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In financial management, two important decisions are very vital and crucial. They are
decision regarding fixed assets/fixed capital and decision regarding working capital/current
assets. Both are important and a firm always analyzes their effect to final impact upon
profitability and risk. Fixed capital refers to the funds invested in such fixed or permanent
assets as land, building, and machinery etc.

Whereas working capital refers to the funds locked up in materials, work in progress,
finished goods, receivables, and cash etc. Thus, in very simple words, working capital may be
defined as “capital invested in current assets.” Here current assets are those assets, which can
be converted into cash within a short period of time and the cash received is again invested
into these assets. Thus, it is constantly receiving or circulating. Hence, working capital is also
known as circulating capital or floating capital.


There are two concepts of working capital. These are:


The gross working capital, simply called as working capital refers to the firm’s
investment in current assets. Gross working capital, is the total of all current assets. It

1. Inventories (Raw materials and Components, Work-in-Progress, Finished Goods,


2. Trade debtors

3. Loans and advances

4. Cash and Bank Balances
5. Bills Receivables.
6. Short-term Investment.



Net working capital refers to the difference between current assets and current liabilities.

It includes:
1. Trade Creditors.
2. Bills Payable.
3. . Accrued or Outstanding Expenses.
4. . Trade Advances
5. . Short Term Borrowings (Commercial Banks and Others)
6. . Provisions
7. Bank Overdraft
Madhucon sugar & power industries limited is one of the largest sugar
manufacturing company in India, which is providing huge employment opportunities and
catering the needs of the people across the country and promoting the schemes of the
Government by producing different products.

In this context it felt an urge to study the working capital management of Madhucon.


The objectives of the study include:

 To know the performance of madhucon in working capital management.

 To draw the findings and offer suggestions for streamlining the working capital
management of madhucon.


The data required for the study will be gathered both from primary as well as
secondary sources.

Primary Data: Required for the study will be gathered by interacting with the personnel of
the Madhucon and through observation method.

Secondary Data: required for the study will be collected from the

 Text Books
 Annual reports
 Publications of the Bank
 Journals and
 Websites.


 The present study covers the working capital management of Madhucon at all
India level even though the permission has obtained at Rajeswarapuram
Branch. Madhucon annual reports at Indian level will be considered for the
study from 2011-11 to 2015-15.


The amount of working capital should be sufficient. Inadequate amount of working

capital may create a lot of financial problems in business. Sometimes, inadequate working
capital may be the major causes for closing down the business organization.

Due to shortage of working capital, raw materials cannot be purchased on time and payment
of labor and other expenses cannot be made on time. The disadvantages suffered by a firm
with insufficient working capital are as follows:

 The firm is unable to take advantages of new opportunities or adapt to change.

 Trade discounts are lost. A firm with sufficient working capital is able to finance
larger stocks and can therefore place large orders.
 Cash discounts are lost. Some firms will try to persuade their debtors to pay early by
offering cash discounts.
 The advantages of being able to offer a credit line to customers are forgone.
 Financial reputation is lost due to non-payment of trade creditors on time.
 Creditors may apply to the court for winding up if the firm fails to pay their
obligations on time.



After Brazil, India is the largest sugar producer in the world and it leads in sugarcane
production. However, if alternative sweeteners such as khandsari (sort of raw sugar) and gur
(jaggery) are included in the fold, then India would be the largest overall producer of sugar.
Brazil accounts for approximately 22 percent of the global sugar production and India
contributes almost 14 percent.
In all, approximately Rs. 1,250 crore is invested in this industry and it also provides
livelihood for close to 2.86 lakh workers. The industry also benefits the nearly 2.5 crore
people who grow sugarcane in India. In India, the major sugar producing states are
Maharashtra, Gujarat, Uttar Pradesh, Haryana, Tamil Nadu, Punjab, Karnataka, Bihar and
Andhra Pradesh.
As may be seen from the list above, sugar production is practised all across India.
However, the peninsular region has been a better performer than the north Indian states and
there has also been a gradual shift from north to south for the sugar industry. One of the
major reasons is the better conditions available for cultivation in the peninsular part. The
sugar industry in India is also highly localized owing to problems in transporting sugarcane.


The sugar industry can be divided into two sectors including organized and unorganized
sector. Sugar factories belong to the organized sector and those who produce traditional
sweeteners fall into unorganized sector. Gur and khandsari are the traditional forms of


Several steps are usually followed to produce sugar. These steps can be mentioned as

 Extracting juice by pressing sugarcane

 Boiling the juice to obtain crystals
 Creating raw sugar by spinning crystals in extractors
 Taking raw sugar to a refinery for the process of filtering and washing to discard
remaining non-sugar elements
 Crystallizing and drying sugar
 Packaging the ready sugar


In the 2015-15 crushing season, the sugar production of India has seen an increase of
11.5 percent. The Indian Sugar Mills Association (ISMA) says that as of 31st March, India
had produced 24.72 million tonnes of sugar and this was an addition of 2.84 million tonnes to
the sugar production of 2014-14. It is estimated that in the 2016-16 season, 24.8 million
tonnes of sugar will be consumed. ISMA estimates that due to the increased production in the
year gone by, there will be a carryover stock of 8.5 million tonnes. There will be 2.5 million
tonnes more than what is thought to be the standard requirement in these cases.

It is expected that in 2017, Indians will be consuming almost 28.5 million tonnes of
sugar. Maharashtra is traditionally the leader when it comes to sugar production in India.
Before Maharashtra, Uttar Pradesh was the leader. There are several reasons as to why
Maharashtra occupies this place in the pantheon of Indian states that produce sugar. The state
has a longer crushing period compared to other states and its rate of recovery is also
significantly higher. Maharashtra currently has almost 25 percent of the sugar mills operating
in India and it accounts for nearly 30 percent of the entire sugar produced in India. In fact, the
sugar mills in Maharashtra are supposed to be the biggest in the country. Most of these mills
are located at the river valleys in the western stretches of the Maharashtra Plateau.


The Indian government has a rather strict policy when it comes to import of sugar.
During 2015, it has raised the import duty from 15 percent to 40 percent with a view to
discourage this side of the sugar trade and promote exports. Thanks to the increased import
duty, refiners find it rather hard – economically unfeasible to be precise – to bring in sugar
especially from countries such as Brazil, Pakistan and Thailand.

The Indian government provides a subsidy amounting to Rs. 4,000 per tonne with the
aim to promote exports. This is provided for raw sugar shipments, where the volume is
around 1.4 million tonnes. However, in spite of that, of late, Indian sugar industry has had a
hard time in exporting raw sugar owing to the fact that prices have been consistently on a
downward spiral. The situation is especially precarious at the market in New York, which is
regarded as a benchmark.


Consumption of sugar and related sweeteners in India has increased in the last few
years. One of the major reasons for the increasing demand for sugar is the growing
population of India as well as improving economic conditions. Majority of the consumers of
the sugar that is produced directly by mills are bakeries, local sweets and candy
manufacturers. Together with the soft drink makers, they comprise almost 60 percent of the
clientele. The major consumers of khandsari are locally operating sweets establishments. Gur
is also used in the rural areas in its normal form as a sweetener as well as feed. Biscuit
manufacturers, food products companies, pharmaceutical setups, and hotels and restaurants
also consume fair quantities of sugar.

As has been said already, almost 2.6 lakh people are directly dependent on the sugar
industry for their livelihood. Sugar industry is an agricultural industry that still provides the
maximum amount of employment in India. The sugar industry in India also happens to be the
second biggest agro-based economic activity – a fact that goes on to show how important it is
to sustain the national economy.


Sugar Industry in India: Growth, Problems and Distribution!

Sugar can be produced from sugarcane, sugar-beet or any other crop having sugar
content. But in India, sugarcane is the main source of sugar. At present, this is the second
largest agro-based industry of India after cotton textile industry.

India is the world’s largest producer of sugarcane and second largest producer of sugar
after Cuba. But India becomes the largest producer if gur and khandsari are also included.
This industry involves a total capital investment of Rs. 1,250 crore and provides employment
to 2.86 lakh workers. In addition, 2.50 crore sugarcane growers also get benefit from this


India has a long tradition of manufacturing sugar. References of sugar making by the Indians
are found even in the Atharva Veda. India is rightly called the homeland of sugar. But in
ancient times, only gur and khandsari were made and modem sugar industry came on the
Indian scene only in the middle of the 19th century, when it was introduced by the Dutch in
North Bihar in about 1840.

Unfortunately, this attempt could not succeed. The first successful attempt was made by
the indigo planters at the initiative of Britishers in 1903 when Vacuum pan mills were started
at Pursa, Pratabpur, Barachakia and Marhowrah and Rose in north-eastern U.P. and the
adjoining Bihar.

This happened when demand for indigo ceased to exist due to the introduction of
synthetic blue in the market. In the early years of the 20th century, the industry grew rather
sluggishly and there were only 18 mills in 1920-21 and 29 mills in 1930-31. The industry got
a great fillip after the fiscal protection in 1931 and the number of mills rose to 137 in 1936-
37. The production also shot up from 1.58 lakh tonnes to 9.19 lakh tonnes during the same

The industry passed through an uncertain phase during and after the World War II and
some stability was experienced only after 1950-51. There were 139 mills producing 11.34
lakh tonnes of sugar in 1950-51. After that, the plan period started and the industry made
rapid strides. In the year 1994-95, there were 420 mills producing 148 lakh tonnes of sugar.

