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Journal of International Academic Research for Multidisciplinary
www.jiarm.com
Editorial Board __________________________________________________________________________________________
Dr. Kari Jabbour, Ph.D
Curriculum Developer,
American College of Technology,
Missouri, USA.
Er.Chandramohan, M.S
System Specialist - OGP
ABB Australia Pvt. Ltd., Australia.
Dr. S.K. Singh
Chief Scientist
Advanced Materials Technology Department
Institute of Minerals & Materials Technology
Bhubaneswar, India
PROF.Dr. Sharath Babu,LLM Ph.D
Dean. Faculty Of Law,
Karnatak University Dharwad,
Karnataka, India
Dr.SM Kadri, MBBS,MPH/ICHD,
FFP Fellow, Public Health Foundation of India
Epidemiologist Division of Epidemiology and Public Health,
Kashmir, India
Dr.Bhumika Talwar, BDS
Research Officer
State Institute of Health & Family Welfare
Jaipur, India
Dr. Tej Pratap Mall Ph.D
Head, Postgraduate Department of Botany,
Kisan P.G. College, Bahraich, India.
Dr. Arup Kanti Konar, Ph.D
Associate Professor of Economics Achhruram,
Memorial College,
SKB University, Jhalda,Purulia,
West Bengal. India
Dr. S.Raja Ph.D
Research Associate,
Madras Research Center of CMFR ,
Indian Council of Agricultural Research,
Chennai, India
Dr. Vijay Pithadia, Ph.D,
Director - Sri Aurobindo Institute of Management
Rajkot, India.
Er. R. Bhuvanewari Devi M.Tech, MCIHT
Highway Engineer, Infrastructure,
Ramboll, Abu Dhabi, UAE
Sanda Maican, Ph.D.
Senior Researcher,
Department of Ecology, Taxonomy and Nature Conservation
Institute of Biology of the Romanian Academy,
Bucharest, ROMANIA
Dr.Damarla Bala Venkata Ramana
Senior Scientist
Central Research Institute for Dryland Agriculture (CRIDA)
Hyderabad, A.P, India
PROF.Dr.S.V.Kshirsagar,M.B.B.S, M.S
Head - Department of Anatomy,
Bidar Institute of Medical Sciences,
Karnataka, India.
DR ASIFA NAZIR, M.B.B.S, MD
Assistant Professor Dept of Microbiology
Government Medical College, Srinagar, India.
Dr.AmitaPuri, Ph.D
Officiating Principal
Army Inst. Of Education
New Delhi, India
Dr. Shobana Nelasco Ph.D
Associate Professor,
Fellow of Indian Council of Social Science
Research (On Deputation},
Department of Economics,
Bharathidasan University, Trichirappalli. India
M. Suresh Kumar, PHD
Assistant Manager,
Godrej Security Solution,
India.
Dr.T.Chandrasekarayya,Ph.D
Assistant Professor,
Dept Of Population Studies & Social Work,
S.V.University, Tirupati, India.
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166 www.jiarm.com
PROFITABILITY AND GROWTH OF THE LANCO INDUSTRIES LIMITED
IN CHITTOOR DISTRICT OF ANDHRAPRADESH
DR. P. GURAVAIAH*, M.com, Ph.D, NET, AP-SET
*Academic consultant, Department of Commerce, S.V. University, Andra Pradesh, India
ABSTRACT
Profitability is the ability of a business enterprise to make profits. The analysis
of profitability involves the computation of profit ratios, based either on operating
profit or net profit or both in relation to capital employed, share holder’s investment,
sales and components of operating costs. Profitability management is concerned with
planning and controlling those factors which influence profits. Profit plan is a
comprehensive plan covering all areas in business management. Profit planning and
control involve use of certain tools of analysis like profitability ratios which enable
the management to compare figures in order to derive meaningful conclusions. Profit
in an understanding is the result of the interaction of cost, selling price and volume of
production and sales.
Hence, the need for studying profitability in various industries in India, whose
number has been on the increase and bound to be so for many more years to come.
