A STUDY ON CAPITAL STRUCTURE IN SRI PATHI PAPER AND BOARDS PVT. LTD., SIVAKASI

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CHAPTER 1

INTROCUTION

1.1 INTRODUCTION TO THE CONCEPT OF STUDY

Capital structure is a mix of debt and equity capital. Capital Structure is very

important to the company to run the business in long run. Financing or Capital

structure has tremendous significance for the management since it is used in the debt

equity mix of the company. Capital structure affects the shareholders return and more.

The Capital Structure referred to mixture of debt and equity theory whether or

not an optimal capital structure is one of the most important and complex issues in the

corporate finance. Each has its own benefits and drawbacks and a substantial part of

wise corporate stewardship and management is attempting to find the perfect capital

structure in terms of risk / reward payoff for shareholders. There are three

components of capital structure are equity capital, debt capital, and other forms of

capital. Equity Capital to money put up and owned by the shareholders (owners). The

debt capital in a company's capital structure refers to borrowed money that is at work

in the business.

Thus planning the capital structure of the firm is very important for the

profitability of the organization. Every business has to plan their capital structure

according to need and nature of the business. Capital structure planning is a soul of

the business to survive in the long run. Liability side of balance sheet is made under

perfect capital structure planning. Finance manager and other promoters decide which

source of fund or funds should be selected after monitoring the factors affecting

capital structures. So, capital structure planning makes strong balance sheet. The right

capital structure planning also increases the power of company to face the losses and

changes in financial markets.

The Theories related to capital structure are Trade off theory and Pecking

order theory and Modigliani and Miller theory

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Trade-off theory

Trade-off theory allows the bankruptcy cost to exist. It states that there is an

advantage to financing with debt and that there is a cost of financing with debt. The

marginal benefit of further increases in debt declines as debt increases, while the

marginal cost increases, so that a firm that is optimizing its overall value will focus on

this trade-off when choosing how much debt and equity to use for financing.

Empirically, this theory may explain differences in D/E ratios between industries, but

it doesn't explain differences within the same industry.

Pecking order theory

Pecking Order theory tries to capture the costs of asymmetric information. It

states that companies prioritize their sources of financing according to the law of least

effort, or of least resistance, preferring to raise equity as a financing means of last

resort. Hence: internal financing is used first; when that is depleted, then debt is

issued; and when it is no longer sensible to issue any more debt, equity is issued.

Modigliani and Miller theory

Modigliani and Miller theory two professors in the 1950s, studied capital-

structure theory intensely. From their analysis, they developed the capital-structure

irrelevance proposition. Essentially, they hypothesized that in perfect markets, it does

not matter what capital structure a company uses to finance its operations. They

theorized that the market value of a firm is determined by its earning power and by

the risk of its underlying assets, and that its value is independent of the way it chooses

to finance its investments or distribute dividends. The basic M&M proposition is

based on the following key assumptions:

No taxes

No transaction costs

No bankruptcy costs

Equivalence in borrowing costs for both companies and investors

Symmetry of market information, meaning companies and investors have

the same information

No effect of debt on a company's earnings before interest and taxes

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THEORETICAL BACKGROUND OF THE STUDY

The financial manager of the company should plan an optimum capital for the

company. The optimum capital structure is one that maximizes the market value of

the firm. In practice the determination of the optimum capital structure is a

formidable task and the manager has to perform this task properly, so that the

ultimate objective of the firm can be achieved.

The undertaking of risky investment projects increasingly requires larger

pooling of financing. Such amounts of resources are frequently beyond a firms

ability to generate and retain cash. To cope with this potential shortage of financial

capital, firms increasingly tend to organize larger and more complex business

organizations. A wealth-constrained firm owner endowed with a profitable

investment opportunity is driven to raise external capital to finance the project by

selling securities. These securities vary in terms of claims to issuers future rents and

in terms of allocation of residual rights of control. The capital structure problem

emerges from the definition of the mix of securities the firm should optimally issue.

There are significant variations among industries and companies within an

industry in terms of capital structure. Since a number of factors influence the capital

structure decision of a company, the judgment of the person making the capital

structure decisions play a crucial part. A totally theoretical model cant adequately

handle all those factors, which affects the capital structure decision in practice. These

factors are highly psychological, complex and qualitative and do not always follow

accepted theory, since capital markets are not perfect and decision has to be taken

under imperfect knowledge and risk. An appropriate capital structure or target capital

structure can be developed only when all those factors, which are relevant to the

companys capital structure decision, are properly analyzed and balanced. The capital

structure should be planed generally keeping in view the interest of the equity

shareholders and financial requirements of the company.

The equity shareholders being the owner of the company and the providers of

risk capital (equity) would be concerned about the ways of financing a companys

operations. However, the interest of other groups, such as employee, customers,

creditors, society and government, should be given reasonable consideration when the

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company lays down its objective in terms of the shareholders wealth maximization, it

is generally compatible with the interest of other groups. Thus, while developing an

appropriate capital structure for a company the finance manager should inter alia aim

at maximizing the long-term market price per share. Theoretically, there may be

precise point or range within which the market value per shares is maximum. In

practice, for most companies within an industry there may be a range within which

there would not be great differences in the market value per share. The management

of companies may fix its capital structure near the top of this range in order to make

maximum use of favourable leverage, subject to other requirements such as

flexibility, solvency, control and norms set by the financial institutions-

The term capital structure is used to represent the proportionate relationship

between the various long-term kinds of capital arrangements equity, debentures,

preference shares, long- term debt, capital surplus, and retained earnings. The term

capital structure is part of financial structure, which includes both long-term and

short-term funds.

FEATURES OF CAPITAL STRUCTURE

Capital structure in simple words refers to debt equity ratio of a company. In

other words it refers to the proportion of debt in the investments of the company. It is

important for a company to have an appropriate capital structure; a proper capital

structure should have the following features:

1. The capital structure should be such that it gives maximum gain to a company.

Since interest rate on debt is a tax deductible expense company should make use of

leverage or debt in order to gain tax advantage.

2. Company should not use excessive debt in the capital structure, because in times of

higher interest rates it can even threaten the solvency of the company.

3. The capital structure should be flexible enough that is company can alter the debt

equity ratio whenever there is need to alter it.

4. Capital structure should be in congruence with the goals of the company, which

implies that if the policy of the company is that company will not take more debt,

than capital structure should be framed accordingly and it should have include more

equity and less debt.

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1.2. COMPANY PROFILE

The packaging industry in India was in the threshold of change. Consumer

India had begun to grow in rapid bounds and there was growing demand for packing

and packaging. Sripathi paper & boards private limited is a small scale industry,

which was established in India in the year 2002. The company is governed by five

directors. The chairman of the company is Mr. K.R. Krishnaswamy. Basically they

hail from big business community and they are already industrialists. The mill is

located in a Sukkiravarpatti village, which is nearby Sivakasi. The company

comprises with two units.

In five years time, the company had grown enough to warrant the selling up of

another unit. Unit II was started in the year 2007. The construction of a mill site is in

a landscape of nearly 55 acres. The machines for the production process were bought

from Ahmadabad. The process was taken place for 24 hours. It is a continuous

process industry that was set up in industrial backward area. The raw materials will

be imported from Srilanka, America and also from Chennai & Sivakasi. It comes

under small paper association and it is registered in Ramanathapuram. This is the ISO

9001:2000 certified company and it is also certified to IMS (Integrated Management

System). Today the company is in the second place in production of Kraft over

Tamilnadu.

Men behind Sripathi:

Sripathi was the brain of five persons who undertakes financial profit with a

great knowledge. The authorities of the concern are

Mr.K.R. Krishnaswamy - Chairman

Mr.K. Ravichandran - Managing Director

Mr.A. Ragupathy - Director

The team HR of over 300 trained and experienced workforce, that benefit from well

researched HR policies and welfare measures, form an integral part of their vision. In

the future, they play a prominent role in the export potential of their products. They

are looking at immediate expansion in Dubai, Sri Lanka and other Middle East

nations.

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Administrative Office :

The administrative office is located at

Sripathi Paper and Boards Pvt Ltd.,

Sukkiravarpatti,

Anaikuttam Post,

Sivakasi 626 130.

Corporate Office

The corporate office is located at

1680/31, Ramanis Regency,

Trichy Road,

Ramanathapuram,

Coimbatore 641 045.