Localization of Sugar Industry:

Sugar industry in India is based on sugarcane which is a heavy, low value, weight losing
and perishable raw material. Sugarcane cannot be stored for long as the loss of sucrose
content is inevitable. Besides, it cannot be transported over long distances because any
increase in transportation cost would raise the cost of production and the sugarcane may dry
up on the way.

It is estimated that 50 per cent cost of production is accounted for by sugarcane alone.
Normally, it requires about 100 tonnes of sugarcane to produce 10-12 tonnes of sugar. Even
today most of sugarcane is transported with the help of bullock carts and cannot be carried
beyond 20-25 km.

The introduction of tractor- trolleys, trucks and even railway wagon have increased the
distance covered by sugarcane to 70-75 kms. beyond which the transportation cost would
increase exorbitantly. Therefore, the sugar industry is established in areas of sugarcane


Maharashtra has progressed a lot and captured first position from U.P. to emerge as the
largest producer of sugar in India. Large production of sugarcane, higher rate of recovery and
longer crushing period are some of the factors which have helped the state to occupy this
enviable position.

The state has one-fourth of the total sugar mills and produces a little more than one-third of
the total sugar of India. Sugar mills of Maharashtra are much larger as compared to the mills
in other parts of the country. The major concentration of sugar mills is found in the river
valleys in the western part of the Maharashtra Plateau. Ahmednagar is the largest centre. The
other major centres are in the districts of Kolhapur, Solapur, Satara, Pune and Nashik.


Uttar Pradesh is the traditional producer of sugar and has been occupying the first rank
among the major sugar producing states of India. However, its relative importance has been
reduced during the last few years and the state has conceded the top position to Maharashtra
and now occupies the second position. Uttar Pradesh has more mills than Maharashtra but
they are of comparatively smaller size and yield less production.

Presently, the state accounts for about 24 per cent of the total production of sugar in India.
There are two distinct regions of sugar production in this state. One region consists of
Gorakhpur, Deoria, Basti and Gonda in eastern Uttar Pradesh and the other lies in the upper
Ganga Plain consisting of Meerut, Saharanpur, Muzaffamagar, Bijnore and Moradabad.


Tamil Nadu has shown phenomenal progress with regard to sugar production during the
last few years. High yield per hectare of sugarcane, higher sucrose content, high recovery rate
and long crushing season have enabled Tamil Nadu to obtain highest yield of 9.53 tonnes of
sugar per hectare in the whole of India.

As a result of these advantages, the state has emerged as the third largest producer of
sugar, contributing over nine per cent of the total sugar production of India. Most of the 32
mills of the state are located in Coimbatore, North Arcot Ambedkar, South Arcot Vallalur and


Karnataka has 30 mills producing 1,151 thousand tonnes or over 6 per cent of the total
sugar of India. Belgaum and Mandya districts have the highest concentration of sugar mills.
Bijapur, Bellary, Shimoga and Chittradurga are the other districts where sugar mills are


Andhra Pradesh has more mills (35) than the neighbouring Karnataka but produces only
6.01 per cent of India’s sugar. This means that the mills are comparatively smaller. Majority
of the sugar mills are concentrated in East and West Godavari, Krishna, Vishakhapatnam,
Nizamabad, Medak and Chittoor districts.


Gujarat’s 16 mills are scattered in Surat, Bhavnagar, Amreli, Banaskantha, Junagarh,

Rajkot and Jamnagar districts. The state produces about 5.56 per cent of the total sugar
produced in India.


Haryana has only 8 mills but their large size enables the state to contribute 1.91 per cent
of the total sugar production. Sugar mills are located in Rohtak, Ambala, Panipat, Sonipat,
Kamal, Faridabad and Hissar districts.


Punjab has a total of 13 mills which are located in Amritsar, Jalandhar, Gurdaspur,
Sangrur, Patiala and Rupnagar districts.


Bihar was the second largest sugar producing state next only to Uttar Pradesh till mid-
1960s. Since then the state has been experiencing sluggish growth and consequently lost its
prestigious position to the peninsular states like Maharashtra, Tamil Nadu, Karnataka and
Andhra Pradesh. Its 28 mills make an insignificant contribution to the production of sugar.
The belt of eastern Uttar Pradesh extends further east in Bihar and the districts of Darbhanga,
Saran, Champaran and Muzaffarpur are included in this belt.

Among the other producers are Madhya Pradesh (8 mills in Morena, Gwalior and
Shivpuri districts), Rajasthan (5 mills in Ganganagar, Udaipur, Chittaurgarh and Bundi
districts), Kerala, Orissa, West Bengal and Assam.

Difference between the Sugar Industry of Northern and Peninsular India:

There are marked differences between the sugar industry of the northern and the
peninsular India. As a result of better conditions prevailing in the peninsular India, the sugar
industry is gradually shifting from north India to the peninsular India.

This is evident from the fact that previously north India used to produce about 90 per
cent of India’s sugar which is reduced to 35-40 per cent now. A brief description of
differences between the sugar industry of the northern and peninsular India is given below:

1. Peninsular India has tropical climate which gives higher yield per unit area as compared to
north India.

2. The sucrose content is also higher in tropical variety of sugarcane in the south.

3. The crushing season is also much longer in the south than in the north. For example,
crushing season is of nearly four months only in the north from November to February,
whereas it is of nearly 7-8 months in the south where it starts in October and continues till
May and June.

4. The co-operative sugar mills are better managed in the south than in the north.

5. Most of the mills in the south are new which are equipped with modern machinery.


Sugar industry in India is plagued with several serious and complicated problems which
call for immediate attention and rational solutions. Some of the burning problems are briefly
described as under:

1. Low Yield of Sugarcane:

Although India has the largest area under sugarcane cultivation, the yield per hectare is
extremely low as compared to some of the major sugarcane producing countries of the world.
For example, India’s yield is only 64.5 tonnes/hectare as compared to 90 tonnes in Java and
121 tonnes in Hawaii.

This leads to low overall production and results in short supply of sugarcane to sugar
mills. Efforts are being made to solve this problem through the introduction of high yielding,
early maturing, frost resistant and high sucrose content varieties of sugarcane as well as by
controlling diseases and pests which are harmful for sugarcane.

2. Short crushing season:

Manufacturing of sugar is a seasonal phenomena with a short crushing season varying

normally from 4 to 7 months in a year. The mills and its workers remain idle during the
remaining period of the year, thus creating financial problems for the industry as a whole.
One possible method to increase the crushing season is to sow and harvest sugarcane at
proper intervals in different areas adjoining the sugar mill. This will increase the duration of
supply of sugarcane to sugar mills.

3. Fluctuating Production Trends:

Sugarcane has to compete with several other food and cash crops like cotton, oil seeds,
rice, etc. Consequently, the land available to sugarcane cultivation is not the same and the
total production of sugarcane fluctuates. This affects the supply of sugarcane to the mills and
the production of sugar also varies from year to year.
4. Low rate of recovery:

It is clear from Table 27.29 that the average rate of recovery in India is less than ten per
cent which is quite low as compared to other major sugar producing countries. For example
recovery rate is as high as 14-16 per cent in Java, Hawaii and Australia.

5. High cost of Production:

High cost of sugarcane, inefficient technology, uneconomic process of production and

heavy excise duty result in high cost of manufacturing. The production cost of sugar in India
is one of the highest in the world. Intense research is required to increase the sugarcane
production in the agricultural field and to introduce new technology of production efficiency
in the sugar mills. Production cost can also be reduced through proper utilisation of by-
products of the industry.

For example, bagasse can be used for manufacturing paper pulp, insulating board,
plastic, carbon cortex etc. Molasses comprise another important by-product which can be
gainfully used for the manufacture of power alcohol.

This, in its turn, is useful in manufacturing DDT, acetate rayon, polythene, synthetic
rubber, plastics, toilet preparations, etc. It can also be utilised for conversion into edible
molasses and cattle feed. Press-mud can be used for extracting wax.

6. Small and uneconomic size of mills:

Most of the sugar mills in India are of small size with a capacity of 1,000 to 1,500 tonnes
per day. This makes large scale production uneconomic. Many of the mills are economically
not viable.

7. Old and obsolete machinery:

Most of the machinery used in Indian sugar mills, particularly those of Uttar Pradesh and
Bihar is old and obsolete, being 50-60 years old and needs rehabilitation. But low margin of
profit prevents several mill owners from replacing the old machinery by the new one.
8. Competition with Khandsari and Gur:

Khandsari and gur have been manufactured in rural India much before the advent of
sugar industry in the organised sector. Since khandsari industry is free from excise duty, it can
offer higher prices of cane to the cane growers.

Further, cane growers themselves use cane for manufacturing gur and save on labour cost
which is not possible in sugar industry. It is estimated that about 60 per cent of the cane
grown in India is used for making khandsari and gur and the organised sugar industry is
deprived of sufficient supply of this basic raw material.

9. Regional imbalances in distribution:

Over half of sugar mills are located in Maharashtra and Uttar Pradesh and about 60 per
cent of the production comes from these two states. On the other hand, there are several states
in the north-east, Jammu and Kashmir and Orissa where there is no appreciable growth of this
industry. This leads to regional imbalances which have their own implications.