As Iron and Steel and Cement industries which are spread out all over the country, are
all construction–based, their vital importance to the nation’s economy and their role in
rural and urban development needs no emphasis. Sound financial Management for
their successful working is naturally as important as it is for all other industries.
However, these industries encounter certain problems of Financial Management
peculiar to them. For an empirical investigation from the point of view of
performance, term of fixed assets, inventories, cash management and profitability
the Iron and Cement factories set up by Lanco Industries Ltd, at Rachaguneeri
village, Srikalahasti Mandal, in Chittoor District of Andhra Pradesh .
KEYWORDS: Ability, Profitability, Break-Even Point, Net Profit, Gross Profit,
Rural, Urban.
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INTRODUCTION
The term ‘profitability’ is made of two words “profit” and “ability”. The word profit
has been used in number of ways. Its meaning differs according to the use and
purpose of the figure. From accounting point of view, profit is the total expenses are
deducted from the total revenue for a given period. The term “ability” reflects the
power of the enterprise to earn profit. It is also used to refer to the “earning power” or
“operating performance” of investment. The word “profitability” may be defined as
“the ability of a given investment to earn a return from its use”. If an enterprise fails
to make profits, the capital invested by it is eroded and if this situation prolongs, the
enterprise ultimately ceases to exist. Profitability means the profit making capacity of
the enterprise. The state of profitability is a variable thing like the temperature and
humidity of a day.
OBJECTIVE OF THE STUDY
The present study to evaluate profitability and growth of Lanco Industries Ltd,
GROWTH AND PROFILE OF THE LANCO INDUSTRIES LIMITED
The establishment of Lanco Industries, Ltd, near at Rachgunneri village in Sri
Kalahashi Mandal an industrially backward areas, was made possible by a major
policy decision of the Government of India in 1991, as a part of its Economic
liberalization policy. Generally such large scale industries as Iron and Steel, and
Cement are established in places which have the advantage of being close to places or
areas rich in the raw materials for their manufacture. The area where Lanco
Industries, Ltd. Is located does not have this advantage at all. The bulk of the raw
material necessary for the manufacture of Iron and Cement have to be imported, and
brought from considerable distances and at considerable costs. It should be regarded
as an achievement that Lanco Industries, Ltd., has survived despite several risks,
odds, fierce competition, and fluctuation, and remained a profitable enterprise.
Starting with the manufacture of Pig iron it further has expanded its activities to
include Cement and DI pipes.
Lanco Industries, Ltd., was incorporated under the name Lanco Ferro, Ltd., on
1st November, 1991 under the companies Act, 1956, and obtained Certificate of
Commencement of Business on 8th May, 1992 from the Registrar of Companies,
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Government of Andhra Pradesh, Hyderabad. It was first promoted by L.Rajagopal,
L.Madhusudan Rao, G.Bhashara Rao and associates. Subsequently Asian Finance and
Investment Corporation (AIFC) and Andhra Pradesh Industrial Development
Corporation (APIDC) also contributed towards the capital of the company, A couple
of years later on 6th July, 1994, the name of the group of companies was changed to
Lanco Industries, Ltd., and certificate obtained from the Registrar of Companies,
Hyderabad. The Lanco Group first set up a Mini Blast Furnace (MBF) in 1994, at
Rachagunneri village with an installed capacity of 90,000 TPA to manufacture Pig
iron and molten metal. Pig iron is increasingly need in the manufacture of iron
castings which are used in a host of industries such as automobile, white goods and
engineering industries. The objective of setting up the MBF was two-fold sand to
supply slag for the production of Portland cement. This variety of cement with a high
proportion of slag is used as a binder in the construction of industry all over the
world. Moreover it non-substitutable. Its growth is linked with the growth of the
economy and the construction sector. Such products as Pig iron and Cement are
integral to the economic property of a nation, and industrialization as it grows
stronger in our country accelerates the taking off of iron castings and cement.
Lanco Industries set up in 1996 a Portland slag Cement (PSC) plant of 70,000
tpa capacity equipped with the necessary machinery on a 21 acre stretches of land
adjacent to its Pig iron plat at Rachagunneir village in Sri Kalahast, Mandal. The
company already had a 11 KVA transmission line for its Pig iron plant. Now to meet
the Demand of power for the Cement plant it commissioned 2.5 MW gas-fired power
plant using the blast furnace gas from the Pig iron plant. As the requirements of water
for process and other general uses are heavy, the company sunk bore wells at its site
and built a reservoir with a capacity to hold the requirements of water for a whole
month.
