Professional Documents
Culture Documents
With Reference to
Submitted
By
K. Karunakar
096 -07-175
1
DECLARATION
K.Karunakar
(096-07-175)
2
ABSTRACT
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ACKNOWLEDGEMENT
Thank you
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CONTEXT OF THE STUDY
CHAPTERS P.NO
7 - 10
1. INTRODUCTION
A). NEED OF THE STUDY
B).OBJECTIVE OF THE STUDY
C).METHODOLOGY
D).LIMITATIONS OF THE STUDY
E).SCOPE OF THE STUDY
7. BIBILIOGRAPHY 62-63
5
CHAPTER-I
INTRODUCTION
6
CAPITAL STRUCTURE
INTRODUTION:
Equity
Debt
Then the questions are what should be the proportion of equity and
debt in the capital structure of a company.
As the objective of a firm should be directed towards the
maximization of the valve of the firm, the capital structure decision
should be examined from the point of its impact on the firm. If the valve
of the firm can be affected by capital structure, a firm would like to have
a capital structure, which maximizes the market valve of the firm. There
exist conflicting theories on the relationship between capital structure and
the valve of the firm.
Capital structure decisions are significant finance of the corporate
firm in that they influence the return as the risk of equity shareholders.
7
That there exist close Nexus between optimum judicious debt and
the market valve/valuation of the firm is well recognized in literature of
finance. While the excessive use of debt may endanger the every survival
of the corporate firms, the conservative policy may deprive its equity-
holders the advantage of debt as a cheaper source of finance to magnify
their rate of return. Following such an over-conservative policy runs
counter the basic objective of financial decision making to maximize the
wealth of equity holder.
Apart from financial risk return consideration, non-financial factors
are also likely to be very decisive in designing capital structure of the
corporate famous for instance use of debt, unlike equity doesn’t dilute the
controlling power of existing owners in brief, debt is not an unmixed
blessing and, hence a dilemma for the corporate finance manager.
ASSUMPTIONS:
Firms employ only two types of capital, debt and equity.
The firm has a policy of paying 100% dividends.
The corporate and personal income taxes do not exist.
The operating profit (EBIT) is not accepted to grow.
The total assets are given and do not change.
Business risk is constant over time and is assumed to be
independent of its capital structure.
The business risk is equal among all firms with in similar operating
environment.
8
To know over all the cost capital (KO) and the valve of the firm (V)
are independent of the capital structure.
METHODOLOGY:
PRIMARY DATA:
SECONDARY DATA:
9
SCOPE OF THE STUDY:
Due to time constant of 45 days, the data of the study may on way
net present overall view of the capital structure.
10
CHAPTER-2
LITERATURE REVIEW
11
1. Dynamic capital Structure: Comparative Analysis Between
ICT and Non-ICT Firms
Dany Aoun
affiliation not provided to SSRN
Junseok Hwang
Seoul National University - College of Engineering
Icfai Journal of Industrial Economics, Vol. 4, No. 2, pp. 7-26, May 2007
12
3. Capital structure analysis of the fertiliser industry: a case study
13
CHAPTER – III
COMPANY PROFILE
14
During the world war-I cement was declared an essential
commodity and it was brought under the defense of Indian rules,
controlling the price distribution of cement. Cement remained under price
and distribution control during the period 1939-45.After there world war-
II arrangement was made between cement manufactures reading price
and distribution of cement of avoid rate-war. In order t boost up sale of
cement and concrete association of India was formed.
It will thus be seen form the above that from the beginning cement
industry as whole barring for very short period, was constantly under the
control by the Govt.Cement manufacturing units were just carrying out
the instructions of the Govt. authorities regarding dispatching cement to
stipulated destination and on price fixed by the Govt. from time to time.
15
Results of Partial decontrol:
16
From 1982:
Rs.335 Per ton for Ordinary Portland Cement.
(OPC) and Portland Stage Cement (PSC).
Rs.320 Per ton for Portland Pozzolona Cement (PPC)
From 1984:
Rs.375 Per ton for OPC and PSC.
Rs.360 Per ton for PPC.
