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STUDY ON CAPITAL STRUCTURE
INDUSTRY PROFILE
The tire industry is essentially an automobile ancillary business. The demand for its
products emanates from the Original Equipment Manufacturer (OEM), replacement & export
market. All these segments are equally important in terms of volume of business. The tire
industry’s growth is linked to the growth in demand from vehicle manufacturers & the
aftermarket. During 2005-06, the growth in production of two or three wheelers & the
aftermarket demand were buoyant. Consequently there was a substantial growth in the sales
of 2/3 wheelers tires. Input costs especially the price of natural rubber & fabric remained high
due to increased demand for tires in passenger car & commercial vehicle segments &also
export of natural rubber.
The tire industry in India appears to be on the verge of changes due to the ongoing process of
globalization. Some foreign companies are making efforts to establish a manufacturing
facility in India by setting up joint ventures to cater to local demand as well as for buyback.
Indian companies are also stepping up their efforts & working to capture new markets.
Regional trade agreements may also have an impaction the industry future performance &
development. They tire industry has shown tremendous growth during the year .The 2/3
wheeler industry also witnessed substantial growth in the period under review. There has
been a marked shift in consumer preference away from mopeds & scooters & towards
motorcycles. The motorcycle tire segment is estimated to grow at 15% per annum. Given the
current economic realities, the industry will witness fierce competition between companies of
varying size & stature including multinational companies. The tyre industry is essentially an
automobile ancillary business. The demand for its products emanates from the original
equipment manufactures replacement and export market all these segment are equally
important is terms of volume of business. The tyre industries growth is linked to the growth
in demand from vehicle manufactures and the after market
During 2008-09 the growth in production of 2 and 3 wheeler increased as the market
demand were buoyant. Consequently there was a substantial growth in the sales of 2 and 3
wheeler tyres input costs, especially the price of natural rubber and fabric remained high due
to increased demand for tyre in passenger car and commercial vehicle segment and also due
to export of natural rubber.
The tyre industry in India appear to be the verge of changes due to the ongoing
process of globalization some foreign companies are marketing efforts to establish a
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manufacturing facility in India by setting up their effort and working to capture new markets
regional trade agreement may also have as impact on the industries future performance and
development.
The tyre industry has shown tremendous growth during the year the 2 and 3 wheeler
industry also witnessed substantial growth in the period under review. There has been a
market shift in consumer preference away from mopeds and scooter and towards motor
cycles. The motor cycle tyre segment is estimate to grow @15% per annum. Stature,
including multinational companies.
HISTORY OF THE TYRE INDUSTY
The word rubber industry had its beginning in the year 1887 with the initiation of process of
tuber vulcanization by Charles good year. However the growth of the industry received a big
boost towards the end of the century, when the boyd Dunlop succeeded in making the
vulcanized rubber into inflatable pneumatic tyres. Since then the tyre industry has constituted
a major segment of the industry all over the world. Even in India, automotive tyre and tubers
account for a major part of the Indian rubber produce industry.
SECTOR COMMENTS;
Ever since the first Indian tyre company given the current economic realities, the
industry will witness fierce competition between companies of varying size and Dunlop
rubber company (India) was incorporated in 1926, the tyre industry has grown rapidly and
today it is a Rs 9000 core worth industry. India has 2.61lakh people living in villages and are
connected by 6.23 lakh kms of metal led roads and 9.81lkh kms of un metalled roads. These
villages are linked to small town and cities. There is a daily traffic of over 4.12 lakhs trucks,
1.27 lakh busses, 7.23 lakh car and thousands of taxis, 2 wheeler, 3 wheeler, tractors and
animal drawn vehicle on Indian roads. There exists a market potential for the tyre industry in
India. The fortune of the tyre industry depends on the agriculture and industrial performance
as it influences economy, the transportation needs and the production of vehicles. Hence, this
is a very sensitive industry, which has to adopt itself to a highly volatile environment.
MARKET PROFILE;
While the tyre industry is mainly dominated by the organized sector , the unorganized sector
holds sway in bicycle tyres. The major players in the organized tyre segment consist of
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MRF , APPOLO TYRE , CEAT and JK TYRE ltd industries , which account for 63% of the
organized tyre market. The other key players includes modi rubber, kesoram industries and
good year India, with 11per cent , 7%and 6% share respectively . Dunlop, falcon tyres
corporation of India ltd(TCIL), TVS –srichakra, metro tyre and balkrishna tyre are some of
the other players in the industry. MRF , the largest tyre manufacture in the country, has
strong brand equity ,while it rules supreme in the industry. Other players have created niche
markets of their own.
SECTOR SPECIFICS;
The tyre industry is a major consumer of the domestic rubber production, natural rubber
constitutes 80 per cent of the material content in India tyre synthetic rubber constitute only 20
per cent of the rubber content of a tyre in India. Worldwide, the ratio of natural rubber to
synthetic rubber is 30; 70. Apart from natural and synthetic rubber, rubber chemicals are also
widely used in tyres.
Most of the RSS-4 grade rubber required by the Indian tyre industry is domestically sourced,
with only a marginal amount being imported. This is an advantage for the industry, since
natural rubber constitutes 25% of the total raw material cost of the tyre.
OUTLOOK;
Globally, the OEM segment constitutes only 30%of the tyre market, exports 10% and the
balance from the replacement market. In India, the scenario is quite different .Nearly 85% of
the total tyre demand in the country is for replacement. This anomaly has placed the retenders
in a better position then the tyre manufactures .rethreading is looming over the tyre industry
has a colossal threat. The Coimbatore based elgi tyres and tread ltd., the largest rethreads in
India.
Simply put, rethreading is replacing the worn-out tread of the old tyre with a new one. The
popularity of rethreading stems from the fact that is costs only 20% of a new tyre but
increases its life by 70% to 80%. Most of the transports in India thread their tyre twice during
its lifetime, will a few fleet owners even retread thrice. In their zealousness to economize
costs, they over look the reality that retreading the quality of the tyre.
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The Major Raw Material & their weight age in the total raw material structure are:
1. Natural Rubber 25%
2. Synthetic Rubber 14%
3. Carbon Black 13%
4. Nylon Tire Cord/yarn 34%
5. Share of Raw Material 14%
Remaining share of raw materials of 14% approx. is accounted by rubber chemicals.
1. NATURAL RUBBER
It is the most important raw material used in the manufacture of tires. Natural rubber
accounts for about 40% (by weight) of the total raw material requirement in the manufacture
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of a tire. The productivity of natural rubber in India is highest in the world but still India face
shortage of natural rubber produced in the country.
2. SYNTHETIC BUTADIENCE RUBBER
It is one of the major kinds of raw materials. It contains three types of rubber namely:
styrene rubber, Poly Butadiene rubber & Butyl Rubber.