Objectives of the Company

Satisfy the changing expectations of our customer by supplying quality

products.

Improve integrated management system performance through

conservation of Natural resources by encouraging reduction of waste at

source and its recycle wherever possible and prevention of pollution.

Safety of employees, equipments, operations, materials, subcontractors,

visitors customers and neighboring community.

Continually improve the effectiveness of quality, Environment and

Occupational health & Safety systems through periodically reviewing and

updating objectives and targets.

Abide by all applicable legislation, regulation and other requirements

related to product quality, environment and occupational health & safety.

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Vision

The vision is to create and grow a successful business enterprise based on

principles of recyclable raw materials, Eco friendly manufacture and an ethical

approach to all stakeholders.

Mission

The mission is to be a leading manufactures of complete range of paper

products, in packaging as well as cultural segments, without compromising on central

beliefs.

Shift details

The production process can be done in three shifts per day, 90 tons of Craft

paper can be prepared in a single day. Each shift 30 tons of production takes place.

Shift I - 8 a.m to 4 p.m

Shift II - 4 p.m to 12 p.m

Shift III- midnight 12 to 8 a.m

Categories of Employees

Total number of employees in the organizations is 300. Among them 93

members are permanent employees

Skilled employees - 22

Semi skilled employees - 33

Unskilled employees - 38

Workers will be broadly classified into three categories in Sripathi paper and

boards. They are Permanent workers, Badli workers who engage the work in the

absence of permanent employee and Learners. If both Badli worker and learners

worked for 480 days then they will be considered as a permanent workers.

Production Department:

Sripathi Paper & boards (p) Ltd is producing the KRAFT PAPER & BOARD

PAPER. The cost of the paper making machine is Rs. 13 crores. The machines are

bought from Ahmedabad, They are three shifts per day. The production process can

be done in three shifts per day, 90 tons of Craft paper can be prepared in a single day.

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Each shift 30 tons of production takes place. Production of Kraft can be done by

implementing the following process.

Input the Raw material

The basic raw material for all the processes is recycled paper. Whilst 60% of

the requirement comes in from different corners of the world, the remaining is

procured locally. There are various types of raw material. They are Box Kraft,

Cutting, Kraft Srilankan O.C.C. (old curucated cuttings), Srilankan N.C.C. (new

curucated cuttings), Srilankan sack Kraft, Amercian double sorted old curucated

cuttings, American tea sack, Flower box South African O.C.C. First, the raw

materials (waste Kraft box) put into the pulper (i.e., pulp making machine) with the

use of belt conveyor.

Grinding or pulp making

Second, the waste Kraft boxes are grinded in this stage. And then, grinded

Kraft boxes are mixed with water. At this stage, the water level is 96% and the pulp

level is 6%

Centric Cleaner

After grinding or pulp making, the centric cleaner remove the pins, plastics,

sand, etc., so this is the centric cleaning process.

Filtering

After cleaned the unwanted things, filter the water from the pulp. In this stage,

reduce the water level to 25%

Refiner

Refiner means again the same process for removing the pins, plastics, sand,

etc., In this stage, increase the water level to 15%

Stock Preparation

After the pulp, save the pulp in big chest for the purpose of emergency

purpose.

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Chemical mixing

Chemical mixing means mixing the chemical for the purpose of increasing the

strength of the paper and also changing the colors of the paper.

Wire

After chemical mixing, the pulp is coming to the paper making process. Wire

means the pulp is spray into the belt conveyor with the use of pipe or wire. In this

stage, the water level is 90%.

Vacuum plate

After the wire process, the pulp sends to the vacuum plate. Vacuum plate is

sucking the water from the pulp. In this stage, 70% of the water level is removed.

First press

After the vacuum plate the paper coming to the first press. First press means

the paper sends to the gap between the two beams. This is the first press of the paper.

In this stage, 20% of the water level is removed.

Second press

Second press is the next level of first press. In this stage, balance 5% of the

water is removed.

Pre drier

After pressing process come to drying process. After pressing process the

paper is so wet. So the paper sends to drying process.

MG(Machine Groom)

MG stage is important stage for paper making process. MG stage is making

the smoothness of paper with the use of hear.

Post drier

Post drier is the same process again drying the paper after MG stage. So the

paper making process is over.

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Roller

After the paper making process, the paper is rolled in a beam, The roll weight

is 2 tones per roll. The company produces 29 rolls per day.

Quality checking

At the time of rolling, take small bit of paper for the purpose of check the

quality of the paper. Testing for raw material moisture testing, Pulp consistency

testing. Testing for GSM (grams per square meter) testing, BF (burst factor) testing.

Alum testing, Rosin testing, Paper moisture testing, Drays testing.

Rewinder

Rewinder is the final stage of the paper making process. The paper roll is cut

or rewind on the requirements of the customer. The rewinding process time is 20 to

25 minutes per roll. So these are the steps for paper making process in this

organization. Sripathi is committed to manufacture and supply of quality Kraft paper

to meet customer requirements, to achieve total customer satisfaction through team

work and continual improvement of quality management system.

Quality Objectives

Achieving 100% customer satisfaction

Achieving 100% on time delivery as committed

Achieving zero customer complaints

The raw materials are imported from foreign countries. Mostly imported from

UNITED STATES, SRILANKA and also purchased from kerala, Karnataka, Madhya

Pradesh, Andhra & Tamil nadu. In Tamilnadu, mostly purchased from Coimbatore,

Tuticorin & Sivakasi.

Marketing Department

The marketing department plays an important role in this organization. It

includes various activities like Marketing strategy, Competitors, Advertisement,

Marketing areas, Regular customers, Incentives, Target, Market segmentation, Target

customers.

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Marketing Strategy

The company follows two divisions of marketing

Direct Marketing

Dealership Marketing

Customer Details

The target customer of Sripathi paper and boards will be package industries and fire

work industries. Major customers for Sripathi paper and boards are

1. Srinivasa boards (Sivakasi)

2. Shivaranjani boards (Sivakasi)

3. Britania (Chennai)

4. Balaji packaging (Sivakasi)

5. VG Traders (Coimbatore)

Regular Customer :

The following are the important customer of this organization

Britannia biscuits, Chennai

VG traders, Coimbatore

Simsung packaging, Coimbatore

MSL packaging, Sivakasi

Balaji packaging, Sivakasi

Sri Kaliswari fire works, sivakasi

Vignesh packaging

Thiruppathi balaji packaging industry

Maruthiram packaging industry

Krishna packaging industry

Competitors

The main competitors of this organization are

South India Paper Mill Mysore

I.T.C. Paper Mill Ltd Mettupalayam

Saraswathi Udayog Ltd

Supreme paper & boards pvt Ltd

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Marketing Area

In Tamil Nadu, the marketing area for Sripathi paper & boards are

Coimbatore. Madurai, Chennai and Sivakasi. This concern also has marketing area in

other states. They are Kerala, Karnataka and Andhra Pradesh.

Finance Department

The account department records all the business transaction in set of books.

They are responsible for the preservation of various accounting records. Receipts,

vouchers. This department takes care of preparing profit and loss a/c and balance

sheet for the company.

In the administrative department there are 5 employees. It is a small scale

industry so they are following the book keeping method of accounting and they also

enter the transaction in the tally.

The small scale industries include all industrial units with capital investment

not more than Rs. 60 lakhs in plant and machinery irrespective of the number of

employees.

Functions

Checking and verifying all the purchase and raw materials from stores

Stores purchase details update in system

Mainly used for tally software.

Import details

Debtors analysis.(Discount, making payment, credit period)

Payables

Human Resource Department

The HR manager placed a vital role in this organization. In this organization,

HR manager named as personal officer.

The following are the important HR functions of this organizations.

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Recruitment Process

Recruitment is a prospecting job where organizations make search for

perspective employees. The job of recruitment is based on the mating theory where

success of both the parties is critically dependent on timing. In Sripathi paper and

boards private limited the recruitment can be done through the following sources.

Advertisement in newspapers

Conducting campus interview in institutions

Making a contact to placement officers

To call by workers neighbours

By canvassing the other community person

Selection of employees

Selection involves picking for hire a subset of workers from the total set of

workers who have applied for the job. Selections are done comparing the

requirements of a job with applicants qualification. Work performance depends on

individuals. The best way to improve performance is to hire people who have the

competence and willingness to work. Selection is centralized and is handled by the

human resource department. Selection process is a long process, commencing from

preliminary interview and ending with the contract of employees.