From 1986:
Rs.399.50 Per ton for OPC and PSC
Rs.384.50 Per ton for PPC.
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ORGANISTION PROFILE
LOCATION:
Kesoram cement industry is one of the leading manufacturers of
cement in India. It is a day process cement plant. The plant capacity is
8.26 lakh tones per annum. It is located at Basanthnagar in Karimnagar
district of AP. Basanthnagar is 8Km away from Ramagundam Railway
Station, linking Madras to New Delhi. The chairman of the company is
Shri B.T.Birla
HISTORY:
The first unit at Basanthnagar with a capacity of 2.1 lakh tones per
annum incorporating humble suspension preheated system was
commissioner during the year 1969. The second unit was setup in the
year 1971 with a capacity of 2.1 lakh tones per annum went on stream in
the year 1978. The coal for this company is being supplied from
Singareni Collieries and the power is obtained from APSEB. The power
demand for the factory is about 21Mw. Kesoram has got 2 DG sets of 4
MW each installed in the year 1987. Kesoram cement has set up a 15KW
captor power plant to facilitate for uninterrupted power supply for
manufacturing of cement at 24th August 1997 per hour 12MW, actual
power is 15 MW.
The plant lay out is rational to begin with the limestone is rich in
calcium carbonate a key factor that influence the quality of final product.
The day process technology uses in the latest computerized monitoring
overseas the manufacturing process. Samples are sent regularly to the
Bureau of Indian Standards. National council of construction and
building material for certification of derived quality norms.
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The company has vigorously under taking different promotional
measures for promoting their product through different media, which
includes the use of newspapers, magazine, hoarding etc.Kesoram cement
industry distinguished itself among all the cement factories in Indian by
bagging the National Productivity Award consecutively for two years i.e.,
for the year 1985-87. The federation of AP Chamber & Commerce and
Industries (FAPCCI) also conferred on Kesoram Cement. An award for
the best industrial promotion expansion efforts in the state for the year
1984. Kesoram also bagged FAPCCI awarded for “Best Family Planning
Effort in the State” for the year 1987-88.
One among the industrial giants in the country today, serving the
nation on the industrial front. Kesoram industry Ltd. has a checked and
eventful history dating back to the 20’s when the Industrial House of
Birla’s acquired it. With only a textile mill under its banner 1924, it grew
from strength and spread its activities to newer fields like Rayon, Pulp
and Transparent paper, Pipes, Refractors, tires and other products.
Looking to the wide gap between the demand and supply of virtual
commodity cement, which play in important role in National building
activity the Govt. of India, had de-licensed the cement industry in the
year 1966 with a review to attract private entrepreneur to argument the
cement production. Kesoram rose to the occasions and dividend to set up
a few cement plants in the country.
Karnataka 4.09%
Tamilnadu 0.94%
Kerala 0.29%
Maharastra 2.81%
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Process and Quality control:
X-ray Analysis:
Supreme performance:
Supreme Strength:
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D.C.S SYSTEM:
SUPREME PROCESS:
PHYSICAL CHARACTERISTICS:
Opc 43 gris Birla Supreme 43 Opc 53 gris Birla Supreme
8112-89 Grade 12269-87 Gold 53gr
setting time
a.Intial (mats) Min 30 120-180 Min 30 130-170
b. Final (mats) Max 600 180-240 Max 600 170-220
Fineness 2/Kg Mm 225 270-280 Mm 225 300-320
Soundness Max 10 1.0-2.0 Max 10 0.5-1.0
a.le-chart(mm) Max 0.8 0.04-0.08 Max 0.08 0.04-0.02
b.autoclave(%)
SUPREME EXPERTISE:
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Opc 43 Birla Birla
gris Supreme 43 Opc 53 gris Supreme
81132-89 Grade 12269-87 Gold 53 gr.