3. CARBON BLACK
It is petroleum based unorganized chemical in the form of quasi-graphite powder of
extreme fitness & with high surface area composed essentially of elemental carbon. The main
input required in the manufacturing of carbon black is feedstock. Carbon black is divided into
soft grade & hard grade. In India carbon black used is of N660, N220, & N330 variety.
4. NYLON YARN/FABRIC/TIRE CORD
Nylon tire cords are an essential reinforcement material weigh- age Nylon tire yarn
in term of cost of raw materials used in the highest at about 27%. Caprolactum is a major raw
materials used in the manufacture of Nylon tire cord.
To sum up the tire industry is highly raw material intensive with raw material
accounting for 70% of the cost of production. The export-import policy allows free import of
all tires of new tires & tubes. However, import of retreated tires either for use or for
reclamation of rubber is restricted. This has led to use tires being smuggled into the country
under the label of new tires. Though tire imports & all raw materials for tires except natural
rubber are under Open General Licenses (OGL) only import of natural rubber from Srilanka
is eligible under OGL.
The profitability of the industry has high correlation with the price of key raw
materials such as rubber & crude oil. They account for more than 70% of the total cost. The
tire industry is also capital intensive industry as it requires around Rs. 4 billion to set up a
radial tire plant(tire having fabric layers parallel) & around 1.5 to 2 billion for a cross poly
tires.
Functions Of The Tire:
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Tire provides steering response.
Durable & easy to drive.
Has load carrying capacity.
Provides cushioning ability.
Cooler running & gives more mileage.
Having a minimum noise & vibration.
Passengers’ safety.
Features of the Tires:
1. The tires have a stylish look.
2. The tires are made up of a unique thread design which provides unbeaten balance
coupled with low rolling resistance of gripping.
3. The performance level of tires is high.
4. The tires are durable.
5. Tires are specially created of unit directional patterns for optimum performance.
6. Tires give smooth driving comfort.
7. Product variety two, three & four wheelers.
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COMPANY PROFILE
Company history
Mr. H.D Shetty & a group of professionals promoted FALCON TYRES
LIMITED(FTL) in 1973 & it started commercial production in 1975.Then it was taken over
by JUMBO group in 1987 headed by Mr. M.R.Chhabria, NRI business tycoon in December
2005 organization was taken over by P.K.RUIA group. Dunlop has a 47% stake in Falcon
Tires however the company functions independently.
Company engages in the business of manufacturing of a wide range of Nylon bias
play tires & buty1 tubes for two & three wheelers passenger’s cars, jeep, light commercial
vehicles under ”DUNLOP” brand for the domestic market & FALCON brand for the
overseas market. It is location in the garden city Mysore, situated in Metagalli industrial area
of Karnataka industrial development board Mysore in 18 acres land area. Falcon is a
company registered under companies Act & under license from Dunlop India limited to
manufacture tires & tubes using state of the art technology. Falcon’s Mysore factory
manufactures 5400000 tires & 3600000 buty1 tubes per year.
Falcon tires is the preferred choice of all leading vehicle manufactures in India like
• Bajaj Auto
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• Yamaha Motors
• Escorts
• Hero Honda motors
• Majestic Auto
• LML
• Kinetic motors company
• Kinetic Engineering
• Royal Enfield motors
Falcon tires limited global operations include exporting tires to Bangladesh, Srilanka,
Peru Nepal, European countries etc. Falcon has acquired modern & sophisticated technology
for producing quality tires & tubes. It has imported high speed machines from Korea, Taiwan
&United Kingdom etc.
Close interaction with the customers has familiarized with their needs & has therefore
helped the company to create quality products such as the JAP series & latest M & Z series of
tires. This move has enabled the company to gain a major chunk of the market in the two &
three wheeler segment.
Falcon is the first & largest company in India to supply high speed, high performance
“Low Aspect Ratio” directional bias tires advanced & high powered new generation
motorcycles being introduced successfully on the Indian roads. Falcon tire meets
international organization for standardization bureau of India standard wherever applicable
Falcon’s R & D center is engaged upgrading the product performance, quality &introduction
of new products Falcon’s aim is to satisfaction to its customers by offering high & cost
effective tires & tubes.
OBJECTIVES OF THE COMPANY
Supply of the quality products.
On time delivery.
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Achieve fullest customer satisfaction.
Training to all levels.
Continual improvements.
MAJOR CUSTOMERS OF FALCON TYRES
a) Bajaj Auto Ltd. Akrudi, Pune
b) Bajaj Tempo Ltd. Akrudi, Pune
c) Bajaj Auto Ltd. Walaj, Aurangabad.
d) Hero Honda Motors, Chennai.
e) LML Ltd. Kanpur.
f) Yamaha Motors India Ltd. Faridabad.
g) Kinetic Engineering Ltd. Pune.
h) Piaggio Greaves Ltd. Bharamati.
i) VST Tillers & tractors Ltd. Bangalore.
BACKGROUND & INCEPTION OF THE COMPANY
Milestone of Falcon tires
1974: FTL was promoted by a group of professionals.
1975: FTL started its commercial production.
1983: Company started with its loss.
1987: The Company was taken over by Mr. Chabria & it becomes a part of jumbo group of
industries.
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1991-92: FTL started recording profit.
1994: The entire accumulated losses of the company were wiped off & it carried out the one
of the most remarkable turnover in the Indian corporation history.
1994-95: Capacity expansion from 2.2 lakh to 3.0 lakh.
1995-96: It emerged as the highest profitable company in the Indian tire industry with a net
profit ratio of over 7%.
1997-01: One stage capacity expansion to 3.5 lakhs till date.
2001-02: Company earns profits of 353.06.
2005-06: Company is taken over by P.K RUIA Group.
2006-07: Company started, cogen 6mw power project.
NATURE OF THE BUSINESS
Falcon company is engaged in manufacturing business, it provides tires, tubes, flap,
radical tires & tubeless tires with licensed capacity of automotive tires of 5400000 &
automotive tubes of 3600000 per year. Company enjoys 20% of market shares globally. The
companies into globalization, it exports products to the developing countries like East Asian
countries. It has several regular customers like Bajaj auto, Yamaha motors, Hero Honda.
The company suppliers to all major Original Equipment Manufacturers (OEM)
directly from the factory. The replacement market is catered through the C & F agents
established all over the country. The export market is directly handled from the factory at
Mysore. The company’s brand “Dunlop” has enabled the company to with stand the sever vet
throat competition from the other tire companies to a great extent.
FTL is engaged in manufacturing & marketing of automotive tires, tubes flaps, the
products are as follows:
o Tires of autos
o Tires of motor cycles, scooters, jeeps.
o Tires for tractors.
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o Automotive inner tubes for all the above tires.