In Sripathi the selection processes can be done by conducting Physically

aptitude test, Knowledge test, Personal interview and Orientation. During the period

of orientation Human Resource manager will give safety measure details,

organizational vision, mission, goals and procedures to work for employees.

Company welfare activities

Canteen facilities will be provided. Minimum nominal charges will be

allotted for boarding.

Free accommodation has been provided

Immediate care will be taken if any accident occur in the company

Financial help will be given during emergency period without any interest.

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Every April, increment will be given to the employees. Increment will be

given on the basis of performance, sincerity of work, loyal to work,

prompt attendance.

Vehicle facilities will be provided to Sripathi workers for up and down.

To provide feedback to the employees regarding their past performance.

To reduce the grievances of the employees.

Purpose of performance appraisal

Performance Appraisal is being practiced in 90% of the organization

worldwide. Self-appraisal and potential appraisal also form a part of the performance

appraisal processes. Typically, Performance Appraisal is aimed at :

To review the performance of the employees over a given period of time

To judge the gap between the actual and the desired performance

To help the management in exercising organizational control

To disgnose the training and development needs of the future.

Performance appraisal methods

Performance appraisal methods include 10 appraisal methods / types as

follows:

Critical incident method

The critical incidents for performance appraisal are a method in which the

manager writes down positive and negative performance behavior of employees

throughout the performance period.

Paired comparison analysis

Paired comparison analysis is a good way of weighing up the relative

importance of options. A range of plausible options is listed. Each option is compared

against each of the other options. The results are tallied and the option with the

highest score is the preferred option.

Graphic rating scales

The Rating Scale is a form on which the manager simply checks off the

employees level of performance. This is the oldest and most widely method used for

performance appraisal.

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Essay Evaluation method

This method asked managers / supervisors to describe strengths and

weaknesses of an employees behavior. Essay evaluation is a non quantitative

technique. This method usually use with the graphic rating scale method.

Performance ranking method

Ranking is a performance appraisal method that is used to evaluate employee

performance from best to worst. Manager will compare an employee to another

employee, rather than comparing each one to a standard measurement.

360 degree performance appraisal

360 Degree Feedback is a system or process in which employees receive

confidential, anonymous feedback from the people who work around them. This post

also include information related to appraisal methods such as 720, 540, 180..

Weighted checklist method

This method describe a performance appraisal method where rater familiar

with the jobs being evaluated prepared a large list of descriptive statements about

effective and ineffective behavior on jobs.

Behaviorally anchored rating scales

This method used to describe a performance rating that focused on specific

behaviors or sets as indicators of effective or ineffective performance. It is a

combination of the rating scale and critical incident techniques of employee

performance evaluation.

Forced ranking (forced distribution)

Forced ranking is a method of performance appraisal to rank employee but in

order of forced distribution.

Behavioral Observation Scales

Behavioral Observation Scales is frequency rating of Critical incidents that

worker has performed.

Other Details from the Company Website

Sripathi Paper & Boards Pvt. Ltd was started in the year 2002 producing Kraft

paper with a 30 Tons Per Day capacity. Within a short span of time, the capacity at

our Unit at Sivakasi, Tamilnadu was increased to 50 Tons Per Day in 2007. During

the same year the company also ventured into production of Duplex Board with a 140

Tons Per Day Machines.

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During 2010 the company installed a 6MW cogeneration power plant to

prevent production delays and wastage resulting from the intermittent power supply

from the state grid due to power shortage in Tamil Nadu. The company also forayed

into writing and printing (W&P) segment by investing in M/s Sudirman Paper Private

Limited, having its Unit at Sathyamangalam, Erode District and has embarked on a

programme to revitalize the operations of that Company, keeping in mind long term

business prospect sand to be in all major segments of the paper industry.

The company has recently embarked on huge expansion cum modernization

of both the Kraft and Duplex mills this year. After the expansion programme the

capacity of Kraft paper division and Duplex will be 100 tons per day and 250 tons per

day respectively.

Our Team

Our Chairman and Managing Director, Mr. R. Krishnaswamy, is a qualified

Chartered Accountant and a first Generation Entrepreneur. Having spent several years

in the paper industry, he set out to create an enterprise that envisions becoming a

market leader whose foundation rests on the principles of recyclability and is

committed to green manufacturing.

Mr. K. Ravichandran, Managing Director, a doyen of packaging industry,

heads the production and manufacturing division. Mr. A. Ragupathy, Director, a

veteran of paper industry heads Marketing.

Leveraging on the extensive experience and in-depth knowledge of our Team,

we have established a strong foothold in the domestic industry. Besides, we are

strengthened by a skilled team of professionals comprising highly qualified general

managers, DGMs, supervisors, quality analysts, production personnel, sales

executive, and others. They assist us in meeting the clients' requirement in the best

possible manner.

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Product Range

Our complete array encompasses M.G. Kraft Paper 12 to 30 BF (100 to 250

GSM), White Coated Duplex Board (White Back and Grey Back) 250 to 500 GSM,

Writing and Printing Paper. All these are manufactured from supreme grade raw

material that are sourced from reputed vendors of the industry.

With the support of a diligent team of professionals, we are manufacturing a

wide array of paper products that meet high industrial as well as global standards. Our

range is widely appreciated for its smooth surface finish, varied sizes and thicknesses,

etc.

We offer:

M.G. Kraft Paper 12 to 30 BF (100 to 250 GSM)

White Coated Duplex Board (White Black and Grey Black)

250 to 500 GSM

Writing and Printing Paper

Quality Excellence

Ever since our inception, we have been consistently providing our customers

with a flawless range of paper products. We have directed all our endeavors to ensure

high industrial standards and norms in our M.G. Kraft Paper, Writing & Printing

Paper, etc. Furthermore, we undertake stringent measures throughout the

manufacturing process as well as make use of only finest grade raw material. Our

professionals execute all the production processes under the strict supervision of an

expert team of quality controllers. In addition to this, the entire range of finished

products is rigorously tested on the basis of certain well defined parameters.

Sripathi is a trustworthy supplier

We have become the foremost choice of our customers owing to the following

factors:

Quality assured products

Competitive prices

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Effective and quality assured services

Ethical business practices

Well equipped infrastructural facility

Experienced team of professionals

Timely delivery schedule.

Our Vision

Our Vision is to create and grow a successful business enterprise based on

principles of recyclable raw materials, Eco friendly manufacture and an ethical

approach to all stakeholders.

The Mission

Our mission is to be a leading manufacturer of complete range of paper

products, in packaging as well as cultural segments, without compromising on our

central beliefs.

We see ourselves becoming an integral part of everyone's daily lives. From

their grocery bags, to their FMCG goods; from white good appliances to textiles and

clothing ... we are happy to be the unseen performer in a pack of great ideas.

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1.3 PRODUCT PROFILE

Paper industry in India is the 15th largest paper industry in the world. It

provides employment to nearly 1.5 million people and contributes Rs 25 billion to the

government's kitty. The government regards the paper industry as one of the 35 high

priority industries of the country. Paper industry is primarily dependent upon forest-

based raw materials. The first paper mill in India was set up at Sreerampur, West

Bengal, in the year 1812. It was based on grasses and jute as raw material. Large

scale mechanized technology of papermaking was introduced in India in early 1905.

Since then the raw material for the paper industry underwent a number of changes

and over a period of time, besides wood and bamboo, other non-conventional raw

materials have been developed for use in the papermaking. The Indian pulp and paper

industry at present is very well developed and established. Now, the paper industry is

categorized as forest-based, agro-based and others (waste paper, secondary fibre, bast

fibers and market pulp).

In 1951, there were 17 paper mills, and today there are about 515 units

engaged in the manufacture of paper and paperboards and newsprint in India. The

pulp & paper industries in India have been categorized into large-scale and small-

scale. Those paper industries, which have capacity above 24,000 tonnes per annum

are designated as large-scale paper industries. India is self-sufficient in manufacture

of most varieties of paper and paperboards. Import is confined only to certain

specialty papers. To meet part of its raw material needs the industry has to rely on

imported wood pulp and waste paper.