Loss of
Inflection
% Max 5 <1.6 Max 4.0 <1.5
Insoluble
residue % Max 2.0 <0.8 Max 2.0 <0.6
Magnesium
Oxide % Max 6.0 <1.3 Max 6.0 <1.3
Lime
Saturation
Factor 0.66-1.02 0.8-0.9 0.8-1.02 0.88-0.9
Alumna:
Iron ratio Mm 0.66 1.5-1.7 Mm 0.66 1.5-1.7
Sulfuric
Anhydride
% Max 2.5/3 1.6-2.0 Max 2.5/3 1.6-2.0
Alkalis
Chlorides Max 0.05 Max 0.01 Max 0.05 Max 0.4
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4. Improve durability is achieved, the permeability reduces and the
volumetric changes are also reduced.
Kesoram has out standing track record, achieving over 100% capacity
utilization, I productivity and energy conservation. It has proved its
destination by bagging several national and state awards, noteworthy
being.
NATIONAL:
1. National productivity award for 1985-86.
2. National productivity award for 1986-87.
3. National award for mines safety for 1985-86.
4. National award for mines safety for 1986-87
5. National award for mines safety for 1985-86.
STATE:
I.S.O 9002:
All quality system of Kesoram have been certified under
I.S.O.9002/I.S.4002, which proves the worldwide acceptance of the
products. All quality systems in production and marketing of the product
have been certified by B.I.S under ISO 9002/ ISI 4002.
ECO-FRIENDLY:
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Kesoram has been doing its best for protecting the environment
and maintaining the ecological balance in the area. Appropriate pollution
control equipments have been installed in the plant. Lot of a forestation
measures have been taken and green belts developed and lacks of tree
have been Planted in a around the factory, mines township and in the
nearby area. Thanks to the massive tree plantation driver over the years,
Basanthnagar has become a paradise with lush greenery, beautiful
landscapes and avenues. The tree plantation is so dense that it has
virtually drowned the township.
It’s but natural that the ambient temperature in the township is now
less by 3-4 C, compared to the near by Ramagundam, one of the hottest
spot in the country.It’s in the fitness of the things that Kesoram’s senior
president Shri.K.C.JAIN has been recommended by the state government
to the Central Government for the prestigious “Vrikshamitra” national
award.
CAPTIVE POWER:
24
CHAPTER-IV
25
DEFINITION AND SYMBOLS:
BASIC SYSMBOLS:
BASIC DEFINITION:
26
Determinants of Capital Structure:
27
Association between the profitability of the firm and its debt ratio.
Barton and Gordon (1988) have also argued that a firm with high rates
would maintain a relatively lower debt level because of its ability to
finance itself with internally generated funds. This is consistent with the
proportion that the management of firm desire flexible and freedom from
the profitability of the firm. Which can be measured as the ratio of
operating income to total assets, will be negatively related to the debt
level of the firm?
5. Growth Rate (GR): The growing firms need more funds. The
greater the future need for the funds, the more likely that the firm will
retain earnings or issue debt. A firm is except to rarely on debt financially
to rely on debt financing to maintain its debt ratio as its equity increases
due to the large retention of earnings. Thus the firm’s debt level and
growth rate are expected to have a positive relationship. This variable can
be measured as the annual growth rates are expected to have a positive
relationship. This variable can be measured as the annual growth rate of
total assets of the company.
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current assets to current liabilities and the direction of its effect on capital
structure is allowed to be empirically determined.
Degree of leverage:
The reasons for assuming cost of debt is less then cost of Equity
are that interest rates are lower then divided rates due to element of risk
and the benefit of tax as the interest is a deductible expenses.
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V=Total market valve of firm.
S=Total market valve of equity shares
(or)
NI/Equity capitalization rate.
D=market valve of debt.
0.1
Ke
Ko
Degree of leverage:
The reasons for assuming cost of debt is less than the cost of equity
are the interest rates are lower than dividend rates due to elements of risk
and benefit of tax as the interest is a deductible expenses.