AREA OF OPERATION
Falcon manufactures & markets Nylon bias poly tires & buty1 tubes for two & three
wheeler passengers cars & jeeps light commercial vehicles under the Dunlop brand the
domestic & Falcon brand for the overseas market.
FTL in the year 1987 company has taken over by DUNLOP INDIA LIMITED. Even
though it is subsidiary of India Ltd. It is a separate entity & profits enter by it being a
subsidiary of Dunlop. Falcon has the stable assistance of the SUITOMO industries of Japan.
The company supplies products to the Original Equipment Manufacturers (OEM) &
replacement throughout the nation & exports products to the developing countries like South
East Asia & Latin America. Therefore it operates globally, nationally & regionally.
VISSION, MISSION AND QUALITY POLICY
VISSION STATEMENT
The company believes in the philosophy of continuous improvement in all facts of its
operation & to have leadership status in two & three wheeler segment.
To set global benchmark in each segment of our operation & in the process delight all
our customers, employees & stakeholders.
MISSION STATEMENT
The Falcon Tyres Ltd. Will always strive to be a socially responsible corporate citizen,
dedicated to providing value for money to its customers through the operational excellence of
its process, partners & employees where the focus is on continuous improvement of the
quality of all its products & processes.
To focus on 2 & 3 wheeler business along with capacity expansion of existing
capacity
To mark Falcon Tyres available all across India.
Improvement in costumer relations & production quality.
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QUALITY POLICY
Falcon Tyres Ltd. committed to supply quality tyres, tubes & flaps on time to achieve
fullest customer satisfaction.
EOHS POLICY
Falcon Tyres Ltd. manufacturing tyres, tubes & flaps are committed to develop
environmental friendly healthy & safe working systems. We shall achieve this by:
1. Use of proper & efficient methods in our operations with the aim of conservation of
natural resources, prevention of pollution & hazards.
2. Compliance with applicable legislations & regulations.
Training at all levels & continually improving environmental, occupational, health
& safety performance.
PRODUCT PROFILE
Falcon Tyres Ltd. Manufacture & market a wide range of Nylon bias poly tyres &
butyl tubes for two & three wheelers, passenger cars, light commercial vehicles & farm
vehicles. FTL markets its products under DUNLOP brand for the domestic market &
FALCON brand for the overseas market.
DUNLOP- MAGIC/MYSTRY/ ZEBRA-Vehicles in which they are used;
Hunk, Eliminator, Splendor plus, Enticer, Ambition, Karizma, CBZ, Dawn, CD dawn,
Libero crux, CD-10008 pulsars, Caliber – 115, Boer, velocity, Boss, Freedom, Victor, Fiero,
Wind, RX-100. DUNLOP-GLINDER & STEEL vehicles in which these kinds of enriched
tyres are used: Cheek safari, DX Zoom, Nova, Marvel, Legend, Active Honda & dieo.
DUNLOP CMALLING-Vehicles in which these kinds of tyres are used: Appachi,
Passion plus, R-15, Ambition, Dawn, Libero, CRUX, CRUX-R victor, pulsar, caliber-115,
Boxer, Kinetic velocity, Freedom, Boss, Fiero, RX-125.
DIFFERENT TYPE OF TYRES
AUTO RICKSHAW MOTOR CYCLE SCOOTER
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Jap 700
Auto star
Kargil
Lug
Leader
Superstar
Megastar
Super tuff
Maxi rib jap 320
Maxi rib jap 330
Maxi rib jap 360
Uni grip gold
Uni grip speed
Hero
Magic
Master
Smart
Challenger
Mystery
specter
Maxi life
Jap 220
Glider
Kiraro jap 230
Maxi life jap 200
K137
CAR JEEP AND LCV TRACTOR
PC 523
Super tuff
Olympus
Olympus ULT
Road track
Rod track major
Road star plus
Border
XM rib extra
Front jap 910
Front Mahan
Mahan LR5
Power tills
Reaper jap 940
Rear jap 930
Trailer RK 59
OWNERSHIP PATTERN
Falcon Tyres Company is private limited company 91.06% of shares of the company
are in the electronic from share holding pattern as on 30th September 2011.
PARTICULARS NO. OF SHARES HELD % OF SHARE HOLDING
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A. Promoter’s holding
1.Promoters
Indian promoters
Foreign promoters
5947644
23513100
17.45
68.98 2.Persons acting in
concert
---- ----
Subtotal 29460744 86.43
B.Non- promoters holding.
3. Institutional investors
a. Mutual fund & UTI
b.Bank, FIs, Insurance
companies.
c. FIIs
----
----
----
----
----
----Subtotal ---- ----
3.Others
a)private corporate bodies
b)Indian public
c)NRIs/OCBs
d)Any other
2564568
2032590
11922
15708
7.50
5.97
0.03
0.05
Subtotal 4624788 13.57
GRAND TOTAL 34085532 100.00
COMPETATORS INFORMATION
MADRAS RUBBER FACTORY (MRF)
A leading company in the tyre industry MRF Ltd. Boasts of an enviable track record.
The company has continued in the same vein & has been posting excellent results,
notwithstanding the winds of recession blowing across the economy performance of the
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company has been commendable in light of the fact that the user industry is facing a slow
down. The company has benefited from better productivity & operational efficiency. The
company caters to a host of impressive clients.
CEAT
Being the second largest selling brand in India with a market share of 14.6% CEAT
caters primarily to the replacement market. Due to the strong growth in the OEM sector the
share of the replacement market in the total revenue of the company has fallen. However, the
production growth in the automobile sector. Over the past few years should provide a boost
to the replacement market in the coming years & CEAT could be major beneficiary thereof
with the advent of multinationals like Goodyear, Michelin Bridgestone & Continental, a
major shakeout in the industry is imminent & the same could result in CEAT.
APPLLO TYRES LIMITED (ATL)
A slowdown in the tyre market & rubber procurement at high prices has put the
brakes on Apollo Tyres Ltd. (ATL). The company has traditionally has been the market
leader in the truck & bus tyres segments.
INFRASTRUCTURAL FACILITIES
1. It has 18 acres of land.
2. Canteen facilities.
3. Medical & health care facilities.
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4. Safety department.
5. Each & every department should be clean.
6. Air conditioning & ventilation system.
7. Meeting rooms.
8. Leave facilities.
9. Shoes & uniform for workers.
10. Co-generation power plant.
11. Raw water storage tanks.
12. Water facilities.
I.ACHIEVEMENT/AWARDS
Central Excise has termed FTL as “good payer”
Sales Tax Department & the Electricity Board have giving “GORDCARD” to FTL>
The PF Department has termed FTL as “BEST ENTERPRISE”.
OTHER AWARDS
ISO 9001:2000 certificate in March 2003.
ISO/TS 16949:2002 certificate in April 2004.
ISO 40001; 2004 certificate in September 2005.