10. Low per capita consumption:

The per capita annual consumption of sugar in India is only 16.3 kg as against 48.8 kg in
the USA., 53.6 kg in U.K., 57.1 kg in Australia and 78.2 kg in Cuba and the world average of
about 21,1 kg. This result in low market demand and creates problems of sale of sugar.

Power is one of the most critical components of infrastructure crucial for the economic
growth and welfare of nations. The existence and development of adequate infrastructure is
essential for sustained growth of the Indian economy.

India’s power sector is one of the most diversified in the world. Sources of power
generation range from conventional sources such as coal, lignite, natural gas, oil, hydro and
nuclear power to viable non-conventional sources such as wind, solar, and agricultural and
domestic waste. Electricity demand in the country has increased rapidly and is expected to
rise further in the years to come. In order to meet the increasing demand for electricity in the
country, massive addition to the installed generating capacity is required.

India ranks third, just behind US and China, among 40 countries# with renewable energy
focus, on back of strong focus by the government on promoting renewable energy and
implementation of projects in a time bound manner.


Indian power sector is undergoing a significant change that has redefined the industry
outlook. Sustained economic growth continues to drive electricity demand in India. The
Government of India’s focus on attaining ‘Power for all’ has accelerated capacity addition in
the country. At the same time, the competitive intensity is increasing at both the market and
supply sides (fuel, logistics, finances, and manpower).

Total capacity of renewable energy plants in India stood at 42,850 megawatts as on April
30, 2016, thereby surpassing the 42,783 megawatts capacity of large hydroelectricity projects
in the country.$ Cumulative solar installations in India crossed the 7.5 gigawatt (GW) mark in
May 2016, about 2.2 GW more than all of the solar installations in 2016.%

The Planning Commission’s 12th Five-Year Plan estimates total domestic energy
production to reach 669.6 Million Tonnes of Oil Equivalent (MTOE) by 2016–17 and 844
MTOE by 2021–22. As of January 2016, total thermal installed capacity stood at 200.74
Gigawatt (GW), while hydro (renewable) energy installed capacity totaled 42.66 GW. At 5.78
GW, nuclear energy capacity remained broadly constant compared with the previous
year.India's rooftop solar capacity addition grew 66 per cent from last year to reach 525 Mega
Watts (MW), and has the potential to grow up to 6.5 Giga watts (GW)!. India’s wind power
capacity, installed in FY2016, is estimated to increase 20 per cent over last year to 2,800
Mega Watt (MW)@, led by favourable policy support that has encouraged both independent
power producers (IPP) and non-IPPs. India is expected to add nearly 4,000 Megawatts
(MW)## of solar power in 2016, nearly twice the addition of 2,133 MW in 2016.

India’s wind energy market is expected to attract investments totaling Rs 1,00,000 crore (US$
14.82 billion) by 2020, and wind power capacity is estimated to almost double by 2020 from
over 23,000 MW in June 2016, with an addition of about 4,000 MW per annum in the next
five years.


Around 293 global and domestic companies have committed to generate 266 GW of solar,
wind, mini-hydel and biomass-based power in India over the next 5–10 years. The initiative
would entail an investment of about US$ 310–350 billion.

Between April 2000 and March 2016, the industry attracted US$ 10.48 billion in Foreign
Direct Investment (FDI).

Some major investments and developments in the Indian power sector are as follows:

 The State Bank of India (SBI) has signed an agreement with The World Bank for Rs
4,200 crore (US$ 625 million) credit facility, aimed at financing Grid Connected
Rooftop Solar Photovoltaic (GRPV) projects in India.

 The World Bank Group has committed to provide US$ 1 billion for India’s solar
energy projects and plans to work with other multilateral development banks and
financial institutions to develop financing instruments to support future solar energy
development in the country.

 The Ministry of New and Renewable Energy (MNRE) has signed an agreement with
Germany-based KfW Development Bank to fund the Rs 300 crore (US$ 44.47
million) floating solar projects in Maharashtra and Kerala, which is expected to
generate over 310 GW of green energy.

 CLP India, one of the largest foreign investors in India’s power sector, has acquired a
49 per cent stake in SE Solar, a Special Purpose Vehicle (SPV) set-up by Suzlon
Group for building a 100 MW solar energy plant at Veltoor in Telangana, for Rs 73.5
crore (US$ 10.9 million).

 The Ministry of New and Renewable Energy (MNRE) plans to launch an integrated
bio energy mission with an investment of Rs 10,000 crore (US$ 1.48 billion) from FY
2017-18 to FY 2021-22, aimed at enhancing the use of bio-fuels like ethanol and
biogas and reducing consumption of fossil fuels.

 The world’s largest single rooftop solar power plant of 11.5 MW capacity spread
across 42 acres was inaugurated in Beas Dera campus in Amritsar, which is expected
to generate power for approximately 8,000 homes.

 Canada's second largest pension fund, Caisse de depot et placement du Quebec

(CDPQ), has set up its office in India and committed to invest US$ 150 million in the
Indian renewable energy sector over the next three to four years.

 Suzlon Energy Ltd, one of India’s leading wind turbine maker, plans to set up 3,000
Mega Watt (MW) power generation units of solar, wind and hybrid sources in
Telangana, with an investment of Rs 1,200 crore (US$ 178 million).

 India Power Corporation, one of the power generation companies in India, plans to
expand its thermal power capacity by acquiring stake in Meenakshi Energy from
French major Engie which has 89.11 per cent stake in the target company.

 Sembcorp Industries have launched a 2,640 Mega Watt (MW) SembcorpGayatri

power complex worth US$ 3 billion in Nellore, Andhra Pradesh which is the largest
Foreign Direct Investment (FDI)–driven project on a single site in the thermal power
industry in India.

 Ostro Energy Private Limited, a renewable energy platform backed by private equity
(PE) firm Actis, plans to invest US$ 425 million in projects in Andhra Pradesh,
including two wind farms with a total capacity of 197.4 Mega Watt (MW).

 SunEdison, world’s largest renewable energy company, plans to continue its focus on
‘Make in India’ by further reducing the cost of renewable energy and developing over
15 gigawatts (GW) of wind and solar projects in the country by 2022.
 ThyssenKrupp India, the Indian arm of the German engineering conglomerate, plans
to make high-grade environment-friendly boilers which use less fuel, for the Indian
power sector by collaborating with a foreign company.

 Aditya Birla Group has announced a partnership with the Abraaj Group, a leading
investor in global growth markets, to build a large-scale renewable energy platform
that will develop utility-scale solar power plants in India.

 Sterlite Grid, India’s largest private operator of transmission systems, is joining hands
with US major — Burn & McDonnell for its Rs 3,000 crore (US$ 444.72 million)
power transmission project in the Kashmir valley.

 Inox Wind Ltd, a subsidiary of Gujarat Fluorochemicals, a wind energy solutions

provider, plans to double its manufacturing capacity to 1,600 MW at a total
investment of Rs 200 crore (US$ 29.65 million) by the end of the next financial year.

 The Dilip Shanghvi family, founders of Sun Pharma, acquired 23 per cent stake in
Suzlon Energy, with a preferential issue of fresh equity for Rs 1,800 crore (US$
266.83 million).

 Reliance Power Ltd signed an accord with the Government of Rajasthan for
developing 6,000 MW of solar power projects in the state over the next 10 years.

 Hilliard Energy plans to invest Rs 3,600 crore (US$ 533.66 million) in Ananthapur
district of Andhra Pradesh in the solar and wind power sector for the generation of
650 MW of power.

 Solar technology provider SunEdison signed a definitive agreement to acquire

Continuum Wind Energy, Singapore, with assets in India. The company,
headquartered in Belmont, California, would take over 242 MW of operating wind
assets that Continuum owns and operates in Maharashtra and Gujarat as well as 170
MW of assets under construction.

 Japanese internet and telecommunications giant SoftBank, along with Bharti

Enterprises (of Sunil Mittal) and Taiwanese manufacturing giant Foxconn, plan to
invest US$ 20 billion in solar energy projects in India.

The Government of India has identified power sector as a key sector of focus so as to
promote sustained industrial growth. Some initiatives by the Government of India to boost
the Indian power sector:

 The Government of India plans to set up a trading platform for clean energy, which
will be jointly developed by the Ministry of New and Renewable Energy (MNRE)
and Power Trading Corporation of India (PTC), to help states buy, sell and trade
renewable-based power.

 The Government of India and the Government of the United Kingdom have signed an
agreement to work together in the fields of Solar Energy and Nano Material Research,
which is expected to yield high quality and high impact research outputs having
industrial relevance, targeted towards addressing societal needs.

 Mr Piyush Goyal, Minister of State (Independent Charge) for Power, Coal, New and
Renewable Energy, has stated that the Government of India has set a target to electrify
all un-electrified villages in the country by the end of 2016.

 The Ministry of Petroleum and Natural Gas is seeking to enhance India's crude oil
refining capacity through 2040 by setting up a high-level panel, which will work
towards aligning India's energy portfolio with changing trends and transition towards
cleaner sources of energy generation.

 The Government of India plans to start as many as 10,000 solar, wind and biomass
power projects in next five years, with an average capacity of 50 kilowatt per project,
thereby adding 500 megawatt to the total installed capacity.

