FINANCE THEORY II

MINI PROJECT

TOPIC: CAPITAL STRUCTURE CHANGES AND THE IMPACT OF

PROFITABILITY WITH RESPECT TO LEELA GROUP OF HOTELS

Faculty Guide
DR. TN RAVI

TEAM MEMBERS
SANJAY V KUMAR - RA1752001010194
AADITHYAN SN - RA1752001010195
GOKUL KRISHNA - RA1752001010199
NITHIN JOHN PUNNEN- RA1752001010200
FIYAZ N - RA1752001010221
LEKHA SUPRAJA - RA1752001010224
ADITHYA SANTHOSH - RA1752001010219

SRM SCHOOL OF MANAGEMENT

CAPITAL STRUCTURE CHANGES AND THE IMPACT OF PROFITABILITY WITH
RESPECT TO LEELA GROUP OF HOTELS

INTRODUCTION
GLOBAL HOSPITALITY SECTOR

The hospitality sector is one of the largest sector in the world. This sector mainly categorized
into a sector which provides of high demand. Sectors that are in the hospitality sector include
hotel tourism companies. The term hospitality means home away home.

The hospitality industry is a multibillion-dollar industry that depends on the availability of

leisure time and disposable income. A hospitality unit such as a restaurant, hotel, or an
amusement park consists of multiple groups such as facility maintenance and direct
operations (servers, housekeepers, porters, kitchen workers, bartenders, management,
marketing, and human resources etc.).

Usage rate, or its inverse "vacancy rate", is an important variable for the hospitality industry.
Just as a factory owner would wish a productive asset to be in use as much as possible (as
opposed to having to pay fixed costs while the factory is not producing), so do restaurants,
hotels, and theme parks seek to maximize the number of customers they "process" in all
sectors. This led to formation of services with the aim to increase usage rate provided
by hotel consolidators. Information about required or offered products are brokered on
business networks used by vendors as well as purchasers.

In looking at various industries, "barriers to entry" by newcomers and competitive advantages

between current players are very important. Among other things, hospitality industry players
find advantage in old classics (location), initial and ongoing investment support (reflected in
the material upkeep of facilities and the luxuries located there in), and particular themes
adopted by the marketing arm of the organization in question (for example at [theme
restaurants. Also very important are the characteristics of the personnel working in direct
contact with the customers. The authenticity, professionalism, and actual concern for the
happiness and well-being of the customers that is communicated by successful organizations
is a clear competitive advantage.
INDIAN SECTOR OF HOSPITALITY

With a consistently growing middle class and increasing disposable income, the tourism and
hospitality sector is witnessing a healthy growth and accounts for 7.5 per cent of the country's
GDP. According to a report by KPMG, the hospitality sector in India is expected to grow at
16.1 per cent CAGR to reach Rs 2,796.9 thousand crore in 2022.The hospitality sector
encompasses a wide variety of activities within the services sector and is a major job provider
both direct and indirectly. The sector attracts the most FDI (Foreign Direct Investment) inflow
and is the most important net foreign exchange earners for the country. It also contributes
significantly to indirect tax revenue at the state and central level which includes revenues from
VAT, Service Tax, and Luxury Tax etc.

The growth in the hospitality sector and its contributions to the GDP will continue to be
substantially higher than other sectors of the economy on the back of huge tourism potential in
the country. However, the hospitality sector is one of the most heavily taxed industries and is
saddled with multiple layers of tax such as VAT, service tax, luxury tax, etc. ranging from 20
per cent - 30 per cent. This multiple taxation adds to operational costs and reduces profitability.
While the operationalization of the much awaited GST regime is expected to rationalise the
taxation structure, bring a positive outcome with streamlined taxes, enhance ease of doing
business and lower cost for the consumers, there is an urgent need for lowering the tax levied,
to incentivize and attract more investments to the sector.

The hospitality industry relies on a host of enabling the ecosystem to function and has a
reciprocal relationship with several other sectors like transportation, entertainment, aviation
etc. Strengthening these related sectors will lead to the growth and development of the
hospitality sector. Therefore, single window clearance for real estate and hospitality projects
and providing infrastructure status to the hospitality industry are much-needed steps for the
growth of the industry.

The hospitality sector has the potential to be the main driving force behind the growth of the
economy I believe that the government must provide its full support in incentivizing the sector
and the overall taxation on the hospitality sector should be reduced to stimulate its growth and
make India competitive against other internationally renowned hospitality chains.
HOW CAPITAL STRUCTURE CHANGES AFFECT PROFITABILITY

Capital structure is the combination of long-term liabilities, specific short-term liabilities like
common equity, and preferred equity which form the funds by which the business firm funds
its operations and its growth for developing its business. The capital structure of a business
firm is on the right side of its balance sheet and Profitability is the first and main goal of all the
business ventures. Without profitability the business will not survive in the long run. So, by
measuring current and past profitability and projecting future profitability is very important for
a firm.