OHSAS 18001:1999 certificate in October 2005.
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WORK FLOW MODEL OF FTL
Receipt of stock
Receipt of chemical
Blue patches chalk power & Blue/white paint
Tube joint paint
Valve, valve base paint
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R
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W
M
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T
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R
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Final mixing
Testing
Extrusion
AGEING
Precutting
Splicing
Valve Fixing
Chilling
Performing
Curing
Inspection
WORK AWAY
COMPOUND (20X)
WORK AWAY
WORK AWAY
WORK AWAY
WORK AWAY
WORK AWAY
WORK AWAY
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Core, Nut, washer & packing bags
Work flow model gives the detailed tyres manufacturing process & also tube
manufacturing process. It is systematic process which is explained in detail as follows:
TUBE MANUFACTURING PROCESS & PROCESS SPECIFICATION
RAW MATERIALS
BUTYL
Butyl rubber a copolymer of isobutylene & isoprene is used in the manufacture of
automotive tubes because of its low permeability of gases.
EPDM
It is a copolymer of ethylene & propylene which posses very good resistance to
ageing & also low cost since it is used butyl for manufacturing of tubes.
CARBON BLACK
Carbon black used in rubber compounds to provide increased strength & produced by
burning crude oil in a special type of furnace.
OIL
Paraffin/Aromatic/Naphthenic oils are used as an extender
ZINC OXIDE
Used as an activator in butyl rubber compound.
STEARIC ACID
Stearic acid in combination with acid & acts as a activator & also act as an internal
lubricant.
RECCLAIM RUBBER
Butyl reclaim is a processing aid.
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CORE FIXING
Finished Goods
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CURATIVES
Sulphur act as a Vulcanizing agent.
ACCELEATORS
Trim ethyl tetra mine & mercapto benzyl thiozole.
MASTER BATCH MIXING
Master batch mixing of butyl rubber inner tube compound is carried out in an internal
mixer but finalization (addition of curatives) may be carried out in open mill or internal
mixer.
The objective of master batch mixing is to disperse the carbon black in the butyl with
the minimum of macro agglomerates & stock porosity. It has offended been considered that
carbon black addition in a conventional butyl mixing cycle should quite early as the polymer
does not undergo palpitation during mixing. However, a degree of mastication of the butyl
rubber converts the initially formed sumps into a continuous mass which more readily
accepts black typically the first black addition is made after one minute of rubber mastication.
Zinc oxide &/or stearic acid should not be added with the polymer initially as they
coat it, reducing shear & adversely affecting mix quality. Zinc oxide is preferably added with
the first black & stearic acid with the subsequent black oil addition.
Process oils should not be added with the first black as they reduce viscostitu &
shear. They should be added with the last black addition.
Dump temperature of 155-165 degree C are indicated for optimum mix temperature is
mandatory to ensure complete chemical reaction. Dump temperatures must exceed 125
degree cent. To ensure dispersion of polyethylene butyl bale wrap.
STRAINING
Straining is process of eliminating foreign matter from the compound as the wall
thickness of the tube is very tolerating the same. Butyl inner tube compounds are strained to
remove foreign matter black agglomerates, etc…. efficient cooling & minimal heat history
are prerequisites for straining finalized compounds preferably should go directly to the
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Extruder are sometimes practiced. The compound must be particularly well-mixed & high
quality curatives used to avoid frequent screen changing.
Staining is carried out after master batch mixing.
STRANED EXTRUDER
Mesh size : 40/50 mesh
Strained rubber compound temperature : 125’oC max
Extruder screw RPM : 60 max
FINAL MIXING
Curatives may be added to butyl inner tube compounds on the open mill before
finalizing. It is desirable to rest the master batch for a minimum of 2 hours preferably
overnight to allow cooling & some equilibration. This allows maximum rubber carbon black
interaction, which improves green strength.
CURATIVES
TMT, MBT are accelerators & sulphur act as vulcanizing agent.
Final mixing is carried out in two ways:
1. Understand master batch mixing.
2. Strained master batch mixing.
EXTRUSION
Hot feed extrusion is the most widely practiced technique. A tube of uniform of
dimensions with minimum porosity is the objectives.
In hot feed extrusion, particular an adequate supply of compound strip with minimum
porosity & at the correct temperature. A small rolling bank should be maintained on the feed
mill should not be over loaded a slight excess of stock is desirable in the extruder feed box to
make sure that the screw flight are full, thus preventing an excessive intake of air with the
feed. Feed sped temperature of 110 to 120 dg. Cent. Give efficient extrusion. The take off
conveyor sped should match the extrusion speed & pulling down should avoided as it results
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in increased tube wall porosity & uneven shrinkage on cooling. The crown which under goes
thinning in the forming operation is usually extruded 1.5- 1.6 times the thickness of the base.
Talc or other dusting is blow into the interior of the tube during extrusion to prevent
the collapsed tube sticking to itself.
The application of blue fine compound to the butyl tube during extrusion is useful it
identifies tube as butyl to re-clainers. A light thin line only should apply so that it is dry
before entering the cooling batch.
Butyl inner tubes should be well cooled after extrusion by passing through a cold
water spray. It is particularly essential that the folds are well cooled, warm folds are
particularly susceptible to fold breakdown. All water should be blown off the surface of the
tubes after leaving the cooling section.
A polyethylene patch is applied to the hot tube in the area where the value will be placed. The
polyethylene should be plain & un-patterned. The tube is then dusted or dip coated externally
with talc. Tubes are then cut to length & usually passed to storage in the bear trap racks.
If possible the green tubes should not stacked, as this can result in fold break down.
The tubes are preferably stored for the duration of 2 hours which will ensure a good condition
for splicing.
“GREEN TUBE STORAGE AFTER EXTRUSION SHOULD NOT MORE THAN 4
HOURS”.
VALVING
Butyl inner tubes should be fitted with butyl rubber values valving before splicing
allows the tubes to be spliced crown down if required; the valve hole can be punched before
valve fixing. Valve hole punching is carried out using specified templates.
Valve cement is made from the inner tube compound with added tacakifier resin. The
valve cement is applied to the base of the valve pad. A single thin coat of well compounded
cement is adequate sufficient drying time to allow all solvent to escape from the adhesive is
required.
Butyl inner tube valves should be consolidated using specified valve consolidation
die; the valve consolidation time varies from 6.0 sec. to 8.0 sec. depending on the tubes sizes.
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Oven temperature : 60+/- 50 deg. cent
Drying time (Minutes) : minimum 20/ maximum 30
SPLICING
Splicing is a fundamentally important step in Butyl inner tube production & must be
performed as efficiently as possible, since splice faults often form large proportion of total
rejects.