The raw materials required for the Iron and Cement plants of the company and
wherefrom they are obtained are briefly noted here. The raw materials for the Pig iron
plant are Iron ore, metallurgical Coke, Dolomite Manganese and Duazite. Iron ore is
sourced from the Bellary region in Karnataka which is about 400 km away from the
plant and coke has to be imported from China and Japan. The other additives are
source from proximate mines. The chief raw material for the manufacture of Cement
is Limestone, which is obtained from the Company’s captive mines in Khazipet and
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Tippalur, 160 km away from the plant. As a result transport costs of raw materials
have necessarily been heavy and going up. Further, a lot of raw material gets wasted
while loading and unloading. This inevitably affects adversely the Company’s
earnings. But the Company has been trying to make up this loss by other means.
The most significant transformation in Lanco industries took place when in
March 2002 Electro steel castings, Ltd. India’s leading manufacturer of DI pipes,
entered into a strategic alliance with the Lanco group by acquiring 46.43 percent state
in Lanco Industries and 48.49 per cent state in Lanco kalahasti castings, Ltd., Electro
steel’s participation in LKLC was crucial for the survival of Lanco. It possessed
technological expertise to manufacturer DI pipes and was competent solve the
technical problem of the two companies by providing technological support.
Secondly, it infused fresh fund into Lanco by way of equity, participation and
remodeled the financial structure, thus reducing considerably interest costs. Further
Electro steels strategic participation in Lanco strengthened the vendors’ confidence
in its, and it could thinks of expanding it activities.
In 2003 the capacity of the Mini Blast furnace was increased from 90,000 TPA
to 1,50,000 TPA, and that of DI pipes from 60,000 TPA, to 90,000 TPA at a capital
out lay of approximately Rs. 35 crores. In the same year Kalahasti castings got
merged with Lanco Industries with effect from April 1, to take advantage of the close
synergy in the business mould of the two companies and in view of their close
dependence on each other. For, a large part of the Pig Iron in liquid form was being
consumed by LKCL in the manufacture of DI pipes. These pipes are generally
preferred for water supply, sewerage, and transmission applications. The superiority
of DI pipes lies in their ability to provide trouble-free service against increasing traffic
load and much longer life when compared to other kinds of pipes. Considering the
ever increasing urbanization in the country and active shortage of adequate water
infrastructure, which has become a national priority, the demand situation for DI pipes
is positive. In the southern state in particular, which have been facing water shortage,
many water supply projects are on the annul, generating large requirements of DI
pipes. However the level of competition from manufactures at home and abroad,
particularly from china, is gradually increasing. This fact has to be reckoned will by
Lanco and appropriate steps have to be taken.
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The company is taking various steps to streamline production, increase
capacity, reduce costs and promote efficiency it has now a stable base for sourcing
Iron ore and has plans to reduce dependence on imported coke and increase the
capacity of the Mini Blast Furnace. Its endeavour has been to move forward to
achieve operational excellence and value addition for the stake holders through
operational synergy, higher capacity utilistion, backward interpretation, coke
reduction, and continual improvement in shop floor operation.
PROFITABILITY
Profit planning is a systematic and formalised approach of determining the
effect of management plans upon the company’s profitability9. A well organised profit
planning programme will help maintaining a level of profit which will ensure the
continuation of the business and fulfillment of other responsibilities. Certainly, profit
growth coupled with a high level of profit and the ability to maintain reasonable
profits help towards, (i) ensuring the shareholders to receive adequate dividends (ii)
preserving the asset worth of the business, (iii) generating out of profits a sufficient
cash flow to provide capital for expansion, and (iv) providing funds for research and
development of new and improved products to replace existing products before they
go into decline. Therefore, profit planning and control resembles comprehensive,
budgeting or managerial budgeting.
