugarcane and power failure. The profitability of the sugar industry is comparatively very low because of high cost of production. In fact, some units are incurring losses continuously. The study found the industry has failed to retain more profits, consequently been forced to define more on external sources. Yashwant and Neeraj Kumar (2012) undertook a study on Financial Wealth Health of Mawana Sugar Mill - A Case Study. In this paper an attempt has been made to study the degree of financial health of the selected units with the help of Edward Altman s Z-score model and the comparison of wealth and health among the selected units with the help of statistical tools i.e. Mean, Standard Deviation and Coefficient of Variation. The objective of the study is to ascertain the degree of financial health condition of the selected units and the success thereof. Financial health reflects the success of the sugar mills. The scenario circles around diagnosing the wealth health of sugar mill by peeping deep into the annual reports of the concerns. The study depicts the issues relating to the financial performance only. Non-Financial aspects like marketing, personnel, etc. are not taken into consideration. Objectives of the study The main objectives of the present work are to make a study on the overall financial performance of selected private sector sugar companies in Tamil Nadu. More specifically it focuses on (i) to assess the short -term solvency position and, (ii) to assess the long - term solvency position. Keeping the above objectives in mind, the following hypothesis have been formulated and tested statistically Hypothesis 1. There is no significant difference in the short term solvency position among the selected private sector sugar companies. 2.There is no significant difference in the long term solvency position among the selected private sector sugar companies. MATERIALS AND METHODS The present study covers three private sector sugar companies listed in BSE & NSE. The sample of the companies has been selected on a convenient basis and the secondary data collected from the CMIE data base and are supplemented with the information from various financial dailies, business magazines, reports and in different websites. We select Bannariamman sugar limited (BASL), Dharani sugars and chemicals limited (DSCL) and EID Parry (India) limited (EID) for the study. The study has been undertaken for the period of ten years from to RESULTS Financial analysis is a process of evaluating relationship between various components to obtain a better understanding of a firm's position and performance. It is the process of identifying the financial strength and weaknesses of the firm by properly establishing relationship between the items in the balance sheet and the profit and loss account. To judge the financial strength of private sector sugar industries in Tamil Nadu, the ratios relating to short-term and long-term financial strength has been computed and analysed in the following paragraphs. Generally, short term solvency ratio s like current ratio, liquid ratio and cash to current liabilities and long term solvency ratio s like debt-equity ratio, net worth to total assets ratio, net fixed assets to equity capital ratio and fixed assets ratio are highly useful in determining financial position, financial performance and the financial strength of such management. Current ratio Current ratio is used to measure the liquidity position or short-term solvency of the concern. It explains the relationship between the current assets and current liabilities. It gives a general picture of the adequacy of the working capital and to meet its day-to-day payment obligations of the company. The significance of current ratio is that it is not only a measure of solvency but an index of the working capital available in an enterprise. A high current ratio also indicates dependence on long term sources of raising funds. A ratio of less than two indicates inadequate current assets to meet current liabilities. Table (1). Analysis of Current Ratio Mean S.D CV Range CAGR Analysis of the current ratio of the selected private sector sugar companies in Tamil Nadu has been shown in Table 1. The mean is highest in DSCL i.e., 4.11 followed by BASL i.e., The range of current ratio which worked out as 7.57 of DSCL and the compound annual growth rate of current ratio which worked out as of EID is the highest and the lowest is DSCL i.e.,-0.13.

