Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 IMPACT OF OPERATIONAL EFFICIENCY ON THE PROFITABILITY OF COOPERATIVES SUGAR FACTORIES Aniket Hanamant Jadhav Research Student Department of Commerce & Management Shivaji University, Kolhapur Abstract Gauri Bhimrao Patil. Research Student Department of Commerce & Management Shivaji University, Kolhapur. In India agriculture is the main source of income of lots of peoples. Sugar industry is one of the important agro based industry in India. The sugar industry faces many problems i.e. lower profitability and in sufficient operational efficiency. In recent days many cooperative sugar factories face the problem of incurring losses constantly. This paper attempts to find out impact of operational efficiency on the profitability of Hutatma Kisan Ahir Sahakari Sakhar Karkhana Ltd. Walwa (HKASSK Ltd.) and Kranti Sahakari Sakhar Karkhana Ltd. Kundal (KSSK Ltd.) in Maharashtra from year 20090 to 2056. For analyze the impact of operational efficiency on profitability the researcher used different ratios of profitability and operational efficiency as well as the correlation matrix to test the hypotheses. Key Words: CoOperatives, Operational efficiency, Profitability, Sugar factories. Introduction Sugar industry occupies an important role in the Indian economic development. The sugar industry is the second largest agro based industry after the textile industry. At present in India there are 553 registered sugar factories having capital investment more than Rs. 50000 cores, which annual produced 80 lakh metric tons sugar. The cooperative sugar industry is the back bone of growth of rural economy of country. More than 45 million people in the rural area of India were depending on sugar industry for their survival. The Indian sugar industry contributes for around % of GDP of the country in recent years. The profitability is directly concerned with the operational efficiency of the sugar factory. The operational efficiency in now days is poor because of inadequate availability of sugarcane, power failure, lack of management skills and insufficient financial support. The operationally efficiency of sugar Prime International Research Journal, Vol. III, Issue 5, October, 206 Page
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 factory is directly affected the profitability, so the management of the sugar factory always be concern about the good operational efficiency. Review of Literature In order to identify research gap as well as methodological gap the studies previously undertaken on cooperative sugar factories have been reviewed. Ready and Ready (202) had made an attempt to measure the financial distress of selected sugar factories by applying Altman s Z score model. They come to conclusion that selected sugar factories representing poor financial performance which may lead to bankrupts but one of them has taken turnaround measures to improve its performance. Maheswari and Reddy (202) have analyzed working capital structure of selected sugar mills in Chittoor district in terms of structure of working capital, financing working capital, Current ratios, working capital turnover and operating cycle. Ballasubramanian (202) has made a review on progress of sugar industry in India and discussed challenges before sugar industry in the context of liberalization process. It highlighted sugar policy, growth in area of sugarcane cultivation, production, and quantitative growth of sugar factories. Herekar and Shinde (202) have taken a review of challenges before sugar CoOperatives in Maharashtra and suggested some remedies thereon. They have identify problems being faced by sugar CoOperatives such as corruption, lack of professional management, short margin, Price crash, High interest burden, Shortage of Sugarcane, Need of Modernization, Threat of Privatization etc. Noronha and Thakor (202) have study the financial viability of sugar factories in South Gujarat by using group statistics about the performance of sugar factories. The financial viability is assessed by using return on capital employed ratio, gross profit ratio, net profit ratio, expenses to sales ratio, interest coverage ratio, debt equity ratio, current ratio, fixed assed turnover ratio and operating profit ratio. Statement of the Problem Now days, the financial performance of the cooperative sugar factories is not well. There are so many problems in the working of sugar factory. Efficient management, dynamic leadership and professionalism are essential measures for survival growth of any organization.. How the sugar factories solve the problem of inadequate availability of sugarcane? 2. Which factors are increasing the cost of production of sugar factories? 3. How sugar factories are overcome from their poor operational efficiency? Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 2