Butyl tubes are spliced by automated butt splicing machines the ends of the inner
tubes to be joined are cut to length by a hot knife & the fresh tacky surfaces are butted
together & consolidated. Optimum butt splice quality to be obtained with a horizontal cut &
rubber faced clamps.
SAFETY FEATURES
1. Twin starter buttons requiring two-handed operation.
2. Clamps lift if starter buttons released before they have completely desended.
3. Kick bar immediately lifts clamps & stops knife according to which part of cycle is in
progress.
4. Guarded clamp covers table opening on machines.
STORAGE
After splicing, green tube should be carefully stored on racks, storage time should not
be longer than 24 hours & the storage environment should reasonably clean & cool.
SPLICE CHILLING
Chilling of the butt splice Butyl tube to increase its green strength & minimize splice
opening during the subsequent operation is required. The most common method of chilling is
by laying the splice section over a pipe through which cooled bring circulating splice should
not be over chilled & the chilled time being usually equivalent to the duration of the cure
cycle. Care should be taken to ensure that no moisture remains on the tube when it is placed
in the press, the presence of moisture may cause defects.
FORMING
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Forming is the operation in which the uncured tube is inflated to about 97% to 98% of
its final cured volume before placing it in the prese. Forming Rings should be designed to
minimize any expansion of the base of the tube, concentrating it on the thickened crown
section. Tubes should be slowly inflated. It is advisable to use a guide to control the degree of
inflation. Over formed tubes are susceptible to thinning & may crease in the mould. Forming
rings should not be located very close to presses as the heat from the press may cause splice
opening or thinning.
VULCANIZATION
Inner tubes are vulcanized in quite simple press often with a hot black to increase the
temperature in the thicker valve region. Inner tubes area inflated internally with compressed
air. Normally, Butyl inner tubes curing temperatures are 190-200 deg. Cent. And curing time
will of course vary with size & thickness.
Mould surfaces should smooth & clean both from the stand point of the appearance
of finished tubes & ease with which the stock flows in the mould. Dirty moulds can lead to
poor stock flow & buckles. Moulds to be cleaned with diesel or alkali (5%) in water. Moulds
should be well vented & the vents kept clear to prevent dimpling.
Internal air pressure : 7.0+/-0.5 kgs
External temperature : 195-205 deg, cent
(Curing temperature)
INSPECTION
After vulcanization the tubes should inspected carefully for flaws that might offect
serviceability using a combination of visual & manual techniques particular attention should
be given to the splice & the valve region, The most common sources of defective tubes.
The tubes next are usually vacuum evacuated, folded & packaged for storage &
shipments. A good practice is to package the tubes in sealed polyethylene bags, which will
help prevent ozone attack during long storage.
RECYCLING OF COMPONDS
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In the manufacture of butyl inner tubes a certain amount of uncured stick, which must
be record have been damaged during storage. If there is no scorched material or other foreign
matter in the rubber, this material can be used at up to 10% to 20 % during final mixing. It
should be at uniform rate on the final mix mill or warm-up mill but it should be remembered
that recycle reduces the scorch safety of new compound.
Material for recycle must be free from water & extraneous materials such as valve
patch & valves. Thus care must be taken to excluded water at all possible pints of entry.
Watch together with dusting agents & polyethylene patches, can be a potent source of blisters
& porosity in cured inner tubes.
FUTURE GROWTH & PROSPECTS
• To develop wide range of tyres and tubes in two, three and four wheeler and
industrial segments for export market.
• To develop tubeless tyres in two wheeler segments.
• To further introduce advanced technology tyres of directional pattern design
and conventional pattern in motorcycle segment.
• To further develop hi-tech low profile tyres in scooter
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MCKENCY’S 7S FRAME WORK:
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The 7-S model is better known as McKenzie 7-S. This was developed by tom peters
and Robert waterman who had been consultants at the firm “McKenzie”. They published
their 7-S model in their article “Structure is not organization” (1980) and in their books “The
art of Japanese management” (1981) and “In search of excellence” (1982). Just as the 7
wonders of the world serve as the mirror to world’s beauty, so do these 7 elements constitute
the entire company as a whole.
The mode consists of 7 elements. Those 7 elements are distinguished in so called
hard S’s and soft S’s. The hard elements are feasible and easy to identify. They are strategy,
structure and system of the organization. The four soft S’s are hardly feasible. They are
highly determined by the people at work in the organization i.e., style, staff, skills and shared
values.
STRATERGY
A company plans in response to or anticipate changes in the external environment.
Strategy sets out vision, mission, objectives, major action plans and policies of the entire
enterprise. These set out the picture of the organization in the future. In a typical pattern, it
spells out the overall organization strategy.
The main strategy of FTL is provided wide range of products at superior quality to
the customers. In order to achieve this, company has expanded the existing manufacturing
capacity and facilities. It is also aiming at product diversification. So, new pattern of tyres
and tubes have been introduced.
STRUCTURE
FTL has both horizontal and vertical organization structure. Where there are different
departments and under these departments there are sub managers according to their preferred
jobs.FTL is an independent an organized structure in itself. The lower level and functional
level managers are consulted and consultation is analyzed before the top management any
decisions.
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ORGANIZATION STRUCTURE:
Managing Director
Vice President
Sr. General Manager
General Manager
Sr. Deputy General Manager
Deputy General Manager
Assistant General Manager
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Sr. Manager
Manager
Officer
Board of directors in FTL
• Mr. Pawan Kumar Ruia, Chairman
• Mr. S.Ravi, Director
• Mr.Ambuj Kumar Jain, Director
• Mr. Kokkarne Natarajan Prithviraj, Director
• Mr. Prakash P Mallya, Director
• Mr. S Badrinarayanan, Director
• Mr. Ashok Agarwal, Director
• Mr. Ashok Guptta, Whole Time Director
• Mr. Sunil Bhansali, Executive Director
Functional department of DPPL industry
There are the functional at DPPL
• Finance
• Human resource management
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• Marketing
• Production department includes engineering, technical, quality assurance material and
production planning related actively.
SYSTEM
System on 7S frame works refers to the rules, regulations and procedures; both formal
and informal rules complement the organization system, production planning, control system
and budgeting system. The FTL uses a complete systematized process in all areas of its
operations. The company has different organized methods in order to smooth flow of the
information from one department to another. Dunlop has good internal control system.
• Information system & IT used in the FTL
• Budgets are made in order to find sales forecast by Marketing Department. Budgets
are properly planned to make purchase at reasonable time and price by Financial
Department.
• HR systems
HR Department aims at providing training and development.
STYLE
Tangible evidence of what management considers important by the way it collectively
spends time and attention and uses symbolic behavior. If it is not what management says is
important, it is the way management behaves.
In FTL there exists a highly participative style of management. The employees are
given full important. Even workers are allowed to express their views freely by suggestions;
schemes and best suggestion is awarded. The workers are educated about their rights. The
company values the opinion of workers, believes in “Total acceptance” rather than
acceptance by the management or the workers. The opinions of both management and
workers are taken into consideration.