 Mr Piyush Goyal, Minister of State (Independent Charge) for Power, Coal and New &
Renewable Energy outlined Government of India’s goal to provide electricity to every
home in India by 2020, while also focussing on ensuring the cost of power is
affordable to everyone.

 Government of India has asked states to prepare action plans with year-wise targets to
introduce renewable energy technologies and install solar rooftop panels so that the
states complement government's works to achieve 175 Gigawatts of renewable power
by 2022.
 Under the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY), the Government of
India has electrified 258 villages across the country between February 15, 2016 and
February 21, 2016 and has decided to electrify remaining 18,452 unelectrified villages
by May 01, 2018.

 The Government of India plans to sell another 5 per cent stake in the country's largest
power producer National Thermal Power Corporation (NTPC), at a floor price of Rs
122 (US$ 1.78) per share, which will help the government raise over Rs 5,000 crore
(US$ 733.6 million), thereby helping to raise funds as part of the divestment plan.

 The Ministry of New and Renewable Energy (MNRE) has outlined new guidelines
which allow state government to use its unproductive and non-agricultural land for
solar parks, thereby minimising the use of private land and reducing the problems
faced and costs incurred for land acquisition for solar park projects.

 The Government of India plans to auction large sized hydropower projects, similar to
the auction of Ultra Mega Power Projects (UMPPs) for thermal power plants of
capacity 4,000 megawatt (MW) in Sasan in Madhya Pradesh and Mundra in Gujarat,
which have been setup in a cost effective manner.

 The Union Cabinet has approved amendments to the new power tariff policy under
the Electricity Act that aims to improve regulations for setting rates, promote clean
energy and ensure uninterrupted supply to all consumers by FY 2021-22.

 The Union Cabinet has approved the Ujwal DISCOM Assurance Yojna (UDAY) for
financial turnaround and revival of power distribution companies (DISCOMs), which
will ensure accessible, affordable and available power for all.

 The Government of India has resolved the issues regarding transfer of mining leases
and grant of forest clearances to the winning bidders of coal blocks. It expects
operations to start in about 10 more mines by March 2016, easing coal availability to
the projects attached to these mines.

 The Ministry of Power has planned to provide electricity to 18,500 villages in three
years under the Deendayal Upadhyaya Gram Jyoti Yojana (DUGJY). Out of these,
3,500 villages would receive electricity through off-grid or renewable energy
 The Ministry of New & Renewable Energy is implementing two national level
programmes, namely Grid Connected Rooftop & Small Solar Power Plants
Programme and Off-Grid & Decentralised Solar Applications, in order to promote
installation of solar rooftop systems, as per Mr Piyush Goyal, Minister of State
(Independent Charge) for Power, Coal & New and Renewable Energy.

 The Government of Odisha plans to set up a large 1,000-MW solar power park under
public-private partnership (PPP) mode involving an investment of about Rs 6,500
crore (US$ 953.67 billion).

 The Government of Telangana plans to set up an incubator centre, in collaboration

with University of Austin, Texas, for start-ups in the renewable energy sector, to
support new companies entering the renewable energy market.

 A Joint Indo-US PACE Setter Fund has been established, with a contribution of US$ 4
million from each side to enhance clean energy cooperation.

 The Government of India announced a massive renewable power production target of

175,000 MW by 2022; this comprises generation of 100,000 MW from solar power,
60,000 MW from wind energy, 10,000 MW from biomass, and 5,000 MW from small
hydro power projects.

 The Union Cabinet of India approved 15,000 MW of grid-connected solar power

projects of National Thermal Power Corp Ltd (NTPC).


The Indian power sector has an investment potential of Rs 15 trillion (US$ 222.36
billion) in the next 4–5 years, thereby providing immense opportunities in power generation,
distribution, transmission, and equipment, according to Union Minister Mr Piyush Goyal.

The government’s immediate goal is to generate two trillion units (kilowatt hours) of energy
by 2019. This means doubling the current production capacity to provide 24x7 electricity for
residential, industrial, commercial and agriculture use.

The Government of India is taking a number of steps and initiatives like 10-year tax
exemption for solar energy projects, etc., in order to achieve India's ambitious renewable
energy targets of adding 175 GW of renewable energy, including addition of 100 GW of solar
power, by the year 2022. The cumulative installed capacity of solar power in India has
crossed the 4 Gigawatt mark as of June 30, 2016. The government has also sought to restart
the stalled hydro power projects and increase the wind energy production target to 60 GW by
2022 from the current 20 GW.

Madhucon Sugar and Power Industries Limited (MSPIL) was a cooperative sector
entity since 1983 at Rajeswarapuram in Telangana State. It was formally taken over by
Madhucon Group in the year 2002. Madhucon group was established as one of the reputed
Business Houses under the eminent leadership of Sri.
Nama Nageshwara Rao. Madhucon Group, with divergent business interests in
mining, construction and finance is committed for industrial development along with social
progress. At the time of acquisition, Realizing the high potential for growth of the sugar
factory, the crushing capacity was enhanced to 3500 TCD in the year 2007 from initial 1250
TCD capacity. In addition to this a 24.2 MW co-generation power plant was also added to use
by-product Bagasse more effectively and efficiently. Subsequently a 65 KLPD Distillery for
producing Ethanol was also added to make use of the byproduct generated i.e., Molasses
considering the benefits that accrue due to policy of Government mandating 5% blending of
Ethanol with Petrol.


From our beginning in the year 1983, today grown into a powerful industrial house
with all your enthusiasm and support. Over these years we have continuously expanded our
Business Segments and Production facilities and also diversified into many streams of
business like infrastructure under taking Engineering, Procurement and Construction (EPC)
and Build, Operate and Transfer (BOT) projects, power, granites, mining, sugar and
Ethanol.Our success as a Group is attributed to the concentrated effort and commitment
towards business values and social welfare initiatives which has been always foremost in the
minds of everyone. We always bear this in mind and create value for our customers through
our products, nurture those who are part of us like employees, value add to those associated
with us as vendors, ensure rewards and accolades to all stakeholders and above all to the
sections of society which need support from us to lead a life with dignity and quality.
We have been following a unique business model of working hand in hand with the
sugarcane farmers by providing them farm inputs, credit facilities and subsidies, etc.,
depending on the needs that arise from time to time and maintaining healthy relations with
employees on continuing basis and this has led to all-round improvement in the socio-
economic well- being of the rural class. We are committed towards overall development of
the nation to provide better living standard for the people.


Aggressive cane development programme, taken up by the company, has resulted in

gradual improvement in the cane availability and resulted in more than 90% plant capacity.
The plant performance is further improving on account of adopting latest technologies and
innovative methodologies.

Cane Development Programme envisaged includes bringing more area under sugar
cane cultivation and increase in the cane yield on par with the best in the industry by making
available the latest technologies to farmers and monitoring implementation on a regular basis
and bringing about corrective steps where necessary to achieve 100% capacity utilization
consistently. As a part of this programme company has identified new resources in the factory
zone and growers are persuaded to take up sugar cane cultivation. Similarly field
demonstrations and personal counseling of the growers is being practiced continuously to
make growers follow cultural and agricultural practices to improve the yield to 35 MT/acre
on an average in the factory zone.

The Sugar Factory has five mill tandem with GRPF for first and last mill for better
capacity and extraction of juice. Quick mill by pass system is incorporated to facilitate mill
maintenance for avoiding hindrance to the crushing operations.

The factory follows the standard double sulphitation process with 3 1/2 Massecuite
boiling scheme for production of direct plantation white sugar.

MSPIL introduced many improvement programmes in line with the latest

technologies available continuously which include improvement in energy and water
conservation front. Established various steam saving devices like Direct contact heaters,
installed bottom mounted pan mechanical circulators for efficient utilization of low pressure
steam for pan boiling as well as continuous pans for B and C Massecuite boiling.
Conventional gear systems for reducing the speeds with planetary gears and
automation with variable frequency drives where required conserving electrical energy and
improving consistent output.

Processing systems like juice clarification have been upgraded and syrup and melt
clarification systems have been installed to produce premium grade white sugar below 50 IU
with minimum sulfur content. Sugar is being packed in standard 50 kg capacity HDPE bags
suitable for export.


The Company has established a 24.2 MW Co-generation unit in the year 2008 with a
multi fuel high pressure high capacity boiler. Bagasse, by-product of sugar mill, is used for
electricity generation. The surplus power beyond plant requirement is being supplied to
Telangana State Govt. to support their needs.

The temperature & pressure configuration (120 TPH, 540 degrees C, 105 ata) for
boiler and 24.2 MW double extraction/condensing type TG set are selected for cogeneration
plant and it is rated to be one of the most modern and state of the art plant. Being run by an
environment friendly fuel (bagasse) this process does not add to net Carbon Dioxide emission
(a greenhouse gas) into the atmosphere.


Cogeneration is also a major de risking activity for our sugar business which suffers
from the cyclicality of the sugar market as the power generation from bagasse helps to
mitigate the same. Our Co-gen plant is one of the most efficient bagasse based plants in the
State and it bagged SISTA awards three years for its best performance and particularly on
account recording lowest auxiliary power consumption.
The Company has established a Most modern and state of the Art 65 KLPD Capacity
Distillery Plant to manufacture RS/ENA/Ethanol from Molasses and Grains. The company
has installed 24 TPH Spent Wash Incineration Boiler as a part of Zero Effluent Discharge
along with 2.4 MW Captive Power Plant in order to meet the Steam and Power Requirements
of the Distillery Plant.