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 Objectives of the Study. To examine the comparative Profitability of selected sugar factories. 2. To study the comparative operational efficiency of selected sugar factories. 3. To assess the impact of operational efficiency on profitability of selected sugar factories. 4. To offer suggestion for improvement financial performance of sugar factories. Hypotheses. The operational efficiency affects the profitability of HKASSK. 2. The operational efficiency affects the profitability of KSSK. Research Methodology The present study is an analytical study and mainly dependent on secondary sources of data, the primary sources of data are supplementary. The researcher has selected one sugar factory from Walwa and one from Palus taluka in Maharashtra, the study is on the basis of their profitability and operational efficiency performance and hence the following sugar factories have selected, i.e. Hutatma Kisan Ahir Sahakari Sakhar Karkhana Ltd. Walwa and Kranti Sahakari Sakhar Karkhana Ltd. Kundal. The researcher used the correlation matrix to test the hypotheses about the impact of operational efficiency on the profitability of selected sugar factories. The profitability and operational efficiency performance of the Sugar factories has been studied for a period of seven years from 20090 to 2056. Analysis and Interpretation The financial performance of selected cooperative sugar factories was assessed by using the profitability and operational efficiency of the sugar factories. The researcher used the ratio analysis and correlation matrix for analysis of data and testing the hypotheses. Comparative Profitability Position The profitability reflects the find results of business operations. Profitability ratio depict of the capacity of the unit to generate profits and its rate of return. The rate of return ratios on the other hand reflected the relationship between profit and investment. Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 3
Year Prime International Research Journal Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 The profitability of cooperative sugar factories has been analyzed by using Gross Profit Ratio (GPR), Net Profit Ratio (NPR), Earning Per Share Ratio (EPSR), Return on Assets Ratio (ROAR) and Return on Capital Employed Ratio (ROCER). HKASSK Ltd. Table No. Comparative Profitability Position (Ratios in %) KSSK Ltd. GPR NPR EPSR ROAR ROCER GPR NPR EPSR ROAR ROCER 20090 8.00 0.2 208.9 0.3 0.20 39.79 0.23 3.70 0.07 0.09 200 5.7.7 209.28 6.98 9.58 2.65 3.96 52.68 2.88 3.77 202 7.3 3.6 3666.84.90 2.59 27.73 8.00 895.43 4.32 6.55 2023 20.79 0.05 69.95 0.03 0.03 8.25 0.05 0.06 0.03 0.05 2034.78 2.20 566.05 2.24 3.47 7.48 0.44 33.08 0.29 0.42 2045.5.23 2773.78 0.98.43 2.08 0.55 238.34 0.50 0.67 2056 7.73 0.05 2.67 0.03 0.05 0.82 0.08 32.0 0.05 0.07 (SourceAnnual report of HKASSK Ltd. and KSSK Ltd. from year 20090 to 2056) Table 3 express the overall comparative profitable position of HKASSK Ltd. and KSSK Ltd. for the study period. The gross profit ratio, net profit ratio, earning per share ratio, return on assets ratio and return on capital employed ratio show the comparative profitability position of two sugar factories. In year 200 all the profitability ratios was highly reduced it shows net loss in that year because In year 2008 there is a drought situation in operational area of sugar factories because of that lot of sugarcane crop was destroyed and in next year 200 there is shortage of sugarcane. This situation affects profitability of sugar factory in that particular year and ratio was highly reduced. Comparative of Operational Efficiency Operational efficiency ratio can be used to help measure the effectiveness and cost control. This ratio was used by production managers to show the trends and identify problems. These ratios are very useful to the management to know the efficiency of the factory and increased the efficiency. The operational efficiency is expressed by using Material Cost Ratio (MCR), Labour Cost Ratio (LCR), Factory Overhead Ratio (FOR), Administrative Expenses Ratio (AER) and Selling and Distribution Expenses Ratio (SDER) of HKASSK Ltd. and KSSK Ltd. Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 4