Indian paper industry has been de-licensed under the Industries (Development

& Regulation) Act, 1951 with effect from 17th July, 1997. The interested

entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum

(IEM) with the Secretariat for Industrial Assistance (SIA) for setting up a new paper

unit or substantial expansion of the existing unit in permissible locations. Foreign

Direct Investment (FDI) up to 100% is allowed on automatic route on all activities

except those requiring industrial licenses where prior governmental approval is

required. Growth of paper industry in India has been constrained due to high cost of

production caused by inadequate availability and high cost of raw materials, power

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cost and concentration of mills in one particular area. Government has taken several

policy measures to remove the bottlenecks of availability of raw materials and

infrastructure development. For example, to overcome short supply of raw materials,

duty on pulp and waste paper and wood logs/chips has been reduced.

Following measures need to be taken to make Indian paper industry more

competitive:

Improvements of key ports, roads and railways and communication

facilities.

Revision of forest policy is required for wood based paper industry so that

plantation can be raised by industry, cooperatives of farmers, and state

government. Degraded forest land should be made available to the

industry for raising plantations.

Import duty on waste paper should be reduced.

Duty free imports of new & second hand machinery/equipment should be

allowed for technology up gradation.

The paper industry has an important social role to play for the country. Use of

paper is considered as an index of cultural growth. The paper industry is also

contributing towards fulfillment of various requirements of the industry as a whole

like information dissemination, publicity etc. which in turn stimulate industrial

growth of the country. The paper industry has, thus, a catalytic role to play not only

for the overall growth of the industry but also for the living standards of the

people. The primary products sector include manufacturing pulps from wood and

other cellulose fibers, and from rags; the manufacture of paper and paperboard; and

the manufacture of paper and paperboard into converted products, such as paper

coated off the paper machine, paper bags, paper boxes, and envelopes and other

commodity grades of wood pulp, printing and writing papers, sanitary tissue,

industrial-type papers, containerboard, and boxboard.

In the last few years, Indias paper industry has grown by 6 per cent annually.

In the coming years, this growth rate will go up to 10 per cent because of huge spurt

in demand for writing and printing paper. The domestic demand for paper is set to far

surpass supply, with the growing emphasis on education and alternative uses of paper.

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The demand for upstream market of paper products, like, tissue paper, tea bags, filter

paper, light weight online coated paper, medical grade coated paper, etc., is growing

up. These developments are expected to give fillip to the industry. Improvement of

key ports, roads and railways and communication facilities will help the entire

industrial sector including pulp & paper. Indias paper industry is worth Rs 225

billion. It accounts for about 1.6 per cent of the worlds production of paper and

paperboard. In India, the demand for paper is set to far surpass supply and is expected

to reach the level of 110 lakh tones by 2015 from 72 lakh tones in 2007. It is said that

if the gross domestic product (GDP) grows at 10 per cent, paper demand will grow at

8 per cent. The per capita consumption of paper in India is barely 8 kg. Paper

consumption is poised for a big leap forward in sync with the economic growth.

About 38 per cent of the total demand comes from culture paper (creamwave), while

58 per cent arises out of the industrial paper sector. The rest 4 per cent comes from

speciality paper including coated paper, tissues, posters, one-time carbon (OTC),

cheques, drafts, etc. The countrys paper industry, with an existing production

capacity of 90 lakh tones, requires an additional $2 billion of investment to meet the

rising demand. The capacity is likely to increase to 112 lakh tones per annum by

2010.The share of wood as raw materials has declined from 84 per cent to 36 per cent

since 1970.On the other hand, the share of agro and waste paper has increased from 9

and 7 to 29 and 35 per cent, respectively. Of course, the share of recycled paper

would go up in the future. The government is drawing up a new scheme for

technological upgradation and modernization of paper mills.

22

1.4 INDUSTRIAL PROFILE

The paper industry is one of the oldest and the most important industry in

terms of socio-economic development of the country. The size of the industry is

estimated to be Rs. 25,000 crore ($ 5.95 billion). It accounts for about 1.6% of the

worlds production of paper and paperboard. The industry provides employment to

more than 0.12 million people directly and 0.34 million people indirectly. Most of the

paper mills are in existence for a long time and hence present technologies fall in a

wide spectrum ranging from oldest to the most modern.

The consumption of paper has been growing by around 6% annually from the

past five years. The paper industry can be segmented by type of paper produced like

Creamwove, Maplitho, Copler, Coated Paper, Industrial Paper and Specialty paper.

Industrial Paper forms the bulk, accounting to around 60% of the total consumption.

So far, the growth in paper industry has mirrored the growth in GDP and has

grown on an average 6-7 per cent over the last few years. India is the fastest growing

market for paper globally and it presents an exciting scenario; paper consumption is

poised for a big leap forward in sync with the economic growth and is estimated to

touch 13.95 million tons by 2015-16. The futuristic view is that growth in paper

consumption would be in multiples of GDP and hence an increase in consumption by

one kg per capita would lead to an increase in demand of 1 million tons. As per

industry estimates, paper production are likely to grow at a CAGR of 8.4% while

paper consumption will grow at a CAGR of 9% till 2012-13.

The paper industry has an important social role to play for the country. Use of

paper is considered as an index of cultural growth. The paper industry is also

contributing towards fulfillment of various requirements of the industry as a whole

like information dissemination, publicity etc. which in turn stimulate industrial

growth of the country. The paper industry has, thus, a catalytic role to play not only

for the overall growth of the industry but also for the living standards of the people.

The primary products sector include manufacturing pulps from wood and other

cellulose fibers, and from rags; the manufacture of paper and paperboard; and the

manufacture of paper and paperboard into converted products, such as paper coated

23

off the paper machine, paper bags, paper boxes, and envelopes and other commodity

grades of wood pulp, printing and writing papers, sanitary tissue, industrial-type

papers, containerboard, and boxboard. In the last few years, Indias paper industry has

grown by 6 per cent annually. In the coming years, this growth rate will go up to 10

per cent because of huge spurt in demand for writing and printing paper. The

domestic demand for paper is set to far surpass supply, with the growing emphasis on

education and alternative uses of paper. The demand for upstream market of paper

products, like, tissue paper, tea bags, filter paper, light weight online coated paper,

medical grade coated paper, etc., is growing up. These developments are expected to

give fillip to the industry. Improvement of key ports, roads and railways and

communication facilities will help the entire industrial sector including pulp & paper.

Indias paper industry is worth Rs 225 billion. It accounts for about 1.6 per cent of the

worlds production of paper and paperboard. In India, the demand for paper is set to

far surpass supply and is expected to reach the level of 110 lakh tones by 2015 from

72 lakh tones in 2007. It is said that if the gross domestic product (GDP) grows at 10

per cent, paper demand will grow at 8 per cent. The per capita consumption of paper

in India is barely 8 kg. Paper consumption is poised for a big leap forward in sync

with the economic growth. About 38 per cent of the total demand comes from culture

paper (creamwave), while 58 per cent arises out of the industrial paper sector. The

rest 4 per cent comes from speciality paper including coated paper, tissues, posters,

one-time carbon (OTC), cheques, drafts, etc.

The countrys paper industry, with an existing production capacity of 90 lakh

tones, requires an additional $2 billion of investment to meet the rising demand. The

capacity is likely to increase to 112 lakh tones per annum by 2010.The share of wood

as raw materials has declined from 84 per cent to 36 per cent since 1970.On the other

hand, the share of agro and waste paper has increased from 9 and 7 to 29 and 35 per

cent, respectively. Of course, the share of recycled paper would go up in the future.

The government is drawing up a new scheme for technological up gradation and

modernization of paper mills capacity with private investment has been allowed to be

created. This growth has relied name lyon De-inked waste paper as a source of raw

material. Currently import duty on newsprint is about 5% and domestic manufacture

of newsprint is exempted from excise duty. This tariff structure for newsprint has

seen Indian newsprint price closely mapping international prices. Imports still

24

constitute about 30% of consumption and newsprint contributes about 10% of the

total production of paper and paperboards.

The number of players in the newsprint segment is relatively limited and

manufacturing capacities are larger than in the packaging grades segment.

Historically, the bulk of the output of Cultural grades comprising of writing,

printing, office stationery paper and specialty paper has been the preserve of large

producers, who use forest based raw material in integrated pulping facilities

augmented by imported pulp. This segment has been consistently taxed at higher rates

due to its size and use of conventional forest based Raw material. Investment in

plant has also been higher. With relatively smaller number of players and high

import tariff protection, prices of end products, generally perceived to be higher

quality, have been high.