STAFF
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Staff of the company has hired able people, trained them well and assigned them to
the right jobs. Employees are the functional unit of the organization. Their selection, training,
placement and induction everything is important for the organization.
The company deals with the process by which employees are recruited, deployed and
develop their current position, future up-gradation are doing, selection, training, rewards,
recognition, retention, motivation and assignment to appropriate work are considering.
FTL there are various departments under which employees work, they are very
dedicated towards work. The employees are specialized in their respective field of work.
There are many welfare schemes in company in order to encourage the workers. As such they
are very active and learning oriented.
The employees demographics are as under:-
Total employees- 575
Company staffs- 65
Company employees-110
Trainees-85
Contractees-315
SKILL
A skill is the ability, knowledge, understanding and judgment to accomplish a task.
Skills may be defined as what the company does best; the distinctive capabilities and
competencies that reside in the organization.
The job requirements, type of job and important of job gives rise to different skills in
the different jobs and different departments of the company. The skills differ with respect to
performance of the job for instance- in quality control they need an engineer and in
HR.Department they require post graduate with specialization in HRM.
The manpower at FTL a huge and capable. The workers are very skilled so the
company is capable of accepting and performing any type of the orders and executing it will
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before schedule and to the expecting of the customers. The employees are well-versed skills
on their particular job performance. The training is provided for the employees where
employees will get to learn all innovative things about the process.
• Technical skill.
• Human skill.
• Training.
SHARED VALUE
It refers to the core of fundamental values that are widely shared in the organization
and serve as guiding principles that are important. The values and believes of the company
ultimately guide employees to-wards valued behavior. The values might well include simple
goal statements in determining corporate destiny. To fit the concept, most people in the
organization must share the values.
FTL believes in the philosophy of continuous improvement in all the aspects of its
operations. The organization has the common goals of having production of 500 crores in
next 3years.
The company considers employees are the greatest of its assets. Production and
productivity comes only to employee welfare FTL believes that productivity comes only next
to employee welfare. The company’s focus on the customer and creating culture of
interdependence are embodied in its mission statement.
SWOT ANALYSIS
STRENGH OPPERTUNITIES
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WEAKNESS THREADS
Strategic management is concerned with establishing proper organization
environment fit. It involves watching the organization factors with the environment factor.
Strategic management therefore, involves analysis of the organization factors.
SWOT means analysis and assessment of comparative strengths and weakness of a
firm in relation with their competitors and environment opportunities and threats, which a
company may likely to face SWOT analysis is as such a systematic study and identification
on of those aspects and strategies that best suit the individual company position in a given
situation . it should be based on logic and rational thinking such that a proper strategy
improves an organization business strengths and opportunities and at the same time reduce its
weakness and threats .
The SWOT analysis of FTL is given below;
STRENGTHS;
• Brand equity of “DUNLOP”
• Necessary infrastructures and additional capacities created to cuter to the marketing
requirement.
• The company has increase its presence in all the markets viz, original equipment
replacement exports.
• Consistent quality and after sales service with full fledged R&D backup.
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• Flexibility in production.
• Excellent manpower.
• 95%capacity utilization.
• 30%shre in the replacement market.
• Obtained ISO certificate for the good quality of the production.
• Successful and fast absorption of international technology to suit Indians and needs.
WEAKNESS;
• Dependence on original equipment customers.
• Loss of flexibility in pricing of the products due to severe cultroat computation.
• Non-participation in OEM,S like TVS , Honda motors, etc and fast growing
companies.
• Very less expenditure on R&D.
• Less range of tyre in 4 wheelers.
• Out dated labour laws.
OPPORTUNITIES;
• Projected growth trajectory of the automobile industry, indicating increase in the
OEM demand.
• Rise in replacement market demand.
• Extensive distribution network to cater to the requirements of the replacement market.
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• Increased business from existing and new clients including exports markets for two/
three wheeler tyres.
• THREATS;
• cheaper imports of tyre, especially from china
• Cyclical nature of the automobile industry.
• Volatility in the prices of rubber, synthetic rubber, carbon black and other petroleum
based raw materials, which accounts for nearly 90% of the total raw material
consumed.
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ANALYSIS OF FINANCIAL STATEMENT
BALANCESHEET AS AT 30th September, 2012
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PARTICULARS NOTE 2012 2013
1.EQITY AND LIABILITIES(1) Shareholders fundsa. Share Capitalb. Reserves & surplusc. Money Received against share warrants
(2) Share Application Money Pending Allotment
(3) Non-current Liabilitiesa. Long-Term borrowingb. Deferred Tax Liabilities (Net)c. Other Long Term Liabilitiesd. Long Term Provisions
(4) Current Liabilitiesa. Short-Term Borrowingb. Trade Payablesc. Other Current Liabilitiesd. Short Term Provisions
Total Equity & Liabilities
II. ASSETS(1)Non-Current Assetsa. Fixed Assets
i. Tangible Assetsii. Intangible Assets
iii. Capital Work-in-progressb. Non-current Investmentsc. Long Term Loans & Advances
(2) Current Assetsa. Inventionsb. Trade Receivablesc. Cash & Bank Balanced. Short-Term Loans & Advances
Total Assets
12
33A3B3C3D
44A4B4C4D
3873.6323540.76_
1704.2717972.74_
27414.39_
47437.491483.073746.481057.99
12282.9911687.427013.651095.98
19677.01_
19726.77763.502606.451186.92
23313.827970.455945.293441.73
113219.45 84631.94
6
78
9101112
48043.1920.1516109.281107.5223930.35
9536.466851.712448.855171.94
19497.00_4372.138863.0023698.29
9139.9711383.372779.964898.22
113219.45 84631.94
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STATEMENT OF PROFIT & LOSS FOR THE YEAR ENDED ON 30 th
SEPTEMBER, 2012
PARTICULARS NOTE 2011 2012
Revenue from operationsOther Income
Total Revenue
ExpensesCost of materials consumedManufacturing ExpensesPurchase of Stock-in-tradeCharges in inventories of finished goods,Work-in-progress & stock-in-tradeEmployee Benefit ExpenseFinancial CostsDepreciation & Amortization ExpensesOther Expenses
Total Expenses
Profit before exceptional & extraordinary items & taxExceptional Items
Profit before extraordinary items & tax
Extraordinary Items
Profit before tax
Tax expense:(1) Current tax(2) Deferred tax
Profit/Loss from the period from continuing operations
Profit(Loss) from the discontinuing operationsTax expense of discontinuing operations Profit/Loss from the discontinuing operations
Profit/Loss for the period
Earning per equity share:(1) Basic(2) Diluted
1314
1515A
1617181920
21
90595.66951.39
90072.77828.44
91547.05 90901.21
53292.054981.159738.17
436.765422.044172.011805.5210180.99
53756.955441.2911539.59
-2585.564928.501752.03852.3310261.51
90028.69 85946.64
1518.36 4954.576697.28 _
-5178.92 4954.57
_ _
-5178.92 4954.57
_719.57
2019.5636.55
-5898.49 2898.46
___
___
-5898.49 2898.46
-7.617.61
8.508.50
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LEARING EXPERIENCE
Internship at Falcon Tyres Ltd. was a rewarding experience. During in plant training
period I have learnt the organization basics. And 10weeks of experience at FTL has taught
the important of soft skill for a management student. The most significant lessons, which
have learnt from the organization, employees are the most valuable assets of the organization
and it is very important to keep them satisfied.