Year 20090 Prime International Research Journal Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 Table No.2 Comparative of Operational Efficiency (Ratios in %) HKASSK Ltd. KSSK Ltd. MCR LCR FOR AER SDER MCR LCR FOR AER SDER 84.05 2.33 5.57 5.3.26 9.6 2.23 9.8 2.03 2.25 67.6 3.3 5.95 4.92.66 54.40 7.57 5.23.35.45 200 59.0 2.09 6.32 5.37.47 69.23 9.59 7.38.47 3.50 202 0.72 3.45 7.65 3..42 65.5 7.9 5.24.23.34 2023 74.60 9.0 4.3.45 0.80 92.70 7.42 5.33.4.37 2034 72.74 0.0 4.30.97 0.9 64.77 7.35 5.33.05.0 2045 86.4.86 5.92 3.36.23 84.95.6 5.49.36.25 2056 (SourceAnnual report of HKASSK Ltd. and KSSK Ltd. from year 20090 to 2056) The comparative operational efficiency of HKASSK Ltd. and KSSK Ltd. were shows in table 4 from year 20090 to 2056. The operational efficiency is expressed by using material cost ratio, labour cost ratio, factory overhead ratio, administrative expenses ratio and selling and distribution expenses ratio of HKASSK Ltd. and KSSK Ltd. for the study period. These ratios show the fluctuating trend of operational efficiency of both sugar factories. The material cost ratio is higher in both the sugar factories because the price of sugar cane was increased year after year. The overall operational efficiency ratios show that there is no significant difference in operational efficiency of both the sugar factories. Testing of Hypothesis The comparison between the profitability position and operational efficiency of two cooperative sugar factories has been made on the basis of different ratios of profitability and operational efficiency. The hypothesis has been tested by using correlation matrix to know impact of operational efficiency on the profitability of sugar factories. Hypotheses: H : The operational efficiency affects the profitability of HKASSK. H 0 : The operational efficiency does not affect the profitability of HKASSK. Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 5
GPR NPR EPSR ROAR ROCER MCR LCR FOR AER SDER Prime International Research Journal Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 Table No.3 s of Operational Efficiency and Profitability of HKASSK GPR NPR EPSR ROAR ROCER MCR LCR FOR AER SDER.665.03.523.229.603.5.585.68.594.59.287.532.543.208.3.809.03.948.665.03.979 **.994 **.99 **.2.796.48.275.69.78.344.449.598.56.523.229.979 **.995 **.997 **.055.907.633.27.320.484.477.279.79.068 **. is significant at the 0.0 level (2tailed). *. is significant at the 0.05 level (2tailed)..603.5.994 **.995 **.999 **.098.834.556.95.24.603.42.358.66.06.585.68.99 **.997 **.999 **.093.843.578.74.262.570.43.335.679.094.594.59.2.796.055.907.098.834.093.843.35.492.45.309.27.557.046.923.287.532.48.275.633.27.556.95.578.74.35.492.90 **.006.73.062.925 **.543.208.69.78.320.484.24.603.262.570.45.309.90 **.006.57.235.3.809.344.449.477.279.42.358.43.335.27.557.73.062.57.235.03.948.598.56.79.068.66.06.679.094.046.923.925 ** The correlation matrix of operational efficiency and profitability of HKASSK shows that GPR, NPR, EPSR, ROAR and ROCER are moderately positive correlated with MCR, LCR, FOR and AER of HKASSK. The SDER is highly positive correlated with all profitability.003.787 *.036.827 *.022.003.787 *.036.827 *.022 Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 6
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 ratios. This analysis shows that operational efficiency affected the profitability of HKASSK. It means the null hypothesis is rejected and an alternative hypothesis is accepted and we can say that operational efficiency affects the profitability of HKASSK. Hypotheses2: H : The operational efficiency affects the profitability of KSSK. H 0 : The operational efficiency does not affect the profitability of KSSK. Table No.4 s of Operational Efficiency and Profitability of KSSK GPR NPR EPSR ROAR ROCER MCR LCR FOR AER SDER GPR NPR EPSR ROAR ROCER MCR LCR FOR AER.402.372.326.475.386.392.385.394.683.09.402.982 **.992 **.998 **.059.372.900.326.982 **.993 **.99 **.060.475.899.386.992 **.993 **.998 **.03.392.826.385.998 **.99 **.998 **.073.394.877.683.059.060.03.073.09.900.899.826.877.566.206.36.209.98.696.85.657.772.653.670.082.956 **.40.329.383.384.697.00.372.47.396.396.082.86 *.04.005.072.076.690.03.824.99.879.87.086.566.85.956 **.00.86 *.03.69.086.206.40.04.795 *.657.372.824.033.36.329.005.683.772.47.99.09.209.383.072.729.653.396.879.063.98.384.076.758 *.670.396.87.049.696.697.690.60.082.082.086.732.78.806 *.375.069.029.407.78.920 **.697.069.003.082.806 *.920 **.537.029.003.24 SDER.69.795 *.683.729.758 *.60.375.697.537 Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 7