Import tariff levels, although much lower now, still continues a significant

barrier to imports. The high investment levels required and limited conventional

fiber resources are the major deterrents to growth in this segment for both existing

players as well as new entrants. Lower end cultural grades manufactured by smaller

players using unconventional raw materials in low investment, low tech plants cater

to consumers in the price sensitive sub segment of this market. This sub segment

depends significantly on the tariff differential based on size and raw material for its

viability. The Indian Paper industry is going through substantial changes. Global

demand for paper is expected to grow by about 4% p.a. over the next 5 years. The

domestic demand is expected to grow at about 8% which will result in increase of

demand by 30 Lakh tones approximately over the next 5 years. It is expected that

customs duty on import of paper will decrease from the current level to the level of

10% over a period of time due to WTO compulsions. The import of raw material for

paper including pulp, waste paper and news print is likely to increase by at least 15%

to 20% in 2005-06 to keep up with growing demand for paper in the domestic market.

Despite to the constraints like over crowded market and limitation in procuring the

desired quality of waste paper, there are indicators of a revival in the Indian Paper

Industry. In the current year, selling price has marginally increased and enabled the

industry to partially offset the rise in cost of inputs, fuel & labour. The paper industry

has an important social role to play for the country. Use of paper is considered as an

25

index of cultural growth. Key social objectives of the Government like eradicating

illiteracy, making primary education compulsory etc. are very much related to the

paper industry.

The paper industry is also contributing towards fulfillment of various

requirements of the industry as a whole like information dissemination, publicity etc.

which in turn stimulate industrial growth of the country. The paper industry has, thus,

a catalytic role to play not only for the overall growth of the industry but also for the

living standards of the people.The new millennium is going to be the millennium of

the knowledge. So demand for paper would go on increasing in times to come.

Because of paper industrys strategic role for thesociety and also for overall industrial

growth, it is necessary that Paper industry in India is the 15th largest paper industry in

the world. It provides employment to nearly 1.5 million people and contributes Rs 25

billion to the government's kitty. The government regards the paper industry as one of

the 35 high priority industries of the country.

Paper industry is primarily dependent upon forest-based raw materials. The

first paper mill in India was set up at Sreerampur, West Bengal, in the year 1812. It

was based on grasses and jute as raw material. Large scale mechanized technology of

papermaking was introduced in India in early 1905. Since then the raw material for

the paper industry underwent a number of changes and over a period of time, besides

wood and bamboo, other non-conventional raw materials have been developed for use

in the papermaking. The Indian pulp and paper industry at present is very well

developed and established. Now, the paper industry is categorized as forest-based,

agro-based and others (waste paper, secondary fibre, bast fibers and market pulp).

In 1951, there were 17 paper mills, and today there are about 515 units

engaged in the manufacture of paper and paperboards and newsprint in India. The

pulp & paper industries in India have been categorized into large-scale and small-

scale. Those paper industries, which have capacity above 24,000 tonnes per annum

are designated as large-scale paper industries. India is self-sufficient in manufacture

of most varieties of paper and paperboards. Import is confined only to certain

specialty papers. To meet part of its raw material needs the industry has to rely on

26

imported wood pulp and waste paper.

Indian paper industry has been de-licensed under the Industries (Development

& Regulation) Act, 1951 with effect from 17th July, 1997. The interested

entrepreneurs are now required to file an Industrial Entrepreneurs' Memorandum

(IEM) with the Secretariat for Industrial Assistance (SIA) for setting up a new paper

unit or substantial expansion of the existing unit in permissible locations. Foreign

Direct Investment (FDI) up to 100% is allowed on automatic route on all activities

except those requiring industrial licenses where prior governmental approval is

required.

Growth of paper industry in India has been constrained due to high cost of

production caused by inadequate availability and high cost of raw materials, power

cost and concentration of mills in one particular area. Government has taken several

policy measures to remove the bottlenecks of availability of raw materials and

infrastructure development. For example, to overcome short supply of raw materials,

duty on pulp and waste paper and wood logs/chips has been reduced.

Following measures need to be taken to make Indian paper industry more

competitive:

Improvements of key ports, roads and railways and communication facilities.

Revision of forest policy is required for wood based paper industry so that

plantation can be raised by industry, cooperatives of farmers, and state

government. Degraded forest land should be made available to the industry for

raising plantations.

Import duty on waste paper should be reduced.

Duty free imports of new & second hand machinery/equipment should be

allowed for technology up gradation.

The paper industry in India is more than a century old. At present there are over

850 paper mills manufacturing a wide variety of items required by the consumers.

27

These paper mills are manufacturing industrial grades, cultural grades and other

specialty papers. The paper industry in India could be classified into 3 categories

according to the raw material consumed.

Wood based

Agro based &

Waste paper based

While the number of wood based mills are around 14 and balance 836 mills are

based on non-conventional raw materials (Agro Residues and Recycled fibre - waste

paper)

The Govt. of India has relaxed the rules and regulations and also delicensed

the paper industry to encourage investment into this sector and joint venture are

allowed and some of the joint ventures have also started in India. The paper industry

in India is looking for state-of-art technologies to reduce its production cost and to

upgrade the technology to meet the international standards.

The Indian Paper Industry is among the top 12 Global players today, with an output

of more than 13.5 Million tonnes annual with an estimated turnover of Rs. 35000

Crores.

Paper Industry in India is moving up with a strong demand push and is in

expansion mode to meet th eprojected demand of 20 Million tonnes by 2020. Thus

paper industry in India is on the growth trajectory and is expected to touch 8.5% GDP

in the coming years. Therefore, the growth of Industry will out span the present

growth rate of 6.5%.

Many mills in India are in modernization and expansion spree. Many old

Mills are under revival or new green field projects are under consideration.

Major changes are taking place in various segments like writing & printing

paper, paperboard, newsprint, tissues, etc. New technologies and modern

management will have vital part in this process. Besides that many overseas players

28

are entering India by acquiring or by setting up new plants in Indian soil with an aim

to make India as a paper manufacturing hub which will bring huge investments to

Indian Pulp and Paper Industry.

Today India is an excellent and vibrant market for Paper and Paper products

due to high spending of the middle class people and some of the Government

initiatives in the Social Development front also make the industry more vibrant.

Many Indian Paper Mills are eying now to new mills to setup or joint ventures with

existing players abroad to widen their business horizon.

MARKET FACTS

Globalisation has leveled the competitive playing fields between the industrial

and emerging market countries where competitors have an equal opportunity to sell

their products in a free market without restrictions.

India ranks amongst the top 15 global consuming countries (over 6 Metric

Tonnes (MT)/annum). With 10 per cent growth in per capita consumption in paper

over the last one year, India has emerged as the fasted growing paper market in the

world from 7.5 kg per capita consumption in 2007-08, the figure has gone up to 8.3

kg. Pulp and paper industry is growing rapidly with an estimated CAGR

(Compounded Annual Growth Rate) of 7-8% projected over the next decade.

The Indian paper industry accounts for about 1.6% of the worlds production

of paper and paperboard. The estimated turnover of the industry is Rs. 25,000 core

(USD 5.95 billion) approximately. The Indian consumption stands at 5.4 kg/ capita as

compared to worlds average of 52kg/capita and Asian average at 38 kg/capita. The

comparative clearly defines the magnitude and scale due for advancement.

The daunting issue that needs to be addressed is the shortage of raw material

in order to bridge the demand and supply gap, projected at 15 million tones by 2015

and 20 million tones by 2020.

The government has announced Customs duty exemptions for the newspaper

and magazine publishing industry, which has been hit by the current economic

29

slowdown. In a notification, the Finance Ministry exempted newsprint as well as

uncoated paper used for printing of newspapers from Customs duty. It also exempted

light weight coated paper used for printing magazines from the duty. In order to

encourage publishers of foreign newspapers like the Wall Street Journal, The

Independent and several others to start the facsimile editions of their international

editions in India, the government has allowed up to 100 per cent foreign direct

investment (FDI) in the segment.

Indian Paper industry has evolved into Agro-based industry from its earlier

character of a forest-based industry. India has 660 paper mills apparently 38 mills are

responsible for 60% of total production. This is a very strong indicator that

investment and technology is needed for upgradation of existing mills. The Central

Research Institute for Jute and Allied Industries has been requested to bring the

technology for manufacturing newsprint using jute. Indian patterns of demand have

changed with the buying power of the emerging middle class and a more rapid

increase in demand for quality value added products. India is a fast-growing market.