Being in the organization for four weeks, I have learnt the following disciplines:
o Managerial knowledge such as planning, organizing, directing, controlling and
decision making.
o Got the product knowledge at Falcon types.
o The company has given high priority for quality and also customer
satisfaction.
o More care was taken by the top managers towards workers regarding their
health and safety.
o No outsiders are allowed into the company without permission letter and
security people take due care of this, which indicates the important given by
the company towards security of employees, organization and secrecy.
o All infrastructural facilities and safety measures are provided to the workers at
work place to avoid accidents.
o The company follows an internal recruitment process through promotions on
the basis of this promotes employee satisfaction lot.
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GENERAL INTRODUCTION
Capital structure refers to a business's balance of debt and equity financing.
Businesses have two options for financing the purchases of equipment, expenses and
materials necessary for their operations. They can raise money from investors, which is
equity financing, or they can borrow from banks and creditors -- leverage or debt financing.
Most businesses engage in a degree of both, paying careful attention to the costs associated
with either source. Relying too heavily on equity increases the cost to investors and cuts into
return. But relying too much on debt puts the business in a more precarious position and
comes with the substantial costs of interest.
Capital structure means the mixture of share capital and other long term liabilities. In
the company, we know that liability of each shareholder is limited but how much be the total
liability of shareholder is the important question? It can be decided by choosing best capital
structure. In capital structure, we include equity share capital, preference share capital,
debenture and long term debt. Suppose, our company’s capital structure may show 50%
equity share capital, 30% preference shares capital and 20% of debentures. But all company’s
capital structure may not be equal because different business needs different type of capital.
Some of companies want to become smart. They slowly decrease equity share capital and
increase loan excessively which may be very risky because these company has to pay fixed
cost of interest and has to manage repayment of loan after some time.
In order to run & manage a company in an efficient manner Funds are needed from
the initial stage that promotional stage to the end .Finance plays a very important role in
company’s life .This is because, if the funds are insufficient the business suffers .But, if the
funds are not properly managed the entire organization suffers .Therefore, it is very essential
to estimate correctly the current & future need of capital. By doing this, an organization can
have an optimum capital structure which intern helps the organization to conduct its activities
smoothly without any stress.
STATEMENT OF PROBLEM
Capital structure decision is not an easy task. The choice of firm’s Capital structure is
a marketing problem. The capital structure affects the company’s EPS, EBIT, and financing
trend so the study of capital structure is necessary. The optimum financing affect the
company’s performance or not.
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Capital structure refers to the way corporation finance its assets through some
combination of equity debt. Capital structure planning here by it focuses on the idea firms
only planning their capital. This analysis can be extended to look weather there is impact an
optimal capital structure the one which maximizes the value of the firm. The company is
facing the problem of improper of capital structure, debt acquires the major part in capital
structure it increase the company’s cost of debt.
SCOPE OF THE STUDY
To study of the capital structure involving an examination of long term as well as
short term sources that a company taps in order to meets its requirement
To capital structure influences the shareholder’s return & risk.
To identify the finance resources of the company.
The dividend decision bearing on the capital structure of the company.
The capital structure affect the company’s EPS & EBIT.
The new financing decision of the company may affect its debt-equity mix or ratio.
OBJECTIVS OF THE STUDY
To know the effect of capital structure planning on company’s profit.
To study the capital structure of the company.
To examine the leverage analysis of company.
METHODOLOGY OF THE STUDY
Data is obtained from various reports available with company. The information
collected through secondary sources of data, which included company’s reports, manuals, and
websites.
LIMITATION OF THE STUDY
These were the constrains which have faced at the time of study
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As the study was mainly based on the published information it is bound to suffer from
certain limitations.
The ratio analysis & other tools used might contain few general limitations of the
financial statement such as yearend figures are considered for conclusion.
CAPITAL STRUCTURE
MEANING OF CAPITAL STRUCTURE
The term capital structure is used to represent the proportionate relationship b/w debt
& equity. Estimation of capital requirement is necessary but the formation of capital structure
is important.
The term capital structure refers to “the relation between various long term form of
financing such as equity share capital, preference share capital & debenture”.
Capital structure refers to the way corporation finance its assets through some
combination of equity debt.
The term capital structure refers to the relationship between the various long term
sources financing such as equity capital, preference capital and debt capital. Deciding the
suitable capital structure is the important decision of the financial management because it is
closely related to the value of the firm.
According to Prasanna Chandra “the composition of a firm’s financing consists of
equity, preference and debt”.
Types of capital structure:
1. Simple capital structure
2. Compound capital structure
3. Complex capital structure
1. Simple capital structure: A simple capital structure consists of single security base as a
source of found to finance the activities of a concern.
2. Compound capital structure: In compound capital structure a combination of two
security base in the form of equity and preference capital or equity share capital and
debenture are used as a sources of funds.
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3. Complex capital structure: A complex capital structure is made up of multi security base,
consisting of equity, preference debenture and loans from financial institutions.
CAPITAL STRUCTURE PLANNING
INTRODUCTION
Effective business management requires careful planning and decision-making about
the balance of debt and equity used in financing the business. The key for business owners is
to evaluate their company's particular situation and determine its optimal capital structure. An
optimal capital structure is one that strikes a balance between risk and return and maximizes
the price of the stock while simultaneously minimizing the cost of capital.
Companies use both debt and equity to finance their activities and the mix of debt and
equity constitute a business’s capital structure. Companies choose between debt and equity
depending on their current and expected future profitability. In general, the use of debt can
put certain financial constraints on a business, but in exchange it allows greater returns for the
companies current equity holders. The cost of debt often is cheaper than the cost of equity,
but the use of debt can have a potentially negative effect on the overall future financing cost
of a company.
Capital structure planning refers to the designing of an appropriate capital structure in
the context of facts & circumstances of each firm. Planning the capital structure means
selecting a desired debt-equity combination in advance. The initial capital structure is
determined at the time the firm is promoted. So, this structure should be designed very
carefully. Deciding the suitable capital structure is the important decision of the financial
management because it is closely related to the value of the firm.