Prime International Research Journal Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239.086.033.09.063.049.732.407.082.24 **. is significant at the 0.0 level (2tailed). *. is significant at the 0.05 level (2tailed). The correlation matrix of operational efficiency and profitability of KSSK shows that GPR, NPR, EPSR, ROAR and ROCER are moderately positive correlated with MCR, LCR, FOR and AER of KSSK. The SDER is highly positive correlated with all profitability ratios. This analysis shows that operational efficiency affected the profitability of KSSK. It means the null hypothesis is rejected and an alternative hypothesis is accepted and we can say that operational efficiency affects the profitability of KSSK. Findings. There is no any significant difference in the profitability position of both the sugar factories. The trend of profitability of this two sugar factories is almost similar in nature. Due to natural calamity of drought, both the sugar factories have a huge loss in the year 200 in operational area. The overall profitability of both the sugar factories was not good. 2. The operational efficiency of KSSK Ltd. have slightly better position than the HKASSK Ltd. Apart from that there is no major change in operational efficiency of both the sugar factories, material cost ratio has grown from 84.05% in 20090 to 0.72% in 2023 and again reached to 86.4% in 2056 due to the considerable increase in sugarcane prices. 3. The correlation matrix of operational efficiency and profitability shows that there is positive correlation between operational efficiency and profitability of HKASSK Ltd. 4. As per the correlation matrix there is also positive correlation between operational efficiency and profitability of KSSK Ltd. Suggestions. The management of sugar factories should plough back of profit for future requirements and technical modifications for improving financial performance. 2. The management of sugar factories should use modern technology in computerization and atomization of process it will help in improving operational efficiency. Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 8
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 3. Management of both the sugar factories should make village wise micro level planning of cultivation and harvesting program in operational area. It will help in maintaining continuous flow of quality sugarcane. It will improve the operational efficiency of sugar factory. 4. To enhance recovery percent both the sugar factories should make necessary technical modifications in machinery or used advance techniques about sugar cane cutting and external technical expertise should be hired wherever necessary. It will help in improve the profitability and efficiency of the sugar factory. 5. The management of sugar factories should make the evaluation of employee s performance which is free from bias and objective. Such evaluation helps in improving the operational efficiency of the employees. Conclusion The study has analyzed the impact of operational efficiency on profitability of Hutatma Kisan Ahir Sahakari Sakhar Karkhana and Kranti Sahakari Sakhar Karkhana as on comparative study. For the study researcher used different ratios of operational efficiency on profitability as well as correlation matrix of operational efficiency and profitability of selected sugar factories. The cooperative sugar factories profitability mostly depended on operational efficiency of that factory. From the analysis, it is clear that there is positive correlation between operational efficiency and profitability of both the sugar factories. The profitability and operational efficiency ratio analysis shows that poor operational efficiency performance leading to lower profitability of both cooperative sugar factories. Both the sugar factories are facing financial distress problems. So, it requires taking huge efforts for improving the financial health of both cooperative sugar factories. References: Altman, E. (968) Financial Ratios, Discriminant Analysis and the Prediction of Bankruptcy, Journal of Finance, Vol.23 (4), pp.589609. Gupta Neeraj Kumar (202) Financial Wealth Health of CoOperative Sugar Mill: A Case Study, International Journal of Management Research and Review, Vol.2 Issue3 pp.443 448. Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 9
Double Blind, Peer Reviewed, Indexed Journal ISSN : 2349239 Huda Seema (203) ZScore Analysis of Cooperative Sugar Mills in Haryana International Indexed & Refereed Research Journal, Vol5 Issue 5, pp.79. Muhammad Shahzad Ijaz, Ahmed Imran Hunjra, Zahid Hameed, Adnan Maqbool and Raufi Azam (203) Assessing the Financial Failure Using ZScore and Current Ratio: A Case of Sugar Sector Listed Companies of Karachi Stock Exchange, World Applied Sciences Journal, Vol. 23 Issue 6, pp. 863870. Reddy N.R.V. Ramana and Reddy K. Hari Prasad (203) Financial Status of Select Sugar Manufacturing UnitsZ Score Model, International Journal of Education and Research, Vol. Issue, pp.9. Sasikala D. (20 Financial Distress: Bankruptcy Measures In Alembic Pharmaz Score Model, International Journal of Research in Commerce, Economics & Management, Vol Issue7, pp. 27. http//www.rcssindia.orge 27/2/203 at 4.30 pm. www.indiansugar.com 30/2/203 at 2.5 pm. www.coopsugar.org. 06/0/204, 4:35pm www.mahasugarfed.org. 08/0/204, :00pm Prime International Research Journal, Vol. III, Issue 5, October, 206 Page 0