3 12 Liquidity ratio The current ratio is not a sufficient indicator of the weakness or soundness of the liquidity of a company. The important question is whether the current assets are held in liquid form or not. Therefore, the solvency of a company can be better judged by quick ratio. The ratio is designed to show the amount of near cash or cash items available for meeting immediate payments. As a general rule, when the quick assets are more than or equal to current liabilities, the financial position may be considered to be satisfactory. The quick ratio indicates the ability of the business to meet its commitments as they fall due for payment. Table (2). Analysis of Liquidity Ratio Mean S.D CV Range CAGR Table (2) shows the mean is the highest in DSCL i.e., 1.24 followed by EID. The range of liquidity ratio highest (3.08) of DSCL and the compound annual growth rate of liquidity ratio which worked out as of DSCL is the highest and the lowest is BASL i.e Cash to current liabilities Cash ratio is the ratio of cash and cash equivalents of a company to its current liabilities. It measures the ability of a business to repay its current liabilities by only using its cash and cash equivalents and nothing else. Potential creditors use this ratio as a measure of a company's liquidity and how easily it can serve debt and cover shortterm liabilities. There is no common norm for cash ratio. A cash ratio is one and above means that the business will be able to pay all its current liabilities in immediate short term. Therefore, creditors usually prefer high cash ratio. But ratios that are too high may show poor asset utilisation for a company holding large amounts of cash on its balance sheet. Table (3). Analysis of Cash to Current Liabilities Particular BASL DSCL EID Mean S.D CV Range CAGR Analysis of the cash to current liabilities ratio of the selected private sector sugar companies in Tamil Nadu has been shown in Table 3. The mean is the highest in DSCL is 30.9 followed by EID. The range of cash to current liabilities ratio which worked out as of DSCL and the compound annual growth rate of cash to Subramanian et.al current liabilities ratio which worked out as 0.03 of DSCL is the highest and the lowest is BASL i.e Table (4). Analysis of Short-Term Financial Strength Cash to Current ratio Liquidity ratio Current Liabilities p- p- p ** S ** S NS **P<0.01 S- Significant Hypothesis: There is no significant difference between the private sector sugar companies in selected short term financial ratios It is clear that, p- is less than 0.01 & 0.05, so the null hypothesis is rejected at five and one per cent level of significant. Hence, there is significant difference between the private sector sugar companies in selected short term financial ratios except cash to current liabilities. Debt-equity ratio The debt equity ratio (debt/equity) is a financial ratio indicating the relative proportion of entity's equity and debt used to finance an entity's assets. It is the key financial ratio and it is used as a standard for judging a company's financial standing. It is also a measure of a company's ability to repay its obligations. If the ratio is increasing, the company is being financed by creditors rather than from its own financial sources which may be a dangerous trend. Thus, companies with high debt-to-equity ratios may not be able to attract additional lending capital. Table (5). Analysis of Debt-Equity Ratio Mean S.D CV Range CAGR Table 5 shows that the mean is the highest in DSCL i.e., 4.92 followed by BASL i.e., The range of debt-equity ratio which worked out as 4.53 of DSCL and the compound annual growth rate of debt-equity ratio which worked out as of DSCL is the highest and the lowest is BASL, i.e Net worth to total assets ratio This ratio explains the relationship between total assets and tangible net worth, viz., preference share capital, equity share capital and retained earnings. The long term investors, creditors and shareholders are concerned with the investment policy of management in fixed assets. This ratio is an important tool for judging the margin of safety for long-term creditors. The lesser the ratio, the greater is the margin of safety for long-term creditors. If net worth is less than that of the fixed assets, it implies that the loan funds are used to finance a part from fixed assets, when the amount of ownership funds exceeds the of fixed assets apart from the net working capital are provided by the share holders.