ANALYSIS AND INTERPRETATION

SHARE HOLDERS EQUITY=Share capital + reserves and surplus
SHARE HOLDERS EQUITY
YEAR SHARECAPITAL in RESERVES AND SURPLUS in SHARE HOLDERS EQUITY in
Cr : Cr; cr:
2013 790.18 21,444.92 22,235.10
2014 795.32 25,414.29 26,209.61
2015 801.55 29,881.73 30,683.28
2016 804.72 32,071.87 32,876.59
2017 1,214.74 44,126.22 45,340.96

INTERPRETATION

 So here we can see that shareholder’s equity is formed by combination of share

capital and reserves and surplus.
 So here reserves of the kept increasing year y year which is a good thing which
company can do it for infrastructural development and other development.
TOTAL DEBT
Secured loan + unsecured loan
TOTAL DEBT
YEAR SECURED LOAN in cr UNSECURED LOAN in cr TOTAL DEBT

2013 0 66.4 66.4

2014 0.14 51 51.14
2015 0.02 38.69 38.71
2016 3.6 25.83 29.43
2017 0.01 17.99 18

INTERPRETATION

 So here we find out the total debt of the company used in year 2013 to 2017.
 So from the analysis we can find out that loan was mostly used in this year 2013 the
highest debt was also in 2013.
 From years the debt kept decreasing. The most secured loans are used in year 2016
which is 3.6 Cr, and lowest in 2013. 2017 has low debt usage

TOTAL CAPITAL EMPLOYEED = SHARE HOLDERS EQUITY + TOTAL DEBT

YEAR SHARE HOLDERS EQUITY TOTAL DEBT TOTAL CAPITAL EMPLOYEED

2013 22,235.10 66.4 22,301.50

2014 26,209.61 51.14 26,260.75

2015 30,683.28 38.71 30,721.99

2016 32,876.59 29.43 32,906.02

2017 45,340.96 18 45,358.96

INTERPRETATION

So here we found out about the total capital employed by the company from 2013 to 2017,
total capital employed increased from year to year
ORDINARY INCOME
ORDINARY INCOME = SALES REVENUE

YEAR ORDINARY INCOME

2013 40,088.68

2014 36,837.39

2015 36,507.40

2016 33,238.60

2017 29,901.27

INTERPRETATION

So here we found out ordinary income, which is same as sales turnover which is
found in profit and loss account.
 So from the chart and table we can find out that the sale is highest in 2013 and the
lowest in 2017.

EBITD
YEAR EBITD
2013 11,566.21
2014 13,561.98
2015 15,016.68
2016 16,041.97
2017 16,563.95

INTERPRETATION

 Here the EBITDA taken from profit and loss statement of company which is profit
before interest, tax, depreciation, amortization
 Here the, EBITDA is high in 2017, and was low in 2013
 High EBITDA determines the company is performing well
NET PROFIT
YEAR NET PROFIT
2013 7,418.39
2014 8,785.21
2015 9,607.73
2016 9,844.71
2017 10,200.90

INTERPRETATION

 So in this chart we can see the net profit of ITC pvt Ltd. And the change in the net
profit from 2013 to 2017

EARNINGS PER SHARE (EPS)

YEAR EPS
2013 9.39
2014 11.05
2015 11.99
2016 12.23
2017 8.4

INTERPRETATION

 Here we analyses about the earnings per share

 The EPS was high in 2016 and low in 2017
CALCULATING RATIOS
1. DEBT EQUITTY RATIO
= total debt / share holders equity

DEBT EQUITTY RATIO

YEAR TOTAL DEBT SHAREHOLDERS EQUITTY DE RATIO

2013 66.4 22235.1 0.002986

2014 51.14 26209.61 0.001951

2015 38.71 30683.28 0.001262

2016 29.43 32876.59 0.000895

2017 18 45340.96 0.000397

INTERPRETATION

 Here we analyse debt to equity ratio, here we can see that debt to equity ratio is less
than 1, so we can interpret that company is using less debt for company activities

2. Ratio of debt to total capital

= Total debt / Total capital employed

YEAR TOTAL DEBT TOTAL CAPITAL EMPLOYED TD TO TC RATIO

2013 66.4 22301.5 0.0029774

2014 51.14 26260.75 0.0019474
2015 38.71 30721.99 0.00126
2016 29.43 32906.02 0.0008944
2017 18 45358.96 0.0003968

INTERPRETATION

 Here total debt to total capital ratio is analyzed for 5 years.

 here it is seen that debt to total capital ratio is less than 1 so company is not in a risky
path
FINDINGS
 so here we took FMCG sector for analysis, ITC financial statement is taken for
analysis
 from the analysis we can analyses the company’s performance we analyzed the total
capital structure of the company
 the ratios also showed that the company is in a good position which uses less debt
and uses more

CONCLUSION
so, to conclude we can say that the FMCG sector is mostly dependable on the customers so
the profit also depended on the sales, so a sale determined sector. So ITC is one of the top
fmcg company in this sector in India, the profitability of the company is also really good. So
the analysis of capital structure showed that ITC was using more equity than debt