It is among the top ten markets, bigger than China. This is not really because the

Chinese market for serious non-fiction in English is small than that of India. It is just

that rampant piracy takes off a huge chunk of that market, leaving the official market

small than Indias. In conformity with the perceived comparative advantage of the

two countries, while China is entrusted with the physical production of books, the

pre-print processing is outsourced to India on a large scale. There is ample space for

the paper producers, equipment and technology suppliers and more so for the trade

players, to draw an effective strategy to chart aggressive growth. No doubt the

inevitably effects of economic slow down on Paper Industry has slowly started

showing up. However, several perceptible key drivers of growth capable of propelling

the Indian paper industry are still very much in place and there is ample space for the

paper producers, equipment and technology suppliers and more so for the trade

players to draw an effective strategy to chart aggressive growth.

30

CHAPTER-II

REVIEW OF LITERATURE

1.Yell takes big charge, plans new capital structure

Article

May 22 (Reuters) - Debt-laden Yell Group posted a 1.42 billion pound ($2.24 billion)

full year loss mostly due to a writedown of the value of operations and said it had

appointed advisors to help put a new capital structure in place. Yell, best known for

its printed Yellow Pages directories and struggling under the burden of debts mostly

maturing in April 2014, said on Tuesday its new generation of products was taking

longer than expected to bear fruit.

Business journal of capital structure

Reuters | May 22, 2012

2.Mitsubishi Motors says Masuko to become CEO, chairman in June

Article

TOKYO (Reuters) - Mitsubishi Motors Corp said its long-term president Osamu

Masuko will become chairman in June and also take on the newly created post of

Chief Executive Officer, as the Japanese automaker seeks to leave behind an arduous

decade of slumping sales and a tenuous capital structure. Managing Director Tetsuro

Aikawa will replace Masuko as president and also take on a newly made post of

Chief Operating Officer, the car maker said in a statement on...


Reuters | February 4, 2014

3.BRICS agree capital structure for development bank: WSJ

Article

(Reuters) - The BRICS bloc of large emerging economies have agreed on the capital

structure for a proposed development bank that aims to reduce their reliance on

Western financial institutions, the Wall Street Journal reported. Officials from Brazil,

China, India, Russia and South Africa agreed to set up the bank with a total capital of

$50 billion, shared equally among them, it quoted an unnamed senior Indian

government official as saying. The decision was made at a...

31


Reuters | August 28, 2013

4.Fidelity hires advisers for Energy Future reshuffle plan -sources

Article

By Nick Brown and Michael Erman NEW YORK, Oct 2 (Reuters) - Fidelity

Investments, a creditor of Energy Future Holdings Corp, has hired advisers to propose

a restructuring plan for the Texas utility in the hope of saving it from a protracted

bankruptcy, according to three people close to the matter. Fidelity, which has

amassed EFH bonds, is working on a proposal it aims to present this month, the

people told Reuters, declining to be named because...


Reuters | October 1, 2013

5.Po de Acar says Via Varejo capital structure sound

Article

* Retailer says appliance unit is independent and growing * Executive recently

dismissed possible Via Varejo sale * Klein family, minority partner in unit, balked at

remarks SAO PAULO, June 2 (Reuters) - Grupo Po de Acar , Brazil's

biggest diversified retailer, said its home appliance unit Via Varejo has a solid capital

structure and is on the road to growth, according to a market filing late on Friday. The

statement appeared...


Reuters | June 2, 2012

6.Banco Santander Brasil to pay $2.73 billion one-off dividend

Article

SAO PAULO (Reuters) - Banco Santander Brasil SA will modify its capital structure

and pay shareholders a one-off dividend of 6 billion Brazilian reais ($2.73 billion),

allowing it to return funds to its Spanish parent which has been suffering losses. The

dividend will also improve Santander Brasil's low measure of profitability. Once

among the world's most profitable lenders, Brazil's private banks have struggled in

recent years with the growing presence of...

32


Reuters | September 27, 2013

7.Corporation: For income tax purposes, "corporation...

Article

Corporation: For income tax purposes, "corporation" includes associations, joint

stock companies and insurance companies. All are taxed as if they were corporations,

although special rules apply to insurance companies. Recapitalization: A

rearrangement of the capital structure of a corporation.


March 23, 1994

8.BRICS agree capital structure for development bank: WSJ

Article

(Reuters) - The BRICS bloc of large emerging economies have agreed on the capital

structure for a proposed development bank that aims to reduce their reliance on

Western financial institutions, the Wall Street Journal reported. Officials from Brazil,

China, India, Russia and South Africa agreed to set up the bank with a total capital of

$50 billion, shared equally among them, it quoted an unnamed senior Indian

government official as saying. The decision was made at a...


August 28, 2013

9.BRIEF-Energy Future Holdings explored ways to reduce debt

Article

new york, april 15 (reuters) - * energy future holdings says has explored ways to

reduce the amount and extend the maturity of their outstanding debt * energy future

holdings says proposed changes to capital structure discussed with the creditors

included a consensual restructuring of tceh's approximately $32 billion of debt-filing


April 15, 2013

33

10.brief-energy future holdings explored ways to reduce debt

Article

new york, april 15 (reuters) - * energy future holdings says has explored ways to

reduce the amount and extend the maturity of their outstanding debt * energy future

holdings says proposed changes to capital structure discussed with the creditors

included a consensual restructuring of tceh's approximately $32 billion of debt-filing


april 15, 2013

11.Banco Santander Brasil to pay $2.73 billion one-off dividend

Article

SAO PAULO (Reuters) - Banco Santander Brasil SA will modify its capital structure

and pay shareholders a one-off dividend of 6 billion Brazilian reais ($2.73 billion),

allowing it to return funds to its Spanish parent which has been suffering losses. The

dividend will also improve Santander Brasil's low measure of profitability. Once

among the world's most profitable lenders, Brazil's private banks have struggled in

recent years with the growing presence of...


September 27, 2013

12.Fitch affirms Pinnacle Entertainment 'B' rating

Article

Dec 21 - Fitch Ratings has affirmed Pinnacle Entertainment, Inc's (Pinnacle) Issuer

Default Rating (IDR) at 'B' following Pinnacle's announcement that it entered into an

agreement to acquire Ameristar Casinos, Inc. (Ameristar) for $2.8 billion, including

$1.9 billion of debt. Pinnacle's Rating Outlook remains Positive. See the full list of

rating actions at the end of this release. The affirmation and Positive Outlook reflect

the strong strategic rationale for the...


December 21, 2012

34

13.USG Corp. said its second-quarter profit before interest...

Article

USG Corp. said its second-quarter profit before interest, taxes, depreciation,

amortization and other non-cash charges rose to $54 million from $43 million a year

earlier. Sales grew to $470 million from $441 million. Chicago-based building

supplies manufacturer USG said that for the first six months, earnings on the same

basis rose to $100 million from $78 million. Revenues increased to $906 million from

$867 million. USG Corp. said that because of accounting changes...


July 29, 1993

14.TEXT-Fitch affirms Clear Channel Communications ratings

Article

Oct 15 - Fitch Ratings has affirmed the 'CCC' Issuer Default Rating (IDR) of Clear

Channel Communications, Inc. (Clear Channel) and the 'B' IDR of Clear Channel

Worldwide Holdings, Inc. (CCWW), an indirect wholly owned subsidiary of Clear

Channel Outdoor Holdings, Inc. (CCOH), Clear Channel's 89% owned outdoor

advertising subsidiary. In addition, Fitch expects to assign a 'CCC/RR4' rating to the

proposed 9.0% Priority Guarantee Notes (PGN) due 2019 upon issuance


October 15, 2012

15.Mitsubishi Motors says Masuko to become CEO, chairman in June

Article

TOKYO (Reuters) - Mitsubishi Motors Corp said its long-term president Osamu

Masuko will become chairman in June and also take on the newly created post of

Chief Executive Officer, as the Japanese automaker seeks to leave behind an arduous

decade of slumping sales and a tenuous capital structure. Managing Director Tetsuro

Aikawa will replace Masuko as president and also take on a newly made post of

Chief Operating Officer, the car maker said in a statement on Wednesday. The

announcement was in line with media reports last week.