Profitability is analyzed through the computation of ratios. In computing profit
two issues are to be considered as given below:
1. What shall be the basis of profitability? and
2. How is profitability measured?
Profitability can be measured either on the basis of operating profit or net
profit. It may be said that operating profit reflects on profits of the main business for
which the enterprise was launched and offers the most reliable measure for a long-tem
perspective. In other words, net profit reflects net operating and non-operating
income. It helps the analyst with the most reliable measure of profitability from a
short-term point of view.
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However the figure net profit may assume any of the following forms:
1. Net Profit before interest and taxes (NPBIT),
2. Net Profit before tax but after interest (NPBT),
3. Net Profit after tax (NPAT)
TOOLS OF PROFIT PLANNING AND CONTROL
Profit planning and control involves certain tools of analysis, like ratios and
break-even analysis. Profitability ratios enable the management to compare figures in
order to derive meaningful conclusions. They help diagnosing the situation and
measuring their performance.
Profit in an undertaking is the result of the interaction of cost, selling price,
volume of production and sales. Break-even analysis is the technique through which
this interrelationship is analyzed. If output is increased gradually from zero unit to a
point of output, cost and revenue will be equal. The point where the cost of products
and revenue from the products are equal, there is neither profit nor loss to the
undertaking.
Profit of an undertaking can be influenced by changes in (a) fixed cost, (b)
variable cost (c) price, and (d) volume of sales. Among them fixed cost, variable cost
and volume of sales can be influenced by an undertaking but price cannot be easily
influenced under competitive conditions. To maximise profits, the undertaking has to
control fixed costs, variable costs and volume of sales.
Break-even-analysis helps in determining
a) minimum level of operations required to avoid losses,
b) volume of sales to be undertaken to achieve a profit target,
c) the effect to changes in price, changes in fixed costs in volume of sales on
profit, and
d) the proportion of sales mix to maximize profits.
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Profit margin in Lanco Industries Limited
S.No. Year Profit After Tax
[Rs. in Lakhs]
Total Sales Rs.
[Rs.in lakhs]
Percentage
1. 2009 -2010 4202.63 82384.79 5.10
2. 2010- 2011 5793.97 75015.37 7.72
3. 2011 – 2012 (-395.23 ) 71051.85 (0.55)
Source : Annual reports of Lanco Industries Limited.
The above table shows the profit margin of Lanco Industries during the study
period in 2009- 2010 it was 5.10 per cent. In 2010-11 It was 7.72 per cent. In 2011 -
2012. It was (-0.55) per cent in losses. The above analysis shows clearly that the
profit margin of the industry was not satisfactory.
Percentage of gross profit to sales in Lanco Industries Limited
S.No. Year Gross profit
(Rs. in Lakhs)
Sales
(Rs. in Lakhs)
Percentage
1. 2009 – 2010 8797.63 82384.79 10.67
2. 2010 -2011 5584.52 75015.37 7.44
3. 2011 -2012 (-416.79) 71051.85 (0.58)
Source : Annual reports of Lanco Industries Limited
GROSS OPERATING PROFIT TO SALES
The Financial results of a manufacturing unit can be observed by computing
the ratio between gross operating profit and sales. Gross operating profit can be
found out by subtracting cost of goods sold from net sales.
Table shows the percentage of gross profit to sales of Lanco Industries during
the study period. The percentage fluctuated. It was higher in 2009-2010. and 2010 -
2011, it decreased to 7.44 percent and 2011 -2012 going to lossof (0.58) percent
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Table Percentage of net profit to sales in Lanco Industries Limited
S.No. Year Net Profit
(Rs. in Lakhs)
Sales
(Rs. in Lakhs)
Net profit
Percentage
1. 2009 -2010 7755.76 82384.79 9.41
2. 2010 -2011 5801.49 75015.37 7.73
3. 2011 – 2012 (-416.79) 71051.85 (0.58)
Source : Annual reports of Lanco Industries Limited
PERCENTAGE OF NET PROFIT TO SALES
Net profit is the excess of operating and non-operating income over
expenditure. It depends upon the extent of fixed and variable overheads. The
percentage of net profit to sales in Lanco Industries Limited during the study period
is presented in Table 7.6. The percentage was highest in the year 2009-2010 (9.41)
and was loss in the year 2011 -2012 (0.58) the Industry sustained losses in net profit.