The Distillery Effluent called Spent wash will be concentrated in the Integrated
Evaporation plant to concentrate to 60 % solids and the same will be burnt in a specially
designed Boiler to produce steam and power
Bagasse is a fibrous residual of cane stalk that is obtained after crushing and
extraction of juice. It consists of water, fiber and relatively small quantities of soluble solids.
The composition of bagasse varies based on the variety of sugarcane, maturity of cane,
method of harvesting and the efficiency of the sugar mill. Bagasse is usually used as a
combustible in furnaces to produce steam, which in turn is used to generate power. It is also
used as a raw material for production of paper and as feedstock for cattle. By making use of
bagasse sugar mills have been successful in reducing dependence on State Electric Boards,
for their captive power requirement

Press mud, also known as Filter cake or press cake, is the residual output after the
filtration of the muddy juice. It is mixed with spent wash from the distillery and cultivated to
produce high quality bio-manure.

Molasses is the only by-product obtained in the preparation of sugar through repeated
crystallization. The yield of molasses per ton of sugarcane varies within the range of 4.5% to
5%. Molasses is mainly used for manufacturing of alcohol and cattle feed. Alcohol in turn is
used to produce ethanol, rectified spirit, potable liquor and downstream value added
chemicals such as acetone, acetic acid, butanol, acetic an-hydride, MEG etc.

Fly Ash is the residual output from the boiler furnace after bagasse has completely
burnt out in the Cogen power plant. This is being sold to Brick manufacturers to use as
additive in the brick manufacturing process.

Potash is produced from the Spent wash incineration boiler after spent wash in
incinerated in the boiler. It is rich in potash and is being supplied to farmers to use as
fertilizer by the farmers.


Distillers Dried Grain with Solubles is WDG that has been dried with the
concentrated thin stillage to 10-12 percent moisture DDGS have an almost indefinite shelf
life and may be shipped to any market regardless of its proximity to an ethanol plant.

 Maintaining process parameters regularly e.g. pH and transmittancy of clear juice,

temperature of treated Juice and syrup clarification.

 Maintaining good sanitation at mills and in the Boiling house.

 Using minimum, tested, good quality chemicals for processes.

 Adopting innovative technologies.

 Avoiding direct steam application to intermediate sugar products.

 Doing special analysis to ensure optimum ICUMSA of all intermediate products and
the final product.

 Sugar Quality Grades

1. M - 30
2. S - 30
 Ethanol / ENA

1. 99.98% v/v, meeting the requirements for ethanol blending and also for the
pharmaceutical industries.

2. 96% v/v, Extra Neutral Alcohol(ENA) suitable for high quality IMFL’s


Every year Madhucon Sugar & Power industries ltd. Forming a groups based on plant
and ratoon dates, age of the crop and varietal composition. Before commence the crushing
season cane team conducts a pre-maturity survey by through field level brix small mill test at
Lab level, for knowing sucrose levels in the cane. Based on these results permits will be
generated for procuring the cane.

Post this massive exercise, every farmer within the command area of the mill is
provided with a calendar, which tells him when he can expect a Mill Supply. After receiving
the permit the farmer harvests the cane and transports it either in a bullock cart, tractor trolley



Sri N. Seethaiah, a Civil Engineer by profession, has vast experience in project

construction works and infrastructure development. He has conceptualized various advanced
models and processes for teams to follow while handling large scale construction projects. He
has been instrumental in providing strategic and operational leadership guidance to the group.



Sri N. Krishnaiah, has extensive experience in Project Management. As a young and

dynamic team leader, he guides the group in adopting advanced approaches, models and
practices of Project Management for effective project execution.

He chairs the Borads of all major group companies in India and Globally and with his
innovative approach he has led the group to an altogether higher growth trajectory. Currently
he is the Managing Director of Simhapuri Energy Private limited, Managing Director of
Madhucon Granites Limited, Director of Madhucon Sugars and Power Industries Limited,
President Director of PT Madhucon, Indonesia. Sri. N. Krishnaiah is a qualified mining



Mr. Srinivasa Rao, a graduate in Agriculture has started his career in sugar industry as
an agricultural officer and grown today as whole time director in a span of 8 years. His vast
experience in Cane Technology, Development and Extention programmes has added value to
the company's growth.



Sri Nama Pruthvi Teja pursued his B-Tech in Civil Engineering from the renowned
VIT University in Vellore and has also completed Masters in Project Management &
Business Development from SKEMA Business School in Paris. He is a 2nd generation
entrepreneur who is interested in development of sustainable business through innovation and
workforce welfare.


Sri Bharadwaja Gentela is basically a Mechanical Engineering graduate with

additional qualifications in Law and Business management. He has vast experience and
exposure in sugar industry in India and abroad in different capacities. He also served as
member on the expert committee constituted by AP government and drafted a comprehensive
report on revival of cooperative sugar factories in Andhra Pradesh and submitted to the



To become a key contributor as a trusted conglomerate with diverse portfolions such

as Sugar, Power, towards development of national rural economy.

To become a one of the leading and efficient leading and low cost power generation
company delivering sustainable and quality power to the nation.


To establish higher capacity power plants of excellence, utilizing the state-of-the-art

technology, process and efficient project management methods.

 Consistently deliver quality power to customers and become a partner of choice.

 Cultivate a culture of sustainability and growth in all operations of the company.

 Sustain professional competence at all levels through continuous training.

 Commitment to preserve environment and caring for the community.


 2014 – 2015

 1st Award in Best Performing for Co-Generation

 2012 – 2013

 1st Award in Best Performing for Technical Efficiency

 1st Award in Best Performing for Cane Development
 2nd Award in Best Performing for Co-Generation
 2011-2012
 1st Award in Best Performing for Co-Generation

Our values govern the guiding principles of our behavior, attitude and actions. The
values have been set out to ensure that we would act in union as a cohesive entity.

 Respect for the individual irrespective of his position in the organization.

 Honesty & Integrity in our business conduct.
 To enhance the Manpower efficiency by imparting suitable development programmes.
 Achievement of business objectives by promoting employee satisfaction towards his
 Fostering team spirit and creating a cordial environment at work place.
 We value the ownership that encourages innovative Technologies / Methods /
Systems, creativity and risk taking at all levels in our production processes.

The term working capital is commonly used for the capital required for day to day
working in a business concern. Such as for purchasing raw material for meeting day to day is
on salaries wages rents and advertising etc. it is necessary for any organization to run
successfully its activities to provide adequate working capital.

Current assets mean which can be converted into cash within an accounting year and
include cash short term securities and debtors. Bills receivables stock etc. the following
definition will substantiate the concepts.


 Any acquisitions of funds which increase working capital for they are one and the

The working capital refers to the difference between current asset and current
liabilities it is excess of current assets over current liabilities.

Current liabilities refer to the claims of outsiders which are expected to nature for
payment with in an accounting year and include creditors for goods bills payable overdraft

Sufficient amount of working capital enables a company to pay quick and regular
dividend so its investors as there may not be much pressure to plunge back the project.


A wide variety of factors influence the total investment in working capital in an

enterprise. Significant among them are:


The start up of a new project its initial years form the most crucial phase for planning of
working capital funds. By neglecting this many ventures run into financial difficulties in their
early operating years. The rather casual approach of working capital needs during the periods
when industry and business functioned in a sellers marketing could be understood as the
bakers was willing to absorb all shocks of fluctuations in project operating by providing
ready funds to meet emergency needs. The position has undergone radical change the baker
can no longer be taken for granted and in the absence of proper estimation of working capital
needs the project may have to face serious financial problems.


Movement the business cycle brings about shifts in working capital position. The upward
swing is association with spurt in sales and increase in levels of inventories and book
debts. There could be a cash shortage and borrowing may become necessary. On the other
hand when there is a downswing the levels of inventories and books debts may fall but
revenues also fall while categories of costs remain fixed and cash shortage might still be


The nature of business has an important bearing on its working capital needs. Some venture
like retail stores construction companies etc. require an abundance of working capital. In
other case such as power generating and supply the current asset play a minor and secondary


A long manufacturing cycle between the raw material purchase and the completion of the
manufacturing process will obviously mean a larger tie-up of funds to meet increase working
capital needs. In such cases management should try to increase the rate of production and
reduce the cycle time and thus cut down working capital requirement. This can also be
achieved through process Changes or through effective organization at all levels of enterprise
activity. Frequent change in set ups waiting for materials tools or instructions and
accumulations with progress result in extending the time cycle and booking more funds.
Organized negotiations with suppliers for attractive credit terms and retention of their
continued confidence by the settlement of bills on agreed dates can also help reduce working
capital requirements.

The credit terms to customers influence the working capital level by determine the level of
investment in books debts. Management has to decide on suitable credit policy relevant to
each customer base on the merits of his case. Unduly liberal credit policies and permissive
attitude in the matter of collection of outstanding can lock up funds that would otherwise be
available for operating.


The sources of certain raw materials are few and irregular and pose problems in the matter of
procurement and holding suing up more funds. Materials that are available only in certain
seasons have to be obtained and stored in advance. The working capital requirements in such
instances will show seasonal fluctuations.