V = S+D
V = Total market value of firm
S= Total market value of equity share
(or)
NI/Equity capitalization rate
KO = EBIT/V
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2. Net Operating Income Approach: This theory suggested
by‘Durand’. It is opposite to the NI approach .Here Change in the
capital structure of a company does not effect in the market valve of
the firm and the weighted cost of capital remains constant whether the
debt-equity mix is 50:50 or 20:80 or 0:100. This theory presumes that:
Y
Ke(0/0)
Ko(0/0)
Ki(0/0)
O X
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3. The Traditional Approach:
Ko
Ke
Kd
Traditional Approach
32
justification for the irrelevance of the Capital Structures. The MM
proportion supports the NOT approach relating to the independence of
the independence of the capital of the degree of leverage level of debt-
equity ratio.
In (Rs)
V
(0/0)Ko
Vo
Degree of Leverage (B/V)
Basis Proportions:
1) The over all cost of capital (KO) and the valve of the firm (V) are
independent of the capital structure.
Assumption:
a) Perfect capital market the implication of a perfect capital
market is that.
Securities are infinitely divisible.
Investors are free to busy/sell securities.
Investors can borrow without restrictions;
There is no transaction cost.
Investors are rational.
b) Given the assumption of perfect information and rationally.
c) Business risk is equal among all firms with in similar
Operating environments.
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Introduction: Capital structures refer to the mix of long-term of
sources of the funds, such as debentures, long-term debt and preference
shares. Some companies do not plan there capital structure they may face
considerable difficulties in raising funds to finance there activities. May
also fail to economize the use of their funds.
34
1. INVESTMENTS:
Total investments, as on 31st March, 2008 is Rs.4782.66
Lakhs as against Rs.2887.28 Lakhs as on 31st March, 2007.
2. FINANCIAL:
TURN OVER AND PROFIT:
KESORAM INDUSTRIES LIMITED recorded a turnover
of Rs. 344032.16 Lakhs during 2007-08 as against
Rs.251645.89 Lakhs during 2006-07.Net profit after Tax is
Rs. 38335.04 Lakhs as compared to Rs.26568.32 Lakhs
during the previous year i.e.2006-07
CAPITAL STRUCTURE:
The authorized share capital of KESORAM
INDUSTRIES LIMITED is Rs.12000.00 Lakhs. The issued,
subscribed and paid up capital 575435 shares of Rs.10/- each
allotted as fully paid up with out payments being received in
cash pursuant to a scheme of amalgamation and 5949480
shares of Rs.10/- each allotted as fully paid up bones shares
by way of capitalization of reserve, 400000 shares of Rs.10/-
each Rs.3.75/- per share received in cash and balance
credited as bonus by way Capitalization of Reserve
45743318 ordinary Shares of Rs.10/- each fully paid
Rs.4574.16 Lakhs.
3. SECURED LOANS
1. TERM LOANS from
a) Rs.50833 Lakhs from State Bank of India.
b) Rs.4880 Lakhs from State Bank of Hyderabad.
c) Rs.1632 Lakhs from State Bank of Bikaner & Jaipur
d) Rs.3256 Lakhs from State Bank of Indore.
e) Rs1221 Lakhs from State Bank of Mysore.
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UNSECURED LOANS:
A) CAPITAL RESERVE:
During the year the company has not transferred
any capital.
B) GENERAL RESERVE:
Rs.4000 Lakhs have been transferred from profit & Loss
A/C during the year. The closing balance as on
31st march 2008 is Rs.31391.5 Lakhs
. C) FOREIGN PROJECT RESERVE:
During the year, the company did not make Foreign
Project Reserve.
CAPITALISATION STATEMENT
Rs. In Lakhs
36
5. SHARE CAPITAL:
The company did not raise any Capital during the year under report. The
authorized Capital Company is 1,20,00,00,000 Equity Shares of Rs.10/-
each. The ISSUED AND, SUBSCRIBED, PAID-UP CAPITAL of the
company is 4, 57, 43,318 Equity shares of Rs.10/- each fully paid.
5000
4500
4000
3500
3000 TOTAL DIVIDEND PAID
2500
TOTAL PAID UP
2000 CAPITAL
1500
1000
500
0
2006-07 2005-06 2004-05 2003-04 2002-03
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6. DIVIDENDS:
KESORAM INDUSTRIES LIMITED pays Interims dividend. The
Company paid Interims dividend of Rs.2086.35 Lakhs to the equity Share
holders for the financial year of 2006-07.