The main reason for the losses was the heavy interest payments on term loans and
payments of taxes to the Government and decrease of rupee value.
Net profit / loss in Lanco Industries Limited
S.No. Year Net profit / loss
(Rs. in Lakhs )
Percentage to Total
1. 2009 – 2010 7755.76 55.50
2. 2010 -2011 5801.49 41.51
3. 2011 -2012 (-416.79) (-2.98)
Total 13974.04 100
Source : Annual reports of Lanco Industries Limited
Table shows the Net profit / loss of Lanco Industries Ltd, during the study
period. In the year 2009 -2010 the net profit was 55.50 percent during 2010 - 2011, it
came down sharply to 41.51 percent and in 2011- 2012 it fell further very drastically
loss to -2.98 percent,
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Net profit / loss in Lanco Industries Limited
55.5
41.51
-2.98
-10
0
10
20
30
40
50
60
2009 – 2010 2010 -2011 2011 -2012
Year
Prof
it / L
oss
2009 – 2010 2010 -2011 2011 -2012
CONCLUSION
The profitability analysis shows that the industry to start with earned profits
rather unevenly between 2009 -2010 and 2010 -2011 thereafter, during the next year
sustained losses rather heavily the losses were due to over expenditure and decreased
the value of rupee due to global crises
1. The analysis of net operating profit to sales of Lanco Industries has revealed
the efficiency of its Iron and Cement factories in controlling its operating
expenses i.e. selling and administrative expenses. It is found that it has
incurred net operating losses to sales. The reason for it was higher operating
expenses which reduced the Sextant of net operating profit and subsequently
reduced the percentage of net operating profit to sales.
2. Lanco industries should maintain the return on capital employed in Lanco
Industry by adopting measures like increasing the recovery rate, increasing the
capacity utilization and improving the procurement of qualitative raw
materials etc in the coming years.
3. While its factories reached good gross profit level, the net profit was very low
because the net operations profit level was poor. This deficiency can be
rectified by reducing the interest burden which is an abnormal item of
expenditure in the profit and loss account.
Lanco industries should adopt an effective profit planning and control system.
Every year, it should estimate in advance the minimum operation level
through break-even analysis and fix the raw material price on the basis of the
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estimated cost of production and the price of iron and cement and the by-
products.
The company should adopt cost technique in order to bring down the
manufacturing, selling and administrative costs. Further it should strengthen its
Finance and Cost Accounting departments to collect, analyse and interpret the
information of all the financial transactions and thereby identify the strengths and
weaknesses of the industry.
Lanco industries must investment considerably on research and development for
the improvement its technology to realize higher rate of recovery from the raw
materials. In these days of unprecedentedly rapid technological advancement in all
areas, no industry can offered to log behind and be complacent updating its
technology and trying to be a few peaces ahead of other competing industries in
these regard has become an imperative. At its peril, it ignores this fact. The
suggestions offered above for improving without additional expenditure. They call
for efficiency, competence, and aleterness. Lanco Industries , Ltd which has
managed to survive and do well enough in profit earnings and protect its
stakeholders, can better its performance even more, if its finance are better
managed as the present analytical study has demonstrated, by showing where the
gaps and deficiencies in the company’s profitability performance lie.
REFERENCES:- 1 Annual Reports of lanco Industries limited .
2 www.lanco industries .com
3 T.S.McAlpine, “Profit Planning and Control,” London : Business
Book Ltd., 1969, p.108.
4 Fred R. Gardner, “Management and Control”, New York, McGraw, Hill Book Company, Inc.,
1995, P.1.
5 S.R.Wilson, and John O. Tomb, “Improving Profits through Integrated Planning and Control”.
Englewood Cliffs, N.J. Printice Hall Inc., 1968, pp.4-6.
6 Thomas S. Dudjek, “ Profile for Profitability,” New York; John Wiley & Sons 1972, p.3. 7 Joseph F Brandley, “ Administrative Financial Mgmtt”, New York: Braves & Noble, 1964 p. 104