February 4, 2014

35

16.Fitch affirms Pinnacle Entertainment 'B' rating

Article

Dec 21 - Fitch Ratings has affirmed Pinnacle Entertainment, Inc's (Pinnacle) Issuer

Default Rating (IDR) at 'B' following Pinnacle's announcement that it entered into an

agreement to acquire Ameristar Casinos, Inc. (Ameristar) for $2.8 billion, including

$1.9 billion of debt. Pinnacle's Rating Outlook remains Positive. See the full list of

rating actions at the end of this release. The affirmation and Positive Outlook reflect

the strong strategic rationale for the acquisition, increased geographic diversification

of the combined group, and more robust discretionary free cash flow (FCF)


December 21, 2012

17.TEXT-S&P may cut SGS International

Article

Overview -- U.S. printing services company SGS International announced that it will

be acquired by private-equity investor Onex Corp. -- We are placing our 'B+' rating

on the company on CreditWatch with negative implications. -- The CreditWatch

listing reflects the possibility that financial risk could increase in connection with the

LBO, and that we could lower the rating following our review of the new capital

structure. Rating Action On Sept. 5, 2012, Standard & Poor's Ratings Services placed

its 'B+' rating on Louisville, Ky.-headquartered SGS International Inc., along with all

issue-level ratings on its debt, on CreditWatch with negative implications.


September 5, 2012

18.Smurfit-Stone Container Corp. files for Chapter 11 protection

Article

Chicago-based cardboard box material producer Smurfit-Stone Container Corp. on

Monday filed for Chapter 11 bankruptcy protection in the face of falling demand and

heavy debt payments. The company, which employs nearly 22,000 people at about

150 facilities across North America and in Asia, said it filed for protection from

creditor claims in U.S. Bankruptcy Court in Wilmington, Del., while it develops a

financial reorganization plan. Smurfit-Stone has been struggling to repay its debt,

36

which at the end of the third quarter was $3.6 billion -- nearly half its yearly revenue

of roughly $7.5 billion.


By FROM TRIBUNE NEWS SERVICES | January 27, 2009

19.UPDATE 1-Telenet rules itself out of bid for KPN's BASE

Article

* Had submitted a non-binding bid, sources said * To take on debt to buy back shares

BRUSSELS, Aug 13 (Reuters) - Belgium's largest cable operator Telenet said on

Monday it does not see itself making any major acquisitions any time soon,

effectively ruling itself out of making a bid for KPN's BASE. Telenet had submitted a

non-binding bid for BASE, Belgium's third-biggest mobile phone company, people

familiar with the process told Reuters last week. Other bidders were media group De

Persgroep, along with private equity firms Blackstone, Providence and Cinven . KPN,

the struggling Dutch telecom operator in the sights of Mexican tycoon Carlos Slim,

has drawn a number of bids for its BASE unit, which could help it raise up to 1.7

billion euros ($2 billion)


August 13, 2012

20.TEXT-Fitch affirms Clear Channel Communications ratings

Article

Oct 15 - Fitch Ratings has affirmed the 'CCC' Issuer Default Rating (IDR) of Clear

Channel Communications, Inc. (Clear Channel) and the 'B' IDR of Clear Channel

Worldwide Holdings, Inc. (CCWW), an indirect wholly owned subsidiary of Clear

Channel Outdoor Holdings, Inc. (CCOH), Clear Channel's 89% owned outdoor

advertising subsidiary. In addition, Fitch expects to assign a 'CCC/RR4' rating to the

proposed 9.0% Priority Guarantee Notes (PGN) due 2019 upon issuance. The Rating

Outlook is Stable.


October 15, 2012

37

21.TEXT-S&P Puts Midland Cogeneration Venture Rtg On Watch Dev

Article

Overview -- EQT Infrastructure Ltd. and Fortistar LLC have now signed a definitive

agreement to sell Midland Cogeneration Venture L.P. (MCV) to an affiliate of

OMERS Administration Corp. (OMERS). -- We are placing our 'BBB-' rating on

MCV's senior secured notes on CreditWatch with developing implications. -- As part

of the CreditWatch resolution we will review the new ownership structure and any

implications for the project's capital structure. Rating Action On Oct. 4, 2012,

Standard & Poor's Ratings Services placed its 'BBB-' rating on Midland Cogeneration

Venture L.P.'s (MCV)


October 4, 2012

22.TEXT-S&P says Jackson National ratings unchanged

Article

Sept 10 - Standard & Poor's Ratings Services today said that Jackson National Life

Insurance Co.'s (Jackson; AA/Stable/A-1+) announcement that it has closed on the

Reassure America Life Insurance Co. (REALIC; AA-/Watch Dev/--) acquisition, will

not affect the ratings or outlook on Jackson or any of its rated insurance subsidiaries.

The ratings on REALIC remain on CreditWatch Developing, where they were placed

May 31, 2012, reflecting the uncertainty that remains with REALIC's position within

Jackson's organizational structure and its prospective capital structure.


September 10, 2012

23.Verizon markets $61 billion bridge loan for Vodafone deal: sources

Article

NEW YORK (Reuters) - Verizon Communications Inc has started syndicating the

$61 billion bridge loan backing its $130 billion buyout of Vodafone Group's stake in

its U.S. wireless business, banking sources said, adding that some of the loan may

actually be drawn upon due to its huge size. The 364-day billion bridge loan will be

refinanced with a permanent capital structure consisting of $49 billion of corporate

38

bonds and $14 billion of loans, sources told Thomson Reuters. The loans will include

a $2 billion revolving credit and $12 billion of term loans.


Michelle Sierra and Reuters | September 2, 2013

24.Fidelity hires advisers for Energy Future reshuffle plan -sources

Article

Fidelity Investments, a creditor of Energy Future Holdings Corp, has hired advisers

to propose a restructuring plan for the Texas utility in the hope of saving it from a

protracted bankruptcy, according to three people close to the matter. Fidelity, which

has amassed EFH bonds, is working on a proposal it aims to present this month, the

people told Reuters, declining to be named because the information is not public.


October 1, 2013 By Nick Brown and Michael Erman NEW YORK, Oct 2

25.Lazarevski,Dimche (2007)1 Conducted a study on Analysis of Macedonian

companies cost of capital and optimal capital Structure Developed stock exchanges

returned to their levels before the crises, which were not the case with the

Macedonian, and the other SE Stock Exchanges. Thus, in this paper the reasons for

this stagnant situation through analysis of Macedonian companies' financial results,

capital structure and cost of capital. Customized model for calculation of the required

rates of return, suitable for emerging markets, and fundamentally determine

Macedonian company's share prices, and weighted average cost of capital in 2011 is

created. The analyses were performed on the ten companies that comprise

Macedonian Stock Exchange Index MBI 10. Based on the results it was found that

Macedonian companies have moderate cost of debt as for emerging market

companies, but the required rates of return are enormous.

39

CHAPTER III

RESEARCH METHODOLOGY

III.1 MEANING OF RESEARCH:

Research in common parlance refers to a search for knowledge. once can also

define research as a scientific and systematic search for pertinent information on a

specific topic. In fact research is an art of scientific investigation.

DEFINITION OF RESEARCH:

According to CLIFFORD WOODY research comprises defining and

redefining problem, formulating hypothesis or suggested solutions; collecting,

organizing, and Evaluating data; making deductions and reaching conclusions; and at

last carefully testing the conclusion to determine whether they fit the formulating

hypothesis to know more. This urge of acquiring information is ever present in every

individual. This urge has contributed to development of human beings in all spheres

of such as economic, social, commercial, scientific, and cultural aspects.

MEANING OF RESEARCH METHODOLOGY:

Research methodology is a way to systematically sole the research problem. It

is necessary for research methods or techniques but also the methodology is the

description, explanation and presentation of various methods of conducting research.

Human beings are interested to acquire information from different sources.

Methodology is the systematic, theoretical analysis of the methods applied to a field

of study, or the theoretical analysis of the body of methods and principles associated

with a branch of knowledge. It, typically, encompasses concepts such as paradigm,

theoretical model, phases and quantitative or qualitative techniques

III.2 RESEARCE DESIGN:

A research design is the arrangement of conditions for collection and analysis

of data in a manner that aims to combine relevance to the research purpose with

economy in procedure. Research design is purely and simply the framework or plan

for a study that guides the collection and analysis of the data. The function of research

is to ensure that the required dada collected are accurate and economical also.A

40

research designing is the arrangement of conditions for collection and analysis of data

in a manner that aims to combine relevance to the research purpose with economy in

procedure.