Some manufactured products are subject top seasonal fluctuations in sales. In order to utilize
the capacity to the maximum possible extent steady production may have to be maintaining
though the demand for finished products may vary from to time. Finished goods inventories
will therefore accumulate during off-season requiring increased amounts of working capital
to support higher levels of inventory. Financial planning will have to provide for these funds
requirement associated with steady production and seasonal sales.


As business grows additional working has to be found. Infarct the need for increased working
capital does not follow the growth in business activities but precedes it. Advance planning of
working capital is thus a containing necessary for a growing concern. The company may have
substantial earning but little cash with growth they may be under constant financial pressure
for external funds to reinforce internal generation. Forward planning and continuous review
thereof are absolute necessary for such companies.

In a competitive market winning and maintaining customers goodwill will involve additional
costs and present a variety of working capital problems. To offer the customer the benefits of
choice a variety of product will have to be manufactured and stocked. This would mean
higher level of inventories in all stages and therefore additional working capital funds.


By the very nature of things some enterprise generate compared to others. The product
category and the firms position in the market may have given this advantages. Others have to
struggle in a highly competitive environment.

But profit cannot be considered as available cash at the end of period. Even as the company
operations are in progress cash is used up for augment stocks book debts and fixed assets.
Elaborate planning and projection of expected activities and cash flows at short will have to
be identified to meet anticipated to meet anticipated deficits sources of funds will have to be
identified and where surplus are expected suitable applications will have to planned.


One of the cherished goals of enterprise management has to build up adequate reserves out of
profits. The urge to retain profits may act constraint on the dividend policy the funds position
being given higher priority over dividend policy.


Depreciation policy determines the amount to be provide as depreciation on the various

categories of fixed assets. The depreciation changes do not involve any cash outflow.
Enhanced rates of depreciation have the effect of reducing profits correspondingly which in
turn can help in holding back distributions of dividends. By this process cash is a conserved
depreciation policy thus exert influence on the status of working capital in the enterprise from
time to time.

Rapidly rising prices create the need for more funds for maintaining the present volume of
activity. For same levels of inventories higher cash outlays are needed. In an inflationary set
up even operating expenses will grow for given levels of activity some companies may be
able to compensate part of these cost increase through increase in prices for their products.
The implications of changing price levels on working capital position will vary from
company to company depending on the nature of its operation and its standing in the market.

With a large variety of factors exerting influence on working capital requirements the
management has to be continuously aware of the developments internal external and
environmental and has to plan and review constantly its working capital needs and strategy.

1. “Working capital means current assets”.

2. Any acquisition of funds which increase the current assets increase working capital
for that they are the one and the current liabilities. It is excess of current assets over
current liabilities.




 It creates a feeling of security and confidence adequate working capital creates a

sense of security confidence and loyalty not only throughout business itself but also
among its customers creditors and business associates.

 Easy loans from the bank an adequate working capital i.e. excess of current assets
over liabilities the company to barrow unsecured loans from the bank because the
excess provide a good security to the unsecured loans.

 Adequate working capital can be meant for meeting unforeseen contingencies e.g.
financial crises due to heavy losses etc.

 It increase Fixed Assets Efficiency Adequate Working capital increase the Efficient of
the Fixed Asset of the Business because of its proper maintenance.
There are two concepts of working capital

a) Gross working capital

b) Net working capital


It is the total of all current assets which include inventories sundry debtors cash in
hand advances investments short term deposits etc.

Gross working capital means total current assets.


Net working capital is the excess of current assets over current liabilities.


When the current assets exceed the current liabilities the working capital is positive
and the negative working capital results when current liabilities are more than the current


1. Cash discount:

If proper cash balance is maintained the business can avail the advantage of cash for the
purchase of raw material and merchandise. It will result in reducing the cost of production.

2. It create a feeling of security and confidence:

The proprietor or offices or management of a concern are quite carefree if they have
proper working capital arrangement because they need not worry for the payment of business
expenditure or creditors. Adequate working capital creates a sense of security confidence and
loyalty not only through the business itself but also among its customer creditors and business
3. ‘Must’ for maintaining solvency and continuing production:

In order to maintain the solvency of the business it is essential that sufficient amount of funds
be available to make all payment in times as and when they are due.

4. Sound goodwill and debt capacity:

t is common experience of all prudent business that promptness of Payment in business

creates goodwill and increase the debt capacity of business. A firm can raise funds from the
market purchase goods on credit and borrow short term funds from banks etc.

Easy loans from the banks Distribution of dividends



In a manufacturing concern the working capital operating cycle starts with the
purchase of raw materials and ends with realization of cash from the sale of finished
products. This cycle involves purchase of raw materials and stories it conversion into stock of
finished goods through work - in – progress with progressive increment of labors and service
costs conversion of finished stock into sales debtors and receivables and ultimately
realization of cash and this cycle continues again from cash to purchase of raw material and
so on.





The working capital requirement should be met from three types of sources of funds which
are mentioned below they are:

1. Long term financial sources

2. Short term financial sources

3. Spontaneous financial sources


 Issue of shares
 Issue of debentures
 Retained profits
 Sale of fixed assets
 Term loans etc.

Long term financial sources of working capital include.



 Depreciation
 Provision for taxation
 Accrued expenses


 Bank credit
 Trade credit
 Customers credit


The operation cycle is a continuous process and therefore the need for current assets is
felt constantly. But the magnitude of current assets needed is not always the same it increase
and decrease overtime.
However there is always a minimum level of current assets which is continuously
required by the firm to carry on its business operations. The minimum level of current asset is
referred to as permanent or fixed working capital.

For example extra inventory of finished goods will have to be maintained to support
the peak periods. On the other hand investment in the raw materials work -in – progress and
finished goodwill fall if the market is slack.

The extra working capital needed to support the changing production and sales activities
are called fluctuating or variable or temporary working capital.






Y-Axis-amount of working capital

The difference between permanent and temporary working capital. The permanent
working capital is stable over time while temporary working capital is fluctuating sometimes
increasing or sometimes decreasing. In case of an expanding firm the permanent working
capital line may not be horizontal.



The changes in the level of working capital occur for basic reasons.


The major cause for changes in working capital is because of policy changes initiated
by the management. Policy changes can also be known as current assets policy. It may be
defined as the relationship between current asset and sales volume.


This can cause significant changes in the level of working capital. If a new process
emerges as a result of technological development which shortens the operating cycle it
reduces the need of working capital and vice versa.


As a corporation grows it is logical to expect that a large amount of working capital

will be required. It is difficult to determine precisely the relationships between the growth in
the volume of business of a corporation and the increase in its working capital. The
composition of a working capital in a going corporation also shifts with a economic
circumstances and corporate practice. Growth industry requires more working capital than
those that of static other things being equal.


The working capital requirement of a firm affected by credit terms granted by its
creditors. A firm will need a less working capital of a liberal credit from banks also influences
the working capital needs of the firm. A firm which can get bank credit easily on favorable
conditions will operate with less working than a firm without such a facility.


In this chapter attempt is made to evaluate the performance of working capital

management more especially this chapter covers the following aspects.

1. Theoretical framework on working capital management.

2. Objectives policies and planning of working capital management.

3. Trends in working capital and Turnover of working capital.

Working capital refers to the amount of funds which a corporation may have to
finance to its day-to-day operations. These funds are used for carrying out the routine and
regular business operations consisting of purchase of Raw –material payments of direct and
indirect expenses to invest in stock and stores to maintain certain amount of cash balances.
Thus working capital is the portion of corporation total capital which is employed in short
term operations.

The following are characteristics of working capital in Cooperative Banks:

1. The components of current assets are short in life and do not exceed one accounting

2. Each component of current asset is transferred into its other forms devoting a circuit
flow chart inventory receivables bank to each. This particular feature has two
implications are.

a) Decision assessing the level of working capital is frequent and respective.

b) The close interaction among the components of working capital calls for the
simultaneous consideration to determine the level and composition of total
working capital.


For the proper understanding of working capital a close at the individual item of working
capital is necessary. When working capital it includes the study of both current assets and


1. Inventories
Raw material and component
Work-in –progress
Finished stock
2. Accounts receivables
Trade debtors
Loans and advances and others
3. Investment in short-term securities
4. Cash and bank balance
Cash on hand
Bank balances
A portion of the above current assets investments may be represented by the following
sources of current liabilities.

1. Accrued or outstanding expenses.

2. Short term loans, advances and deposits.
3. Dividends payable.
4. Bank overdraft.
5. Provision for taxation , if it does not amt. to app. Of profit.
6. Bills payable.
7. Sundry creditors.

The gross working capital concept is financial or going concern concept whereas net working
capital is an accounting concept of working capital. Both the concepts have their own merits.

The gross concept is sometimes preferred to the concept of working capital for the following

 It enables the enterprise to provide correct amount of working capital at correct

 Every management is more interested in total current assets with which it has to
operate then the source from where it is made available.
 It take into consideration of the fact every increase in the funds of the enterprise
would increase its working capital.

This concept is also useful in determining the rate of return on investments in working
capital. The net working capital concept, however, is also important for following reasons:

 It is qualitative concept, which indicates the firm’s ability to meet to its operating
expenses and short-term liabilities.
 IT indicates the margin of protection available to the short term creditors.
 It is an indicator of the financial soundness of enterprises.
 It suggests the need of financing a part of working capital requirement out of the
permanent sources of funds.


Working capital may be classified in to ways:

 On the basis of concept.

 On the basis of time.