4 Journal of Multidisciplinary Scientific Research, 2014,2(3): Table (6). Analysis of Net Worth to Total Assets Ratio Mean S.D CV Range CAGR The net worth to total assets ratio of the selected private sector sugar companies in Tamil Nadu has been shown in Table 6. The mean is the highest in EID (0.57) followed by BASL 0.5. The range of net worth to total assets ratio which worked out as 0.37 of BASL and the compound annual growth rate of net worth to total assets ratio which worked out as 0.05 of BASL is the highest and the lowest is DSCL & EID (0.02). Net fixed assets to equity capital ratio As its name suggests, the fixed-asset-to-equity-capital ratio is made up of two parts: fixed assets and equity capital. This ratio determines whether a company's net fixed assets are worth more than the amount of money that investors have sunk into it. Stronger companies have positive net fixed-asset-to-equity-capital ratios. Any time this ratio is 1 or higher, a company has a positive net fixedasset-to-equity-capital ratio. When the number is lower than 1, a company has negative ratio. This particular ratio is important because it can either help or hurt businesses in their efforts to attract additional investors. Table (7). Analysis of Net Fixed Assets to Equity Capital Mean S.D CV Range CAGR It is observed from the table 7, the mean is the highest in EID (28.42) followed by BASL (28.02). The range of net fixed assets to equity capital ratio worked out as of BASL and the compound annual growth rate of net fixed assets to equity capital ratio which worked out as 0.14 of BASL is the highest and the lowest is EID (0.05). Fixed Assets Ratio This ratio establishes the relationship between long term funds (equity plus long-term loans) and fixed assets, since financial management advocates that fixed assets should be purchased out of long term funds only. Whatever the source of long term funds raised should be used for the acquisition of long term assets; it means that the total volume of fixed assets should be equivalent to the volume of long term funds i.e., the ratio should be equal to one. If the ratio is lesser than one means that the firm made use of the short term fund for the acquisition of long term assets. If the ratio is greater than one means that the acquired fixed assets are lesser in quantum than that of the long term funds raised for the purpose. Table (8). Analysis of Fixed Assets Ratio Mean S.D CV Range CAGR Analysis of the fixed assets ratio of the selected private sector sugar companies in Tamil Nadu has been shown in Table 8. The mean is the highest in BASL (0.57) followed by EID (0.54). The highest range of fixed assets ratio which worked out as 0.42 of DSCL and the compound annual growth rate of fixed assets ratio which worked out as 0.05 of DSCL is the highest and the lowest is EID ( ). Table (9). Analysis of Long-Term Financial Strength **P<0.01 S- Significant Hypothesis: There is no significant difference between the private sector sugar companies in selected long term financial ratios It is clear that, p- is less than 0.01 & 0.05, so the null hypothesis is rejected at five and one per cent level of significant. Hence there is significant difference between the private sector sugar companies in selected long term financial ratios. CONCLUSION From the study of financial performance of the select private sector sugar companies in Tamil Nadu, it can concluded that the liquidity position of the three companies are moderate thereby reflecting the ability of the companies to pay short term obligations on due dates. Long term solvency of the selected companies shows that relied more on external funds in terms long term borrowings thereby providing a lower degree of protection to the creditors. References 1)Anuradha Rajendran (2009), Performance Appraisal of Private Sector Sugar Companies in Tamil Nadu, Unpublished Thesis submitted to Bharathiyar University.

5 14 2)Chandrasekaran. N. (1999), Financial performance of Indian Sugar Industry, The Management Accountant, Vol. - 34, No. - 4, pp ) Introduction- 4)Mohan. S. (2004), Profitability of Sugar Industry, Cooperative Sugar, Vol. 35, No. - 8, pp )Pandey, L.M. (1986), Financial Management, Vikas Publishing Company, Mumbai, p.3. 6)Uma Maheswari B. and B. Ramachanadra Reddy (2012), Working Capital Management in Sugar Mills in Chittoor District of Andhra Pradesh, Indian Journal of Applied Research, Vol. - 2, Issue - 1, pp Subramanian et.al 7)Vijayakumar. A and Venkatachalam. A (1995), Working Capital and Profitability An Empirical Analysis, The Management Accountant, Vol. - 30, No. - 10, pp )Westons J.F.Eugen F. Brigham (2008), Essentials of Managerial Finance, The Dryden press, 9th edition, p.14. 9)Yashwant Gupta and Dr. Neeraj Kumar Gupta (2012), Financial Wealth Health of Mawana Sugar Mill - A Case Study, Global Journal of Commerce and Management Perspective, Global Institute for Research and Education, Vol.-1, No.-1, pp