III.3 DATA COLLECTION:

The data of the sri pathi paper and board private limited for the year of (2009-

2013) used in this study has been taken from secondary sources from the published

annual reports it the company editing classification and tabulation of the financial

data which are collected from the above mentioned sources have been done as per the

requirements of the study.

1. Primary data

2. Secondary data

1.Primary data

As a part of strengthening the study personal contacts are made with the officials and

staff members of finance department in the from of discussion and collection of

report.

2.Secondary data

For the study only the secondary data have been used, the secondary data are

collected from following sources. The annual reports of sri pathi paper and board

private limited. The annual reports consist of company trading account profit and loss

account and balance sheet and from different articles.

The study mainly used the sources of data is secondary data.

PERIOD OF THE STUDY:

The data are extracted for this study the period of 5 years (2009-2013)

DATA ANALYSIS:

After the data collection, the collected data were analysed by using the Ratio

Analysis. This study examines the determinants of capital structure in general and the

determinants of corporate debt- maturity in particular for 56 listed companies in Saudi

Arabia. To achieve this objective the study was set to test a number of hypotheses

regarding the determinants of capital structure and debt maturity. These hypotheses

were related to the effects of profitability, growth opportunities, asset maturity, size,

liquidity and age. Total debt ratio was found to be positively and significantly related

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to the percentage growth in total assets and negatively and significantly related to

liquidity and asset structure. A growth opportunity variable was found to be

positively and significantly related to long - term debt and was negatively and

significantly related to short term debt. The relationship between asset maturity and

long term debt was found to be negative and significant. Therefore, there is no

support of the hypothesis that debt maturity decreases as the proportion of growth

potentials increase. Size was found to be positively and significantly related to long

term debt and negatively and significantly related to short term debt implying that

larger firms borrow on long term and small ones borrow on short term. Profitability,

age liquidity appeared to have no statistical significance on the different types of debt.

The implications of these results have been examined and future research directions

have been suggested.

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III.4 OBJECTIVES OF THE STUDY

To compare the various components of the capital structure of sri pathi

papers and board private limited.

To analyse the capital structure position of the company

To find the impact of capital structure on the profitability of the company.

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III.5 SCOPE OF THE STUDY

The study has been made on capital structure analysis of sri pathi papers and

board private limited for the period of five years from 2008 to 2013 by collecting

data from secondary source such as Annual report and company websites etc.The

result and findings from the study may provide scope for improving the financial

performance.

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III.6 LIMITATIONS OF THE STUDY

The data is collected from the secondary sources for the period of 5 years

only.

This study is limited to sri pathi paper and board private limited only and

hence the findings cannot be generalized.

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CHAPTER IV

DATA ANALYSIS AND INTERPRETATION

ANALYSIS

After the data have been collected, the researcher turns to the task of analyzing

them. The analysis of data requires a number of closely related operations such as

establishment of categories, the application of these categories of raw data through

coding, tabulation and then drawing statistical inferences.

Analysis work after tabulation is generally based on the computation of

various Operating Profit Ratio, Net Profit Ratio, Gross Profit Ratio, Interest Coverage

Ratio, Debt to Assets Ratio, etc., by applying various defined statistical formula.

INTERPRETATION

Interpretation refers to the task of drawing inferences from the collected facts

after an analytical and/or experimental study. The task of interpretation has two major

aspects.

1. The effort to establish continuity in research through linking the results of a

given study with those of another.

2. Establishment of some explanatory concepts.

Interpretation is the device through which the factors that seem to explain

what has been observed by researcher in the course of the study can be better

understood and it also provides a theoretical conception which can serve as a guide

for further researchers.

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TABLE IV.1.1

PBIT EPS ANALYSIS

S. NO. YEAR PROFIT CAPITAL EPS

1 2008-09 962.85 1763.78 1.831833

2 2009-10 1782.77 2696.99 1.512809

3 2010-11 2575.14 3602.1 1.398798

4 2011-12 3531.64 4608.65 1.30496

5 2012-13 4133.6 10666.04 2.580327

(Source: Primary Data)

CHART IV.1.1

PBIT EPS ANALYSIS

INTREPRETATION

From the table IV.1.1., the PBIT EPS value is 1.83 in 2009 and it decreasing

slightly in 2010, 2011 and 2012 and increased steadily in 2013 at 2.58.

1.831833

1.5128091.398798 1.30496

2.580327

2008-09 2009-10 2010-11 2011-12 2012-13

EPS

EPS

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TABLE IV.1.2

DEGREE OF OPERATING LEVERAGE

S. NO. YEAR DOL

1 2008-09 6.484

2 2009-10 5.284

3 2010-11 9.817

4 2011-12 3.916

5 2012-13 4.256


CHART IV.1.2

DEGREE OF OPERATING LEVERAGE

INTREPRETATION

From the table IV.1.2., the DOL value is 9.817 in 2011 which is highest in the

five year period. and it decreasing slightly in 2013 at 4.256.

6.484

5.284

9.817

3.916 4.256

2008-09 2009-10 2010-11 2011-12 2012-13

DOL

DOL

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TABLE IV.1.3

DEGREE OF FINANCIAL LEVERAGE

S. NO. YEAR DOL

1 2008-09 1.658

2 2009-10 1.372

3 2010-11 2.663

4 2011-12 2.254

5 2012-13 1.723


CHART IV.1.3

DEGREE OF FINANCIAL LEVERAGE

INTREPRETATION

From the table IV.1.3., the DFL value is 2.663 in 2011 which is the highest in

the five year period and in 2013, it is 1.723.

1.658

1.372

2.663

2.254

1.723

2008-09 2009-10 2010-11 2011-12 2012-13

DFL

DFL

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TABLE IV.1.4

DEGREE OF TOTAL LEVERAGE

S. NO. YEAR DOL

1 2008-09 10.17

2 2009-10 26.14

3 2010-11 12.1

4 2011-12 6.747

5 2012-13 7.201


CHART IV.1.4

DEGREE OF TOTAL LEVERAGE

INTREPRETATION

From the table IV.1.4., the DTL value is 26.14 in 2010 which is the highest in


10.17

26.14

12.1

6.747 7.201

2008-09 2009-10 2010-11 2011-12 2012-13

DTL

DTL

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TABLE IV.1.5

DEBUT TO EQUITY RATIO

S. NO. YEAR DTE

1 2008-09 1.24

2 2009-10 0.75

3 2010-11 1.32

4 2011-12 0.77

5 2012-13 1


CHART IV.1.5

DEBUT TO EQUITY RATIO

INTREPRETATION

From the table IV.1.5., the DTE value is 1.32 in 2011 which is the highest in


1.24

0.75

1.32

0.77

1

2008-09 2009-10 2010-11 2011-12 2012-13

DTE

DTE

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TABLE IV.1.6

DEBUT TO ASSESTS RATIO

S. NO. YEAR DTA

1 2008-09 0.97

2 2009-10 0.7

3 2010-11 0.62

4 2011-12 0.35

5 2012-13 0.44


CHART IV.1.6

DEBUT TO ASSESTS RATIO

INTREPRETATION

From the table IV.1.6., the DTE value is 0.97 in 2009 which is the highest in


0.97

0.70.62

0.350.44

2008-09 2009-10 2010-11 2011-12 2012-13

DTA

DTA

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TABLE IV.1.7

INTEREST COVERAGE RATIO

S. NO. YEAR INTEREST COVERAGE RATIO

1 2008-09 11.32

2 2009-10 12.42

3 2010-11 9.52

4 2011-12 4.47

5 2012-13 1.4


CHART IV.1.7

INTEREST COVERAGE RATIO

INTREPRETATION

From the table IV.1.7., the ITA value is 12.42 in 2010 which is the highest in


11.3212.42

9.52

4.47

1.4

2008-09 2009-10 2010-11 2011-12 2012-13

ITA

ITA

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TABLE IV.1.8

GROSS PROFIT RATIO

S. NO. YEAR GROSS PROFIT

1 2008-09 29.49

2 2009-10 30.1

3 2010-11 20.54

4 2011-12 13.27

5 2012-13 17.11


CHART IV.1.8

GROSS PROFIT RATIO

INTRE

A STUDY ON CAPITAL STRUCTURE IN SRI PATHI PAPER AND BOARDS PVT. LTD., SIVAKASI

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