On the basis of concept working capital can be classified as gross working capital and net
working capital. On the basis of time, working capital may be classified as:

 Permanent or fixed working capital.

 Temporary or variable working capital


Permanent or fixed working capital is minimum amount which is required to ensure

effective utilization of fixed facilities and for maintaining the circulation of current assets.
Every firm has to maintain a minimum level of raw material, work- in-process, finished
goods and cash balance. This minimum level of current assts is called permanent or fixed
working capital as this part of working is permanently blocked in current assets. As the
business grow the requirements of working capital also increases due to increase in current


Temporary or variable working capital is the amount of working capital which is

required to meet the seasonal demands and some special exigencies. Variable working capital
can further be classified as seasonal working capital and special working capital. The capital
required to meet the seasonal need of the enterprise is called seasonal working capital.
Special working capital is that part of working capital which is required to meet special
exigencies such as launching of extensive marketing for conducting research, etc.

Temporary working capital differs from permanent working capital in the sense that is
required for short periods and cannot be permanently employed gainfully in the business.


SOLVENCY OF THE BUSINESS: Adequate working capital helps in maintaining the
solvency of the business by providing uninterrupted of production.

Goodwill: Sufficient amount of working capital enables a firm to make prompt payments
and makes and maintain the goodwill.

Easy loans: Adequate working capital leads to high solvency and credit standing can
arrange loans from banks and other on easy and favorable terms.

Cash Discounts: Adequate working capital also enables a concern to avail cash discounts on
the purchases and hence reduces cost.

Regular Supply of Raw Material: Sufficient working capital ensures regular supply of raw
material and continuous production.

Regular Payment Of Salaries, Wages And Other Day TO Day Commitments: It leads to the
satisfaction of the employees and raises the morale of its employees, increases their
efficiency, reduces wastage and costs and enhances production and profits.

Exploitation Of Favorable Market Conditions: If a firm is having adequate working

capital then it can exploit the favorable market conditions such as purchasing its requirements
in bulk when the prices are lower and holdings its inventories for higher prices.

Ability To Face Crises: A concern can face the situation during the depression.

Quick And Regular Return On Investments: Sufficient working capital enables a concern
to pay quick and regular of dividends to its investors and gains confidence of the investors
and can raise more funds in future.

High Morale: Adequate working capital brings an environment of securities, confidence,

high morale which results in overall efficiency in a business.


Every business concern should have adequate amount of working capital to run its business
operations. It should have neither redundant or excess working capital nor inadequate nor
shortages of working capital. Both excess as well as short working capital positions are bad
for any business. However, it is the inadequate working capital which is more dangerous
from the point of view of the firm.


1. Excessive working capital means ideal funds which earn no profit for the firm
and business cannot earn the required rate of return on its investments.

2. Redundant working capital leads to unnecessary purchasing and accumulation of


3. Excessive working capital implies excessive debtors and defective credit policy
which causes higher incidence of bad debts.

4. It may reduce the overall efficiency of the business.

5. If a firm is having excessive working capital then the relations with banks and
other financial institution may not be maintained.

6. Due to lower rate of return n investments, the values of shares may also fall.

7. The redundant working capital gives rise to speculative transactions


Every business needs some amounts of working capital. The need for working capital
arises due to the time gap between production and realization of cash from sales. There is an
operating cycle involved in sales and realization of cash. There are time gaps in purchase of
raw material and production; production and sales; and realization of cash.

Thus working capital is needed for the following purposes:

 For the purpose of raw material, components and spares.

 To pay wages and salaries
 To incur day-to-day expenses and overload costs such as office expenses.
 To meet the selling costs as packing, advertising, etc.
 To provide credit facilities to the customer.
 To maintain the inventories of the raw material, work-in-progress, stores and spares
and finished stock.

For studying the need of working capital in a business, one has to study the business
under varying circumstances such as a new concern requires a lot of funds to meet its initial
requirements such as promotion and formation etc. These expenses are called preliminary
expenses and are capitalized. The amount needed for working capital depends upon the size
of the company and ambitions of its promoters. Greater the size of the business unit,
generally larger will be the requirements of the working capital.

The requirement of the working capital goes on increasing with the growth and expensing
of the business till it gains maturity. At maturity the amount of working capital required is
called normal working capital.

There are others factors also influence the need of working capital in a business.


NATURE OF BUSINESS: The requirements of working is very limited in public utility

undertakings such as electricity, water supply and railways because they offer cash sale only
and supply services not products, and no funds are tied up in inventories and receivables. On
the other hand the trading and financial firms requires less investment in fixed assets but have
to invest large amt. of working capital along with fixed investments.

SIZE OF THE BUSINESS: Greater the size of the business, greater is the requirement of
working capital.

PRODUCTION POLICY: If the policy is to keep production steady by accumulating

inventories it will require higher working capital.

LENTH OF PRDUCTION CYCLE: The longer the manufacturing time the raw material
and other supplies have to be carried for a longer in the process with progressive increment of
labor and service costs before the final product is obtained. So working capital is directly
proportional to the length of the manufacturing process.

SEASONALS VARIATIONS: Generally, during the busy season, a firm requires larger
working capital than in slack season.

WORKING CAPITAL CYCLE: The speed with which the working cycle completes one
cycle determines the requirements of working capital. Longer the cycle larger is the
requirement of working capital.


By definition, working capital management entails short-term decisions—generally,

relating to the next one-year period—which are "reversible". These decisions are therefore
not taken on the same basis as capital-investment decisions (NPV or related, as above);
rather, they will be based on cash flows, or profitability, or both.

 One measure of cash flow is provided by the cash conversion cycle—the net number
of days from the outlay of cash for raw material to receiving payment from the customer.
As a management tool, this metric makes explicit the inter-relatedness of decisions
relating to inventories, accounts receivable and payable, and cash. Because this number
effectively corresponds to the time that the firm's cash is tied up in operations and
unavailable for other activities, management generally aims at a low net count.

 In this context, the most useful measure of profitability is return on capital (ROC).
The result is shown as a percentage, determined by dividing relevant income for the 12
months by capital employed; return on equity (ROE) shows this result for the firm's
shareholders. Firm value is enhanced when, and if, the return on capital, which results
from working-capital management, exceeds the cost of capital, which results from capital
investment decisions as above. ROC measures are therefore useful as a management tool,
in that they link short-term policy with long-term decision making. See economic value
added (EVA).

 Credit policy of the firm: Another factor affecting working capital management is
credit policy of the firm. It includes buying of raw material and selling of finished goods
either in cash or on credit. This affects the cash conversion cycle.
Management of working capital

Guided by the above criteria, management will use a combination of policies and
techniques for the management of working capital. The policies aim at managing the current
assets (generally cash and cash equivalents, inventories and debtors) and the short-term
financing, such that cash flows and returns are acceptable.

 Cash management. Identify the cash balance which allows for the business to meet
day to day expenses, but reduces cash holding costs.

 Inventory management. Identify the level of inventory which allows for

uninterrupted production but reduces the investment in raw materials—and minimizes
reordering costs—and hence increases cash flow. Besides this, the lead times in
production should be lowered to reduce Work in Process (WIP) and similarly,
the Finished Goods should be kept on as low level as possible to avoid over production—
see Supply chain management; Just In Time (JIT); Economic order
quantity (EOQ); Economic quantity

 Debtors management. Identify the appropriate credit policy, i.e. credit terms which
will attract customers, such that any impact on cash flows and the cash conversion cycle
will be offset by increased revenue and hence Return on Capital (or vice versa);
see Discounts and allowances.

 Short-term financing. Identify the appropriate source of financing, given the cash
conversion cycle: the inventory is ideally financed by credit granted by the supplier;
however, it may be necessary to utilize a bank loan (or overdraft), or to "convert debtors
to cash" through "factoring".

Advantages of adequate working capital

 Helps in maintaining goodwill of the firm.

 Helps in maintaining solvency of the firm.

 Helps the firm in getting regular supply if raw material.

 Helps the firm in getting regular return on investment.

 Helps the firm in getting payment.

 Helps the firm to face the crisis.

Disadvantages of inadequate working capital

 It leads to excessive debtors.

 Spare funds are of no use and earn no profit.

 Firm fails to maintain the relationship with the banks due to non requirement of funds.

 Leads to unnecessary purchasing.

Working capital management

The main objective of working capital management is to get the balance of current
assets and current liabilities right.

Importance of working capital management

Current assets are a major financial position statement item and especially significant to
smaller firms. Mismanagement of working capital is therefore a common cause of business
failure, e.g.:

 inability to meet bills as they fall due

 demands on cash during periods of growth being too great (overtrading)

 overstocking

Working capital management is a key factor in an organization’s long-term success.

The balancing act: Profitability v Liquidity

The decision regarding the level of overall investment in working capital is a cost/benefit
trade-off - liquidity versus profitability.

Unprofitable companies can survive if they have liquidity. Profitable companies can fail if
they run out of cash to pay their liabilities (wages, amounts due to suppliers, overdraft
interest, etc.).

Liquidity in the context of working capital management means having enough cash or ready
access to cash to meet all payment obligations when these fall due. The main sources of
liquidity are usually:

 cash in the bank

 short-term investments that can be cashed in easily and quickly

 cash inflows from normal trading operations (cash sales and payments by receivables
for credit sales)

 an overdraft facility or other ready source of extra borrowing.