DIVIDEND REPORT
(Rs. In Lakhs)
38
7. PROFIT:
Profit before Depreciation & Tax Rs.64180.08 Lakhs during the current
year 2007-08 against previous year 2006-07 was Rs.40008.97 Lakhs.
Provision for Income Tax for the year 2007-08 Rs.16500 Lakhs as
against previous year 2006-07 Rs.7500 Lakhs.Profit after Tax works out
Rs. 26568.32 Lakhs in 2007-08 against Rs.26568.32 Lakhs for the year of
2006-07.
8. EPS Calculation:
9. WORKING RESULTS:
39
CHAPTER-V
40
2007-08 FINANCIAL YEARS
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
Debt:
A. a)Secured loans 97106.02
b)Un secured loans 24375.36
Equity Capital:
B. a)Equity share capital 4574.16
b)Reserves andsurplus 93617
Total Value:
C. a)Capital Employed 219672.54
41
2. EBIT-EPS ANALYSIS
3. Ratios 2007-08
42
Interpretation:
SOURCE OF FINANCE
The total investment on 31st March, 2008 is Rs. 3026.02 Lakhs. The
source of investments is given below.
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
43
2006-07 FINANCIAL YEAR
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
Particulars Rs. In
lakhs
A. Debt:
a)Secured loans 64319.00
b)Un secured loans 22960.00
Total debt 87289.00
B. Equity Capital:
a)Equity share capital 4574.16
b)Reserves and surplus 60869.28
C. Total Value:
a)Capital Employed 152732
44
2. EBIT-EPS ANALYSIS
3. Ratios 2006-07
45
Interpretation:
SOURCE OF FINANCE
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
46
2005-06 FINANCIAL YEAR
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
Particulars Rs. In
lakhs
Debt:
A. a)Secured loans 41336.83
b)Un secured loans 20798.60
Equity Capital:
B. a)Equity share capital 4574.16
b)Reserves and surplus 37030.84
Total Value:
C. a) Capital Employed 103740.48
b) Value Added
47
2. EBIT-EPS ANALYSIS
3. Ratios 2005-06
48
Interpretation:
SOURCE OF FINANCE
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
49
2004-05 FINANCIAL YEARS
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
Debt:
A. a)Secured loans 26051.36
b)Un secured loans 24403.87
50
2. EBIT-EPS ANALYSIS
3. Ratios 2005-06
51
Interpretation:
SOURCE OF FINANCE
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
52
2003-04 FINANCIAL YEARS
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
D.
Debt/Equity Ratio 1.28
53
2. EBIT-EPS ANALYSIS
3. Ratios 2003-04
54
Interpretation:
SOURCE OF FINANCE
GOVERNMENT
SECURITIES
BONDS
FULLY PAID
SHARES
PARTIALLY PAID
SHARES
55
2002-03 FINANCIAL YEARS
CAPITAL STRUCTURE ANALYSIS
1. Capitalization Information
C. Total Value:
a)Capital Employed 77966.60
56
2. EBIT-EPS ANALYSIS
3. Ratios 2005-06
Return on capital employed 16.22%
Return on Net worth 8.30%
Current ratio 2.06
Debt/Equity ratio 1.12
57
Interpretation:
iii) Debt Equity Ratio was recorded as 1.12 in the financial year
2002-03.
iv) Net Worth of the company was 8.03% in the year 2002-03.
58
CHAPTER-VI
59
CONCLUSION:
60
SUGGESTIONS
Regional requirements
Lack of resources
With all the above problems cement industry has to produce the
Cement with profits.
61
CHAPTER-VII
BIBILOGRAPHY
62
BIBLIOGRAPHY
Reference Books:
I.M.Pandey -Financial Management
M.Y.Khan & P.K.Jain - Financial Management
Journals:
Finance India Journals
Web Site:
www.kaa-kesoram3sancharnet.in
www.communication@kasoramcement.com
www.hyderabad@kesoramcement.com
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