Capital structure is the permanent financing of the company represented primarily by
long-term debt & equity. A widely used financial technique to design an appropriate capital
structure is EBIT-EPS analysis. As a method of capital structure planning, it essentially
involves the comparison of alternatives of financing under various assumptions of EBIT. The
choice of combination of sources with the capital structure would be one which, for a given
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level of EBIT, would ensure the largest EPS. Alternatively the choice of combination should
ensure the maximum market price per share (MPS) = EPS* P/E ratio
Advantages of Equity Financing
• Equity financing do not create any obligation to pay a fixed rate of dividend.
• Equity financing can be issued without creating any charge over the assets of the
company.
• It is a permanent source of capital and the company has not to repay it except under
liquidation.
• The investments do not increase a company’s fixed costs or fixed payment burden.
• Equity financing do not require a pledge of collateral.
Disadvantages of Equity Financing
• If only equity financing issued, the company cannot take the advantage of trading on
equity.
• As equity capital cannot be redeemed, there is a danger of over capitalization.
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• Equity financing can put obstacles in management by manipulation and organizing
themselves.
• During prosperous periods higher dividends have to be paid loading to increase in the
value of shares in the market and speculation.
• Investors who desire to invest in safe securities with a fixed income have no attraction
for such shares.
Advantages of debt financing
• Debt financing generate and retain greater investment returns for a company’s
equity holders.
• Borrowing costs from the use of debt usually are less expensive than those on
equity financing, because debt holders enjoy greater guarantees about the
safety of their investments than equity holders.
• Lower cost debt financing improving its profit margins.
• The use of debt also has a tax advantage compared to equity financing.
• Debt financing is that allows the founders to retain ownership and control of
the company.
• It provides owners with a greater degree of financial freedom than equity
financing.
Disadvantages of debt financing
• To the use of debt is the financial distress that debt can exert on a company.
• The debt financing is that it requires making regular payment of principal and interest.
• Debt financing is that its availability is often limited to established businesses.
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EBIT-EPS ANALYSIS
The EBIT-EPs analysis is one of the important tools in the hands of financial manager
to get an insight into the firm’s capital structure. The earnings before interest & tax (EBIT) &
earnings per share (EPS) analysis useful in examining the effect of financial leverage to
analyze the behavior of EPS with varying levels of EBIT under alternative financial plans. A
capital structure may consist of debt & equity in different proportions. When EBIT and EPS
analysis is used, the stress is to select the financial plan that will give the highest value of
EPS. Fundamentally, there is no conflict between the two approaches, i.e., financial leverage
and EBIT analysis.
EBIT analysis shows the effect of financial leverage on EPS. Thus, both the
approaches can be simultaneously used for decision-making.
LEVERAGES
Leverages a business term that refers to borrowing. If a business is “leveraged” it
means that the business has borrowed money to finance the purchase of assets. The other way
to purchase assets is through use of owner funds or equity.
One way to determine leverage is to calculate the Debt-to-Equity ratio showing how
much of the assets of the business are financed by debt and how much by equity.
Leverage is not necessarily a bad thing. Leverage is useful to fund company growth
and development through the purchase of assets. But if the company has too much borrowing,
it may not be able to pay back all of its debts.
The degree to which an investor or business is utilizing borrowed money. Companies
that are highly leveraged may be at risk of bankruptcy if they are unable to make payments
on their debt; they may also be unable to find new lenders in the future.
TYPES OF LEVERAGES
• Operating leverage
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• Financial leverage
• Total/Combined leverage
Operating Leverage
The percentage of fixed costs in a company’s cost. Generally, the higher the operating
leverage, the more a company’s income is affected by fluctuation in sales volume. The
higher income vs. sales ratio results from a smaller portion of variable costs, which means
the company, does not have to pay as much additional money for each unit produced or
sold.
Operating Leverage= Contribution (sales – Variable Cost)
Operating profit (Contribution – Fixed Cost)
OR
Contribution
EBIT
Financial Leverage
The use of borrowed money to increase production volume, and thus sales and
earnings. It is measured as the ratio of total debt to total assets. The greater the amount of
debt, the greater the financial leverage. Since interest is a fixed cost (which can be written
off against revenue) a loan allows an organization to generate more earnings without a
corresponding increase in the equity capital requiring increased dividend payments
(which cannot be written off against the earnings). However, while high leverage may be
beneficial in boom periods, it may cause serious flow problems in recessionary periods
because there might not be enough sales revenue to cover the interest payments. Called
gearing in UK see also investment leverage and operating leverage.
Financial Leverage = PBIT
PBT
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Total/ Combined Leverage
A leverage ratio that summarizes the combined effect the degree of operating leverage
(DOL), and the degree of financial leverage has on earnings per share (EPS), given a
particular change in sales. This ratio can be used to help determine the most optimal level
of financial and operating leverage to use in any firm.
Combined Leverage = Operating Leverage × Financial Leverage
Return on Investment (ROI)
ROI analysis is one of the several commonly used financial metrics for evaluating the
financial consequences of business investments, decisions or actions. ROI analysis
compares the magnitude and timing of investment gains directly with the magnitude and
timing of investment costs. A high ROI means that investment gains compare favorably
to investment costs.
In the last few decades, ROI has become a central financial metric for asset purchase
decisions (for example computer systems, factory machines, or service vehicles) approval
and funding decisions for projects and programs of all kinds (such as marketing
programs, recruiting programs and training programs) and more traditional investment
decisions (such as the management of stock portfolios or the use of venture capital).
ROI = Net Income
Debt & equity
Return on Equity (ROE)
Return on equity is a measure of how well a company used reinvested earnings to
generate additional earnings, equal to a fiscal year’s after- tax income (after preferred
stock dividends but before common stock dividends) divided by book value, expressed as
a percentage. It is used as a general indication of the company’ s efficiency; in other
words, how much profit it is able to generate given the resources provided by its
stockholders. Investors usually look for companies with returns on equity that are high
and growing.
ROE = Net Income
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Equity share holder fund
RATIO ANALYSIS
Ratio Analysis is a form of financial statement analysis that is used to obtain a quick
indication of a firm’s financial performance in several key areas. The ratios are
categorized as Short-term solvency ratios, Debt management ratio, Asset management
ratios, Profitability ratios &Market value ratios.
Ratio Analysis as a tool possesses several important features. The data, which are
provided by financial statements, are readily available. The computation of ratios
facilitates the comparison of firms which differ in size. Ratios can be used to compare a
firm’s financial performance with industry averages. In addition, ratios can be used in a
form of trend analysis to identify areas where performance has improved or deteriorated
over time.
RATOS
1. Fixed asset coverage ratio
2. Interest coverage ratio
3. Debt equity ratio
4. Debt to total asset ratio
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