Cash balances and cash flows need to be monitored just as closely as trading profits.

Funding strategies

In the same way as for long-term investments, a firm must make a decision about
what source of finance is best used for the funding of working capital requirements.

The decision about whether to choose short- or long-term options depends upon a number
of factors:

 the extent to which current assets are permanent or fluctuating

 the costs and risks of short-term finance

 the attitude of management to risk




Current Assets

Cash In Hand XXX XXX XXX

Loans And Advances XXX XXX XXX

Interest On Loans XXX XXX XXX XXX

Interest On Investment XXX XXX XXX XXX

Sundry Debtors XXX XXX XXX XXX

Other Assets XXX XXX XXX XXX

Current Liabilities

Deposits XXX XXX XXX

Barrowings XXX XXX XXX XXX
Interest Payables XXX XXX XXX XXX


Sundry Creditors

Other Liabilities


Net Working Capital= XXX XXX XXX XXX



Current Assets
Cash in hand 105919017 32834704 73084313

Cash at bank 3583667 108656730 105073063 ------

Loans &advances 3071319597 3076158927 4839330 ------

Interest on loans 140443029 290893478 150450449 ------

Interest on investment 2323255 35736559 33413304 ------

Sundry debtors 43374483 55246935 11872452 -------

Other assets 158305445 25805090 ----------- 132500355

3525268493 3625332423
Current Assets
Current liabilities
Deposits 111176998 132364412 ----------- 21187414

Barrowings 188522676 1962922069 ----------- 1774399393

Interest payables 239781525 73424857 166356668 -----------

Head office 3315494 67142057 ----------- 63826563

Sundry creditors 47820673 43013480 4807193 -----------

Other liabilities 219969714 92470376 127499338

TOTAL(B) -----------
810587080 2371337251 -----------
Current liabilities
Working Capital (A-B) 2714681413 1253995172 ----------- -----------
net working capital
1460686241 1460686241
2714681413 2714681413 2064998038 2064998038

 From the above analysis shows the changes in Working Capital of the Madhucon
sugar and power
 For the year of the 2011 & 2012 working capital for 2011 is Rs 2,71,46,81,413.
Working capital for 2012 is Rs 1,25,39,95, 172.Hence; the net Working Capital is also
decreased to Rs 1460686241.

 Therefore the working capital is not proper. Hence, the working capital position is not



Current assets
3283470 ----------
cash in hand 36500028 3665324
Cash at bank 108656730 170655779 61999049 --------------

Loans and 681936639

3076158927 2394222288 --------------
Interest on loans 290893478 320393032 29499554 ------------

Interest on 29036828
35736559 6699731 -----------
Sundry debtors 55246935 67266148 12019213 ------------

Other assets 25805090 60479774 34674684 ------------

TOTAL(A) 3625332423 3056216780 ------------ ------------

Current liabilities

Deposit 132364412 2104209001 ------------ 1971844589

Borrowings 1962922069 139431174 1823490895 ------------

Interest payables 73424857 108118194 ------------ 3469337

Head office 67142057 24385781 42756276 ------------

Sundry creditors 43013480 197798040 ------------ 154784560

Other liabilities 92470376 78532722 13937354 ------------

TOTAL(B) 2371337251 2652474912 ------------ ------------

Working Capital 1253995172 403741868 ------------ ------------

NET Working ------------
------------ 850253304 850253304
Capital decreased
1253995172 1253995172 2872295953 2872295953

 From the above analysis shows that the changes in Working Capital for the year of the
2012 & 2013.

 The working capital for 2012 Rs 1253995172. Working capital for 2013 Rs
403741868. Hence, the net working capital is also decreased to Rs 850253304.
 Hence, the Working Capital is said to be negative it means it’s going to short term




Current assets
Cash in hand 36500028 191802081 155302053 --------

Cash at bank 170655779 108650408 -------- 62005371

Loans &advances 2394222288 2714996343 320774055 --------

Interest on loans 320393032 127157173 95118141 --------

Interest on
6699731 12719692 6019961 --------
Sundry debtors 67266148 42641316 -------- 24624832

Other assets 60479774 28119552 -------- 32360222

TOTAL(A) 3056216780 3226086565 -------- --------

Current liabilities

Deposit 2104209001 2303978324 -------- 199769323

Borrowings 139431174 1480060587 -------- 837804849

Interest payables 108118194 108118194 16905120 --------

Head office 24385781 5224447 19161333 --------

Sundry creditors 197798040 120757300 76440740 --------

Other liabilities 78532722 36557704 41975017 --------

TOTAL(B) 2652474912 4054696556

Working capital 403741868 828609991

Net Working
424868123 424868123
Capital decreased
403741868 403741868 1156564597 1156564597


 From the above analysis shows that the changes in Working Capital of for the year of
the 2013&2014.

 Working capital for the year 2013 is Rs 403741868. Working capital for the year 2014
is Rs -828609991.
 Hence, the net working capital has decreased Rs 424868123.

 Hence, the Working Capital position is going on long-term liquidation.



Particulars 2014 2015 INCREASE DECREASE

Current assets

Cash in hand 191802081 162897831 -------- 28904250

Cash at bank 108650408 213848702 105198294 --------

Loans & advances 2714996343 177817597 -------- 2537178746

Interest on loans 127157173 3337198620 3210041447 --------

Interest on investment 12719692 157994994 145275302 --------

Sundry debtors 42641316 19056854 -------- 23584462

Other assets 28119552 31983582 3864030 --------

Total(A) 3226086565 4100798181

Current liabilities

Deposits 2303978324 2678238046 -------- 374259722

Borrowings 1480060587 2305164080 -------- 825103493

Interest payable 108118194 6690891 101427302 --------

Head office 5224447 121661170 -------- 116436723

Sundry creditors 120757300 1042411757 16545543 --------

Other liabilities 36557704 20439497 16118207 --------

Total(b) 4054696556 5236435442

Working capital 828609991 1135607261

Net Working Capital
306997270 306997270
1135607261 1135607261 3905467396 3905467396


 From the above analysis shows the changes in Working Capital for the year 2014 &

 The working capital for the year 2014 is Rs -828609991.the working capital for the
year 2015 is Rs 1135607261.

 Hence, the net Working Capital is also increased in Rs 306997270.Therefore, the

overall working capital is increased in 2015.



Current assets

Cash in hand 10591917 -------- 152305914

Cash at bank 358336676 144487974 --------
Loans and advances 3071319597 2893502000 --------
Interest on loans 140443029 -------- 3196755591
Interest on investment 2023255 -------- 155971739
Sundry debtors 43374483 24317629 --------
Other assets 158305445 126321863 --------
Total (A) 3784394402
Current liabilities

Deposit 1111769982 1566468064 --------

Borrowings 1885226762 419937318 --------
Interest payables 239781525 -------- 233090634
Head office 3315494 118345676 --------
Sundry creditors 47820673 -------- 994591084
Others liabilities’ 219969714 -------- 199530217
Total (b) 3507884150
Working Capital 276510252
Net working capital 859097009 859097009
1135607261 6152477533 6152477533


 From the above analysis shows the changes in Working Capital of the
MADHUCON sugar and power for the year of the 2015 & 2016.

 Working capital for the year 2015 is Rs 31135607261.The working capital for the
year 2016 is Rs 276510252.

 Hence, the net Working Capital is also increased Rs 859097009.

 Therefore the sufficient Working Capital but comparing 2015&2016 decreased

comparing 2015 & 2016.


 The Madhucon sugar and power limited short-term solvency position of the industry
is satisfactory but need to improve.

 During the study period the current position of the industry is not remarkable. It
should be improve the working capital position of the industry.

 The industry able to maintain proper funds towards reserves surplus.

 In 2011-2012 there was still a decline in current assets position and an increase
current liabilities position. This was not satisfactory.

 In 2012-2013 there was an increase in current assets position and slight increase
current liabilities. But current assets are satisfactory.

 In 2013-2014 there was a huge increase in current assets position when compared to
current liabilities which shows an excellent or good position of the industry.

 In 2014-2015 there was a huge increased in current assets position when compared to
current liabilities which shows an excellent or good position of the industry?

 In 2015-2016 there was an increase in current assets position when compared to

current liabilities; it shows the excellent or good position of the industry.

 Provision of Internet facility from effective online communication.

 Stock transfers from one store to another to be done effectively.
 Disposal action for obsolete and non-moving items to be takes up on priority.
Identification of buyers to be done.
 To have reliable supplier there should be provision for price variations clause in rate
contract orders Alternative part numbers.



 The overall, the working capital in madhucon is up to mark where by adequate suppliers
of materials and stores minimization in operations.

 It has kept down the investment in inventories, inventory carrying cost obsolescence losses
to the minimum through purchasing economics by the measurement of requirements on
the basis of recorded experiences.

 Internet facility is more effective in online communication.


References Books:

 M.Y. Khan, Indian Financial System, McGraw Hill Education (India) Private Limited,
Eighth Edition, 2014.

 Naseem Ahmed, Financial accounting a simplified approach, Atlantic Publishers &

Distribuotrs, 2008.

 Ambrish Gupta, Financial Accounting for Management, Dorling Kindersley (India) Pvt
Ltd, Third Edition, 2009.

 C.R. KOTHARI, Research Methodology, New Age International, Second edition, 2004.